The trust in El Salvador was born as an institution lightly-regulated by the Salvadoran legislation, expressly regulated for the first time by the Civil Code in the year 1860, where the legislator rather than developing the institution established prohibitions for its application, indicating a closed list for its uses. In subsequent years, the trust was regulated by the Trusts Law of 1937, which was expressly repealed by the entry into force of the current Commercial Code in 1971, being the standing legislation for its application.
The creation of the trust arises with the idea of giving origin to an institution that could evade the difficulties that a testator (person who grant a testament) could have at the time of transmitting testamentary, so a person who wanted to favor with his inheritance another person who lacked the ability to be heir, requested a third party to receive the goods and subsequently transfer them to the incapacitated person to receive them. In that sense, the trust had to be executed by a third party who had the complete confidence of the owner of the assets. This institution is maintained to this day in El Salvador, conserving its structure and essential elements but suffering certain changes in their uses, which have modernized and streamlined everyday processes such as project finance.
The creation of the trust arises with the idea of giving origin to an institution that could evade the difficulties that a testator could have at the time of transmitting testamentary...
The Commerce Code sets the basics that define the trust nowadays. Said norm, contrary to the one existing in 1860, does not deal with limiting its application but with regulating it, since the law establishes minimum requirements and solemnities for its improvement, but leaves an ample room for maneuver for the parties, especially for the trustor, who by law can and should indicate the way to execute the trust giving clear and precise instructions to the trustee, which must always be a bank or a legally authorized credit institution.
Within this freedom granted by the legislator, the trust has become a mechanism of practical use currently in El Salvador to guarantee obligations. The guarantee trust has come to replace other frequent use guarantees, like the mortgages and the pledge. Through this trust, the person who becomes a debtor of a financing transmits in property rights, real state or movable property to a bank or financial institution that will act as trustee, who should not have the status of creditor in the obligation that seeks to guarantee with the trust. On the other hand, the trustee must be the one who keeps the assets transferred ensuring the fulfillment of the obligations contracted by the debtor that is constituted as trustor, in favor of a third party that in the trust will have the status of beneficiary; said trust has the characteristic of being irrevocable until the debt or obligation has been covered. Upon expiration of the term of the guaranteed obligation, if the debtor fully complied with its obligations, the trustee must return the assets given in trust to the trustor; if the assets are in default, they will be used to cancel the pending obligation.
The guarantee trust offers advantages that other kinds of more usual guarantees do not grant, since from the beginning of the operation, the assets given in trust are excluded from the trustor's assets, so that in case of default, the execution procedure becomes much more agile, since the trustee is empowered to dispose of the assets in case of default, making it unnecessary to resort to a judicial process to declare the breach, the auction or transfer of the assets given as security. The exclusion of a judicial process is beneficial, avoiding procedures that delay the execution time of the guarantee, eliminating the costs that a litigious process can generate. At the same time, there are advantages for the creditor because with this type of guarantee does not have the risk that could be generated when executing another guarantee in a judicial process, such as breaches of formality that may lead to not having success in the judicial process.