Death and Taxes in Mexico 

Welcome to the biweekly Legal Questions and Answers with Angel Marin Diaz, president and founder of Inmtec Legal Services™ with offices in San Miguel Allende and CDMX, Mexico.

Scott and Teresa, from Tucson, AZ.

Q) – Angel, our question is regarding Capital Gains and Death Tax. Let me put it into context for you, my wife and I are retired attorneys, homeowners and we have 4 children (all in their 40’s). We want to leave our properties in Mexico to our children, as well as a portion of our Mexican assets to the people who have so diligently helped us with living well over the past 17 years, (our domestic help). The true question is, what exposure financially could the family members be looking at, what will the non-family members have to pay to receive an inheritance…as well as what is the best way to do this insuring a non-cost prohibitive transfer of assets, thank you.

AMD

Thank you, Scott, and Teresa for a very important question for all the guest community. While the answer is complex and each case is different, I will give you the general guidelines to better understand “line of succession” (probate) law in Mexico and how it relates to tax liability. Firstly, let’s get rid of a common misnomer…there is NO DEATH TAX in Mexico. Having said this we should not misinterpret it as to understand those inheritors will not pay any taxes. Secondly, all inheritance cases go to probate in Mexico, so a Last Will and Testament is the most important accepted, legally binding vehicle to ensure smooth transmission of patrimony, being real property or liquid assets. Let’s look at the family members first, each direct descendant, capable of showing direct vertical or horizontal lineage can receive real property in Mexico regardless of their migratory status with diminished Capital Gains tax exposure. Often, we are able to reduce taxes to 2% of the taxable appraisal value. Nonfamily members can be taxed up to 25%.

When the heirs are accepted by the court as the legal inheritors the judge will issue an order for the property to be transferred to them which will start a process very similar to the purchase/sale (closing) of a property procedurally. Meaning the property or properties will need to be appraised, due diligence is done i.e., no liens will have to be done, as well as municipal, state, and federal transfer taxes will need to be calculated and paid. A new deed issued before the public faith of a Notario will be issued and registered with the heirs listed as the new owners. The taxes as I have said will be around 2%, explanation: transfer taxes are calculated on a slide-scale, every property with a value over $50,000.00 dollars will be taxed at 4% with the exception of inheritance which will be taxed at 2%. Other costs can be reasonably calculated at 1+ % for the Notarial fees and registrations, assuming there were no back taxes or debt attached to the properties. Additional costs could include Title work, legal fees for the probate trial, and any potential litigation of a contested will. The Capital Gain would (for family members) occur when and if there were a future sale of the home. These taxes can be mitigated and decreased by a number of factors, one of them being residency status. *See other related articles in the Atención legal Colum archives online www.Atencionsma.com * There are many ways of streamlining and alternative routes such as Living inheritance that can decrease the costs and be done efficiently and cost-effectively.

As for the domestic help-family friends, I recommend not making them heirs to percentages of real property but rather liquid assets that are not taxable on the front end of the inheritance. At the end of the day speaking with a professional in estate planning with experience specifically having to do with the ex-pat community and their assets/wishes is highly recommended. There are also programs such as AfterLife™ by Inmtec™ that address these issues as well as Medical Advocacy which often goes hand in hand with this type of responsible planning. Feel free to schedule an in-person first consultation at no cost to address the details and idiosyncrasies of your personal situation.

Again, thank you for such a poignant question at this time in the world we are living in today.