The
Panamanian Foundation structure was codified into law in 1995. While
this structure is a fairly new entity for Panama,
the Foundation structure itself has existed
in Liechtenstein for quite some time and the Panamanian structure was in
fact
modeled after the Liechtenstein legislation.
Some advantages a Panamanian foundation has over a Liechtenstein foundation
include; it is far less expensive to create
(A Panamanian Foundations costs less than $2,000 while some firms have
charged
as much as $10,000 to create a Liechtenstein
foundation), it is far less expensive to maintain, it offers more flexibility.
In our opinion,
the Panama Foundation of Private Interest is the best alternative today
to a common law trust or
discretionary trust
structure.
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It is true that most clients are seeking
some way to create a vehicle to reduce tax liabilities and protect their
assets from
lawsuits or claims against their estate.
This is easily understood. The difficulty for many clients is of
course deciding upon
the best plan of action or structure to
use. As a brief comparison, I think most people understand the idea
behind a
corporation and how it works. The
corporation structure is used worldwide to basically carry out a business
enterprise
and keep the owners business assets (and
liabilities) separate from his own. As a separate entity, The corporation
usually
has it’s own tax identification number
and is what can be termed a juridical person. Certainly it is not a human
being, but it
has all of the rights and responsibilities
of a natural person under the law. The key point is that the assets
and liabilities of
the corporation are separate and distinct
from those of the shareholders.
The
trust structure, however, is a vehicle usually only found in common law
countries and is most commonly used as an
estate planning mechanism. The history
of the trust is an interesting one and dates back to the period in England
when
wealthy noblemen and knights were called
to fight in the crusades. In order to protect inheritance rights
and of course family
assets, lands and holdings were placed
“in trust” and were managed by a well regarded friend or family member.
This was
done to insure that the property was not
mismanaged and to also insure that a trusted friend or family member was
present
to make sure the owner’s wishes were carried
out in case of the owner’s death or incapacitation. The trust structure
was
meant to be a safe haven, with the trustee
as the guardian of that safe haven. It was not meant to be a structure
that would
engage in business activities (as a corporation).
Again, under current interpretation in modern law, the trust structure
is in
theory meant to be a separate juridical
person. In this was it also is meant to separate the owner from his
assets and offer
protection under the law.
Like any other entity, the purpose is to keep the owner’s previously held
assets safe and secure
from violation or attachment.
It is unfortunate, but recent court cases
in the US have proved that US judges either do not understand the essence
of what
a trust is meant to be or simply have
made decisions that in essence disregard trust legislation altogether.
For this reason,
any trust structure that is a domiciled
in the US and some other common law countries are not worth the paper they
are written on.
This is not to say that the laws in these
countries are always poor regarding these structures. The real current
problem is that
those upholding the law (judges and court
systems) have chosen to disregard the law or interpret the law in such
a way that no
real protection is offered with these
type of structures. This is why we strongly prefer Civil Law jurisdictions
over those based
upon common law. Part of the reason
is how the legal systems in these countries operate.
How
to Create a Panamanian Foundation
The
Panamanian Foundation can be created by one or more natural persons or
by a juridical entity, such as a corporation.
A foundation charter is created, which
is essence, is similar to the incorporation documents created for a Panamanian
company.
Like the incorporation documents, The
foundation charter document is public record. The foundation structure
is directed by a
council of three or more members.
This is similar to a corporation, which is directed by three directors
or board members.
These directors of the foundation are
called Council Members. In addition, like a trust, a private protector
may be named to
have special oversight authority.
I usually suggest that the client take this position, especially if nominee
council members are
being used. The position of a protector
is not required, but it is advisable. While the position of protector
can be a private
agreement between the foundation and the
person acting as protector, extra protection is given to the client when
this position
is spelled out in the foundation charter.
The Foundation Charter must contain:
Name of the Foundation
– The name of the foundation can be
expressed in any language, but must contain the term foundation
as part of the title to indicate that
the entity is in fact a foundation structure.
The Initial Patrimony
- The initial patrimony is the amount
used to fund the foundation. The foundation can be funded in any
currency, but the initial patrimony cannot
be less than the equivalent of US $10,000. An important
point to note is that this initial
funding or contribution does have to be
done at the time the foundation is created. Rather it can be done
after the fact.
In reality, there is no public record
of the foundation assets other than the fact it was originally funded with
ten thousand dollars.
Council Members
– The foundation structure must have
a minimum of three council members who are natural persons
or a juridical person, such as a corporation
that has three natural persons as directors. The names and addresses of
the
council members is public record.
The Purpose of
the Foundation - The
foundation may be created for any lawful purpose. Examples of such
purposes
could include; the maintenance and welfare
of minor children, a college scholarship fund for any person, the maintenance
and welfare of the founder upon his or
her retirement, the maintenance of a building or property, the benefit
of any charitable
foundation or organization, or any other
purpose that the founder can think of that is within the confines of the
law.
Beneficiaries
– The foundation structure, like a
trust document, must name beneficiaries and also what percentage each
beneficiary is entitled. The foundation
charter must also indicate how assets are to be distributed upon its dissolution.
The founder of the foundation, or the
client, Can be named as a beneficiary.
Domicile
– The domicile of the foundation can
be located or indicated as any desired jurisdiction, but it is suggested
that
Panama or another civil law jurisdiction
be used.
Resident Agent
– The foundation must have a local
resident agent which is a duly authorized lawyer or law firm, with a
physical presence in Panama.
Duration of the
foundation – The
foundation can have a limited life span if the client wishes to indicate
as such.
Advantages
of the Panamanian Foundation
The
Assets placed inside a Panamanian foundation are sole and separate property
and cannot be seized to satisfy any
personal judgements or obligations of
the founder or the foundation’s beneficiaries. Assets inside a Panamanian
foundation
cannot be attached in order to satisfy
any claims against the founder, including judgements for divorce, lawsuit
and other liabilities.
"The Panamanian
foundation offers the best of a trust and the best of an offshore corporation"
While the foundation cannot technically
engage in business activities, it can own the shares of a company engaged
in business
activities. It is also permissible
for the foundation to engage in any activity, which will increase the value
of assets. This means
that a foundation can be the owner of
bank accounts, securities brokerage accounts and real estate holdings.
Since
there are no shares of ownership in a Panamanian foundation, the founder
does not own the foundation and as such
gains important tax reporting and protection
benefits with this.
In reality, there are quite a number of
practical uses and strategies for the Panamanian Foundation. As an
asset protection
vehicle, there is probably no better entity
in any jurisdiction at the present time for this purpose. For more
information on how
to use a Panamanian foundation as part
of an overall asset protection strategy, and to hear about ways we have
assisted
other clients, please contact our office.
For
Additional Information Regarding the Use of a Foundation and other vehicles
for asset protection, please send us an Email.