What Is a Trust? A Guide for Latin American Families

A trust is a legal arrangement in which one person hands assets to another to manage for the benefit of others, under rules written in advance. The person who creates the trust stops being, in whole or in part, the direct owner; the person who manages it answers to the beneficiaries; and the beneficiaries receive what the document says, not what a judge decides later.

For a Latin American family with assets in the United States, the trust is one of the most widely used tools for organizing succession. It is also one of the most misunderstood. It is not a Latin American fideicomiso under another name, it does not save taxes on its own, and if it is badly built it can create problems that did not exist before.

What is a trust and how does it work?

A trust has three roles, and one person can hold more than one.

• Settlor or grantor: the person who creates the trust and puts assets into it.
• Trustee: the person or company that manages the assets and is legally bound to act in the beneficiaries' interest.
• Beneficiaries: the people who receive the assets or their income, now or in the future.

The document that creates it, the trust agreement, sets out who receives what, when, and on what terms. For example: the children receive a property's rent until age 30 and the property itself at 35. Those rules stay in force when the founder is gone.

A trust only covers the assets actually transferred into it, which is called "funding" the trust. Assets left outside can end up in probate, the U.S. court process for settling an estate, which is public, slow and expensive.

Revocable or irrevocable: the difference that matters

A revocable trust is one its creator can change or cancel while alive. An irrevocable trust, in principle, cannot be changed once signed. That difference decides almost everything else.

The most common mistake is believing a revocable trust reduces taxes. U.S. federal law includes in the estate any assets a person transferred while keeping the power to revoke or change the transfer (section 2038 of the Internal Revenue Code). The Florida Bar says it plainly: a revocable trust is included in the taxable estate at death.

Trust and fideicomiso: not the same thing

In Spanish, trust is usually translated as fideicomiso, but the two come from different legal traditions. The trust comes from common law and is governed by state law; in Florida, by the Florida Trust Code in chapter 736 of its statutes. The Latin American fideicomiso comes from civil law and tends to be more tightly regulated.

In practice, a family cannot assume its local fideicomiso and a U.S. trust are treated the same by its own tax authority or by the IRS.

When is a trust "foreign" for U.S. purposes?

For the IRS, a trust is a U.S. trust only if it passes two tests at once: a U.S. court can supervise its administration, and one or more U.S. persons control all of its substantial decisions. If it fails either one, it is a foreign trust.

This matters a great deal to a Latin American family. If the founder or a relative living in Quito or Monterrey has power over key decisions, the trust can be foreign even if the trustee is a Miami bank. And a foreign trust has very different tax and reporting rules.

If a child lives in the U.S. and receives distributions from a foreign trust, they must report them to the IRS on Form 3520. The initial penalty for not doing so is the greater of $10,000 or 35% of the amount received.

What changes for a family in Mexico, Colombia, Argentina, Chile or Ecuador

A Latin American family lives between two systems: its home country's and that of the U.S., where its assets are. The trust has to work in both.

• U.S. estate tax. For someone who is neither a U.S. citizen nor a resident, the filing obligation arises when their U.S.-situated assets exceed $60,000 at death. That includes real estate and shares of U.S. companies. We explain it in detail in our guide to U.S. estate tax for foreign nationals.
• The home country's tax authority. Each country decides how it treats a foreign trust: as transparent, as a separate entity, or as something to declare every year. That changes the tax the family pays at home.
• Tax transparency. Tax authorities in the region increasingly exchange financial information with other countries. According to the OECD Global Forum, Latin American countries identified more than EUR 576 million in additional revenue in 2025 thanks to that exchange. A trust is not a place to hide anything.
• A scattered family. Children who study in Boston, live in Madrid or move back to Bogotá. Each residence adds a layer of rules.

That is why order matters. First, define where each family member lives and what assets sit in each country. Then choose the structure. In many cases the trust works alongside an LLC that holds the property; we explain that in how to open a U.S. LLC and bank account from abroad.

The risks of a badly built trust

A trust does not eliminate risk. It moves it. These are the mistakes we see most.

• Empty trust. The document was signed, but the Miami property or the investment account is still in the founder's name. At death, those assets go to probate anyway.
• Revocable, believing it saves taxes. The family thinks it protected the estate, but the assets still count for U.S. estate tax.
• Foreign trust without knowing it. A relative in the home country keeps control and the trust becomes foreign, with reporting and tax treatment nobody anticipated.
• Clash with the country of residence. The trust works in the U.S. but the local tax authority treats it differently, and the family pays twice or falls out of compliance.
• The wrong trustee. A trusted friend with no experience, or an institution that charges a lot and does not know the family. The trustee is the one in charge when the founder is gone.
• Rules without a conversation. The document divides the assets, but nobody talked to the children. The trust becomes a source of conflict instead of preventing it.

First understand what can go wrong. Then choose the structure.

What we have learned

I was barely in my twenties when I met a family that had built, over two generations, one of the most profitable companies in its country. Everything was in the company's name, with no legal or tax shield and no clear succession protocols. When the founder died suddenly, his wife and children inherited not just assets, but conflicts. It was not a bad investment. It was a bad structure.

That day I understood that having a great business is not the same as having great wealth. Wealth without structure is like a house without foundations.

What we have learned at Infinity⁹ working with more than 75 families:

• Structure is the first asset. When a family receives liquidity, the first thing that has to exist is the legal structure: a holding company in a serious jurisdiction, the operating LLCs, cross-border tax advice between the home country and the U.S., and a clear succession plan. The assets go on top of that base, afterwards.
• Investing before structuring is expensive. It is like buying a Ferrari and then discovering you have no garage. The tax friction of a badly designed structure shows up five years later, when it is too late.
• A trust does not replace education. I have seen families leave their children a trust and no preparation. The document protects the assets; it does not prepare the people who will receive them.
• Rules are agreed before they are needed. A trust works best when it reflects agreements the family has already discussed, not when it tries to impose them afterwards.

Frequently asked questions

What is the difference between a trust and a fideicomiso?

The trust comes from common law, and in the U.S. it can be managed by a person or a company. The Latin American fideicomiso comes from civil law and, in countries such as Mexico and Colombia, can only be managed by authorized institutions.

What is a living trust for?

A living trust is used to manage assets while the founder is alive and to distribute them at death without going through probate. It only covers the assets actually transferred into it.

Does a trust avoid U.S. estate tax?

A revocable trust does not, because the assets still count in the founder's estate. A well-designed irrevocable trust can change that result, but it requires giving up control and specialized advice.

What is a trustee?

The trustee is the person or company that manages the trust's assets for the beneficiaries. It has legal duties of loyalty and care, and it makes the decisions when the founder no longer can.

Can someone who lives in Latin America have a U.S. trust?

Yes. But if that person or other non-U.S. persons control the substantial decisions, the IRS will treat it as a foreign trust, with different tax and reporting rules.

Related episodes

• DJ Van Keuren: Keep Your Money Safe For Generations. Why family governance, not the next deal, is what families who lose their wealth lack most.
• Gabriel Florensa: From Family Business to Startup Investor. What he went through after his father's death and why rules are agreed before they are needed.
• Gianfranco Arrigoni: Cultural Change in Family Businesses. Sell, pass on or close: the three exits for a business that depends on its owner.

If your family is thinking about how to organize its wealth between its home country and the United States, you can request a private conversation with our team.

This content is educational and does not constitute legal, tax or investment advice, or an offer of securities. Each family should consult its own advisors.

Sources

• IRS: Some nonresidents with U.S. assets must file estate tax returns
• 26 CFR § 301.7701-7: Trusts, domestic and foreign (Cornell LII)
• 26 U.S. Code § 2038: Revocable transfers (Cornell LII)
• The Florida Bar: Revocable Trusts consumer pamphlet
• Florida Statutes, chapter 736: Florida Trust Code
• Mexico, General Law of Negotiable Instruments and Credit Operations, articles 381 and 385
• Colombia Commercial Code, Title XI: De la fiducia
• IRS: Instructions for Form 3520
• OECD Global Forum: tax transparency progress in Latin America (2026)