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 $3,000 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.
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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 our 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 (such as the US). 
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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.

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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 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.
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How to Create a Panamanian Foundation

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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.  
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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.  

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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.  

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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 
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Key Benefits  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.
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The Panamanian foundation offers the best of a trust and the best of an offshore corporation at the same time.
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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 founder does not own the foundation and as such gains important tax reporting and protection benefits with this.
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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 asset protection strategy, please contact our office.         

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