| ARTICLES & INFORMATION SECTION : OFFSHORE TRUSTS and FOUNDATIONS |
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A Civil Law alternative to the Trust Structure .
Many clients are interested in setting up a type of entity
that offers true asset protection and are not necessarily interested in
operating a formal business entity with that structure. To state this
another way, some clients may be investigating the idea of an Offshore Corporation
or Trust structure, but in reality there may be a better vehicle to choose
if asset protection and tax savings are the two primary goals. One
such vehicle is the Panamanian Foundation.
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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 and maintain, and
it offers more flexibility.
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To understand the idea and benefits of the foundation structure,
clients should first understand the difference between a trust and a corporation.
It is also important to note the difference between English speaking countries
that use Common law and many non-English speaking countries that use Civil
Law. I mention both these points because, in fact, the Panamanian
Foundation structure offers some of the best benefits of both the trust
structure and offshore corporation in one. Also, in my opinion, a
structure domiciled in a Civil Law jurisdiction is the better choice for
a client that is resident or domiciled in a Common Law country.
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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 or those persons operating the company.
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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 regard 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.
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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 I strongly prefer Civil Law jurisdictions over those based upon common
law. Part of the reason is how the legal systems in these countries
operate.
. 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.
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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.
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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.
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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.
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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.
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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. . 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. Stated
another way, 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.
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The Panamanian foundation offers the best benefits 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.
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Since there are no shares of ownership in a Panamanian
foundation, the client can be satisfied that (for reporting purposes in
some jurisdictions), they do not have to report stock ownership as would
be the case if the client were to establish a stand alone corporate entity
with themselves as the majority shareholder.
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Based upon the Liechtenstein Foundation Structure, which
can cost a client up to US$ 10,000 to create, the Panamanian Foundation
offers greater flexibility and costs under US $3,000.
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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 program, and to hear about ways we have
assisted other clients, please contact our office.
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This information was provided by John Schroder, Ascot Advisory Services. For additional information or to send an email via a reply form ~ Please Click Here |