Overview of the Impacts of Dual or Multiple Tax Residency on Estate Planning in Mexico

Introduction

As families and individuals become increasingly global-living – investing, working and raising children across multiple countries – their legal and tax footprints grow more complex. This is particularly true when it comes to estate planning. The interaction of multiple tax residency rules, nationality-based tax systems and cross-border asset ownership can lead to unintended consequences, such as double or even triple taxation, conflicting legal obligations, and the risk of inefficient or unenforceable planning structures.

This article provides an overview of the key issues that arise when dual or multiple tax residency overlaps with estate planning for individuals with ties to Mexico. It highlights the main categories of taxes that affect wealth globally, explains how different legal systems may characterise the same person or structure in divergent ways, and underscores the importance of recognising these differences when planning for asset protection, succession and intergenerational wealth transfer.

While Mexican law offers flexible and effective estate planning tools – such as wills, fideicomisos and/or donation agreements – these must be evaluated in the broader context of foreign tax systems and international legal frameworks. Properly navigating this landscape requires early, customised and co-ordinated planning, especially for individuals with complex family, financial or national profiles.

Dual or multiple tax residency: basic concepts

Each country has its own domestic rules to determine who qualifies as a tax resident, and these rules are not harmonised internationally.

In general, most countries consider a person to be tax resident – and thus subject to tax on their income (mostly on a worldwide income and only a few on a territorial income basis) – if they have a close personal connection with the country. This connection can be based on domicile, residence or even their citizenship/nationality.

Because these criteria vary from country to country, it is entirely possible for a single person to be treated as a tax resident under the laws of two or more countries at the same time, giving rise to a double tax residency conflict. When this happens, each country may claim the right to tax that person’s entire global income (this is called full tax liability), leading to double or multiple taxation on the same income in hands of the same person.

Consider the case of an individual who owns a home in both Mexico and the UK. This person spends more than six months each year in the UK, receives over 50% of their income from dividends paid by a Mexican company, and is also a US national. Based on the domestic tax rules of each of these three countries, the individual may be considered a tax resident in all of them simultaneously.

Under UK law, spending 183 days or more in the country generally results in automatic tax residency. In the USA, nationality alone is enough to trigger full tax liability, regardless of where the person lives. In Mexico, having a dwelling available within the country (as an owner or tenant) meets residency rules. Therefore, if the person has two or more available dwellings in other countries, the tie-breaker rule for Mexican purposes is based on where the majority of their income is derived or the centre of their professional activities is located.

As a result, this individual could be subject to worldwide taxation in three different jurisdictions, and exposed to a combination of income tax (Mexico, UK, US), estate or inheritance tax (US and UK), and capital gains tax (UK, as a specific tax separate from income tax).

Taxes on wealth

Understanding how different countries define tax residency is only part of the picture. To fully grasp the implications of being a tax resident in more than one jurisdiction, it is also necessary to understand the types of taxes that may apply to an individual’s wealth. The Subcommittee on Wealth and Solidarity Taxes of the United Nations (Subcommittee on Wealth and Solidarity Taxes, Guidance as of March 2024, Appendix A to document E/C.18/2024/CRP.2) has summarised these into three main categories:

• Capital income taxes, which apply to income generated by assets such as interest, dividends and capital gains (eg, Mexican income tax or the UK capital gains tax);
• Taxes on the transfer of wealth, such as estate taxes, inheritance taxes and gift taxes, which can vary depending on whether the tax is triggered at the level of the donor or the recipient (eg, the US federal estate tax and state-level inheritance taxes); and
• Taxes on the stock of wealth, which are levied on the ownership of property or other assets, often on a recurrent basis (eg, property taxes or net wealth taxes).

These taxes may apply individually or in combination, and they often operate under very different rules across jurisdictions, creating complex overlaps that require strategic estate planning.

These kinds of overlaps between tax systems are not merely theoretical; they have real financial consequences, particularly for individuals with international lives and global wealth.

When designing an estate plan, failing to consider how multiple tax residencies (or even nationalities) interact can lead to unnecessary tax burdens, double taxation at death, or compliance issues across jurisdictions. For individuals with ties to Mexico, it is therefore essential to approach estate planning not just through a local lens, but with a clear understanding of Mexico’s tax rules and how they interact with foreign regimes. The next section outlines the key estate planning fundamentals under Mexican law and highlights the aspects that become especially relevant when navigating cross-border situations.

Estate planning fundamentals in Mexico

A good estate plan begins with identifying the assets owned by an individual and where those assets are located, as well as understanding the tax obligations that apply to such person and their beneficiaries. Assets of relevance commonly fall into one of three categories: real estate, equity interests (such as shares in a company), or cash or cash equivalents. Since tax obligations usually (but not always) depend on the individual’s tax residence(s), the best plan will vary based on where such assets are held and which taxes apply to such person and their beneficiaries.

For instance, real estate properties located abroad cannot be easily contributed to foreign vehicles. When a Mexican tax resident owns real estate located in the USA, contributing that property to a Mexican fideicomiso may not be the most effective strategy, as it typically does not provide protection against US estate tax. In such cases, it may be more appropriate to hold the property through a foreign entity or structure that is specifically designed to offer estate tax protection under US law while being compliant with Mexican legislation.

After mapping out an individual’s assets, the next step is to design and create a plan that meets such person’s goals while addressing their current and potential future tax obligations (and those of their beneficiaries). In Mexico, the most common estate-planning tools include wills, fideicomisos (most commonly translated as “trusts”) and donation agreements, since there is no inheritance tax or tax on donations when such donations are made between spouses and/or between parents and children.

Under Mexican law, a will is a personal, revocable and voluntary document through which a legally capable person sets out instructions about how to handle their assets, rights and sometimes obligations after death. As in many other countries, in Mexico the will is the backbone of estate planning, since it is the legally binding document for individuals to determine how their estate will be distributed, appoint heirs, legatees and executors, and address other matters related to their succession such as the appointment of legal guardians and supervisors for minor children.

Two points are especially important when setting up a will: (1) wills have universal effects (that is, a will granted in one country should be recognised by another country) and (2) generally speaking, a subsequent will revokes any prior wills. Therefore, a will granted in one country will revoke any prior wills granted anywhere else in the world unless such subsequent will clearly and adequately references the survival of a prior will.

A fideicomiso is a contract whereby a person (settlor) transfers certain rights and/or assets to a trustee – a financial institution – for the fulfilment of certain purposes in benefit of one or more beneficiaries. In Mexican estate planning, fideicomisos are frequently used to manage assets like shares or other equity participations, cash and cash equivalents, and real estate properties intended to be shared among beneficiaries.

Fideicomisos are legally binding – yet flexible – documents that allow patriarchs/matriarchs the possibility of creating an estate that is legally separate from their personal estate for their own or their beneficiaries’ or successors’ benefit without losing beneficial control of such estate. Furthermore, fideicomisos offer the possibility of customising how decisions are made (who and until when is that person/committee allowed to make decisions regarding the estate) and who is considered a beneficiary (who is and is not entitled to benefit from the estate), and setting up rules for the allocation of expenses among beneficiaries, the distribution of profits or the exercise of economic and corporate rights, among others.

From a tax perspective, fideicomisos created for estate planning and succession purposes are considered transparent vehicles for Mexican tax purposes. This means the fideicomiso itself is not treated as a taxpayer, and all tax obligations are attributed to the individuals involved, depending on who is considered to benefit from the trust under applicable tax law (either the settlor or the beneficiary).

A key feature of Mexican fideicomisos is that when the settlor contributes assets but retains the right to recover them in the future (a reversionary right), the contribution is not treated as a transfer for tax purposes. In that case, the settlor remains responsible for reporting any income generated by the assets held within the fideicomiso.

On the other hand, if the settlor contributes assets without retaining a reversionary right, and the settlor is not the beneficiary of the fideicomiso, the contribution is considered a taxable transfer to the beneficiaries; therefore, the beneficiaries are considered the taxpayers and must report the income for tax purposes.

In cross-border situations, this transparency may create mismatches with foreign tax systems, especially in jurisdictions that view trusts or similar vehicles differently – either as separate taxable entities or as opaque for tax purposes. As a result, individuals using fideicomisos to hold foreign assets or benefit foreign residents must carefully consider how both Mexican and foreign tax authorities will characterise the structure. Failure to align both tax perspectives may lead to double taxation, reporting mismatches or the loss of certain planning benefits.

Donation agreements are another instrument commonly used in estate planning structures to effectively transfer property – and thus, control – of assets or rights during the donor’s lifetime, more so considering that assignments to and/or from descendants and ascendants are generally exempt from income tax in Mexico.

However, when a Mexican resident makes a gift to a descendant who resides in a country that imposes a gift tax (such as the USA), the transfer may trigger taxation in that country if it exceeds the local exemption thresholds. In such cases, a direct gift may not be the most efficient option, and it may be worth exploring alternative structures – such as contributing the assets to a trust – that could offer more efficiency.

International treaties as a tool to afford efficiency or protection

Double taxation conventions

When an individual meets the criteria to be considered a tax resident in more than one country under each country’s domestic law, bilateral tax treaties to avoid double taxation can play a crucial role in resolving these conflicts. (It is important to note that the Multilateral Instrument introduced by the OECD as part of the BEPS project does not modify the tie-breaker rule for individuals but only for juridical persons; therefore, it is not considered in this analysis.) Most of these treaties include a “tie-breaker” rule that applies a series of tests – such as the location of the individual’s permanent home, centre of vital interests, habitual abode and nationality – to assign a single country of residence for treaty purposes. This mechanism can be effective in situations of dual residency, where only two countries are involved, and helps avoid overlapping claims over a person’s worldwide income.

However, these treaties are bilateral in nature and may fall short when a person is simultaneously considered a resident in more than two jurisdictions. In multiple tax residency cases, tie-breaker rules alone may not provide full relief. Additional planning strategies may need to be considered – such as relinquishing a permanent home in one country, reducing the number of days spent in a particular jurisdiction or, in the case of US citizens, even evaluating the implications of renouncing US nationality.

Practical Recommendations

As explored throughout this article, individuals with dual or multiple tax residencies face unique challenges in estate planning, including the risk of losing investment protection and of double taxation, conflicting legal regimes and complex cross-border asset management. The following practical recommendations are designed to help navigate these complexities, ensuring that estate plans remain effective, compliant, and aligned with personal and family objectives.

• Be proactive and have a plan. It is essential to have an estate plan in place, even if circumstances may change in the future. Tools such as wills and fideicomisos can be updated as needed, but the absence of a plan can lead to legal disputes, tax inefficiencies and unintended outcomes. Early planning provides a solid foundation for asset protection and succession.
• Seek multi-jurisdictional advice. Remember that the tax consequences of estate transfers depend significantly on the tax regime or regimes applicable to both the individual and their beneficiaries. To avoid losing investment protection and/or being subject to double taxation, as well as to ensure compliance, seek professional advice in all relevant jurisdictions and facilitate clear communication among advisers in each country involved. This co-ordination helps prevent conflicting strategies and overlooked obligations.
• Laws and circumstances change. Allow for flexible structures. Periodically review your estate planning structures to ensure they remain effective and reflect current legal requirements and family situations. Regular updates help maintain the integrity and efficiency of your estate plan.

Conclusions

The increasing mobility of individuals and the globalisation of families and assets have made estate planning significantly more complex, particularly for those with dual or multiple tax residencies. As this article has explained, each country applies its own domestic criteria to determine tax residency, and in many cases, a single individual may be considered a full tax resident in more than one jurisdiction. This can lead to exposure to worldwide taxation in multiple countries, often without co-ordination between tax systems.

In addition to conflicting residency rules, the types of taxes applicable to wealth – from income and capital gains taxes to estate, inheritance, gift and property taxes – vary from one country to another. These taxes may apply simultaneously and may make it easy for well-intentioned structures to generate unintended tax liabilities or reporting mismatches.

In Mexico, estate planning tools such as wills, fideicomisos and donation agreements (among others) can provide effective mechanisms to protect and transfer assets from generation to generation. However, when dealing with international elements – such as foreign beneficiaries, assets abroad or multinational family structures – local solutions may fall short if foreign tax rules and legal frameworks are not also considered.

While tax treaties can offer meaningful relief in certain cases, their applicability must be carefully assessed on a case-by-case basis. These instruments may provide important protections – such as residency tie-breakers or exemptions from specific taxes – but they were not designed as estate planning tools per se. As such, their benefits may be limited or insufficient in more complex scenarios, particularly those involving multiple residencies or jurisdictions that do not have a treaty in force. Strategic reliance on a treaty should therefore be approached with caution and complemented by broader, personalised planning measures.

Similarly, investment protection treaties – such as bilateral investment treaties or provisions in trade agreements – may offer safeguards for cross-border investments, but often exclude nationals of the host country, including dual nationals. For individuals with complex nationality profiles, this makes it essential to evaluate both the tax and legal consequences of maintaining or relinquishing certain nationalities as part of a comprehensive planning strategy.

Ultimately, estate planning in a cross-border context demands both anticipation and customisation. There is no ‘one size fits all’ solution. Families and individuals with multinational footprints must begin planning early, seek co-ordinated advice from professionals in all relevant jurisdictions, and design flexible structures that can evolve over time.

A proactive, personalised approach not only helps minimise tax exposure and preserve family wealth; it also ensures legal certainty, protects future generations and avoids unnecessary disputes. In a world where tax residency and wealth structures increasingly span borders, thoughtful international estate planning is no longer optional – it is essential.