• The Legal Concept of Trust in Honduras
  • October 25, 2012
  • Law Firm: CENTRAL LAW Honduras- Medina Rosenthal Asociados - San Pedro Sula Office
  • In Honduras the legal concept of trust is governed by the Commercial Code. It defines the trust as a legal transaction by which a bank is appointed as a trustee who is authorized to operate the domain ownership over certain assets with the limitation to perform only those acts required for lawful purposes and pursuant to which they are determined.

    The definition suggests several implications such as:

    a) The role of trustee in Honduras is limited only to financial institutions;

    b) The transfer of domain ownership of certain goods to a bank trustee (the person which performs the transfer of ownership is called the settlor; the  domain owner of the assets is called the trustee and the person which receives the benefit of the trust is named beneficiary). c) The trustee can only perform acts that are mandated by the trust agreement.

    The trust is a contract which transfers ownership or transfers the domain ownership of certain assets to a trustee which acts as a manager of the assets to meet a specific purpose (or more) duly stipulated between the parties in the trust.

    The trust may be constituted by by contract and by will, and the consent must be express.

    There are three fundamental subjects in the trust agreement: a) The settlor, who gives the property in trust; b) the trustee who manages the property matters in the trust (and in Honduras can only be a bank), c) the beneficiary, who will receive benefits and / or fruits of the trust.

    Who can be settlors? Individuals or legal entities that have the capacity to make the allocation of the trust property involved and also the judicial or competent authorities in the case of goods whose care, conservation, management, liquidation, distribution belong to such authorities or persons designated by them. Capacity means that they are legally eligible to perform such an act: adults, use of mind and in full enjoyment of their civil rights.

    The assets under the trust cannot be touched by third parties. Moreover, the beneficiary may be the same settlor or a designated person that cannot be assigned by the trustee.

    Trustees and beneficiaries may be both natural and legal persons who have the capacity to receive the benefit that the trust involves. The real objects of the trust (trust property) can be assets and rights of every kind except those expressly reserved as private personal of the owner. Such assets and rights shall be exercised only in the trust provided they are lawful and determined.

    Whenever the trust has been constituted as a fraud to third parties it may be challenged by the applicant.

    Also, it is expressly prohibited the following: a) secret trusts; b) those in which the benefit is granted to different people successively to be replaced in case the beneficiary person dies c) those with a duration longer than 30 years when a legal person other than a public or charitable institution is appointed as a  beneficiary.

    The trust ends when the purpose for which it was constituted is finished;  when it is impossible to fulfill; when the condition on which it depends is impossible to be performed or when it has not been verified within the period specified in the constitution of the trust or within 20 years after its constitution; by express agreement between the settlor and the trustee; for revocation of the trust when it has been reserved in the trust; when the trustee resigns or has ceased his function and cannot be replaced.

    On 22nd of  September 2010 I had the pleasure to participate at the Latin American Congress of Trust   “The trust and its practical application in Latin America" .....held at the Intercontinental Hotel in Tegucigalpa, Honduras.

    The event was attended not only by lawyers but also by members of the banking and financial sector in Latin America. The conference brought together distinguished speakers from Mexico, Colombia, Venezuela and Honduras.

    The topics of discussion revolved around the proper use of the trust in Public Private Partnerships, an issue that is booming due to the recent adoption of the Law on Public Private Partnerships in Honduras; the trust agreement under the consumer protection and users; the use of the trust in different pension schemes; arbitration awards; the fiduciary responsibility and prevention of money laundering and terrorism financing in financial operations.

    It was an interesting opportunity to exchange points of views and update about trusts in the global market.

    To conclude, the trust is a legal form of great significance for financial and tax planning both for individual and companies. The constitution and operation necessarily imply the advice of lawyers skilled in the field.

    *Published by financial newspaper Moneda, October 2010