Introduction

Panama is a popular spot for estate planning across countries. Folks love it for keeping their stuff safe, maintaining privacy, and possibly saving on taxes. The legal system is straightforward, the tax rules are friendly, and the financial system is robust. This makes Panama a top choice for securing wealth and ensuring it easily goes to your loved ones when the time comes.

This guide will take a detailed look at Panama trusts and private interest foundations, explaining how they are set up legally, their advantages, and what to think about when using them for international estate planning. We will see how these tools can help protect assets from those you owe money to, keep your information confidential, and deal with the difficulties of estate planning when dealing with more than one country, especially for those living in Panama or considering moving there.

Exploring Panama Trusts

A Panama trust is a legal setup where someone, called the settlor, gives their belongings to a trustee. The trustee then looks after these belongings for specific people, known as beneficiaries. Panama’s laws govern this arrangement, which offers several advantages for managing estates across borders, particularly for those living abroad who want to avoid probate and protect their assets.

The Legal Basis for Panama Trusts

Panama trusts are mainly based on Trust Law No. 1 from 1984. This law has been changed and updated over time to improve it and in line with international standards. It explains the basic rules for creating and managing trusts, as well as the rights and responsibilities of everyone involved. A significant change, Law No. 21 of 2017, brought in updates to modernize the trust business, focusing on being open and accountable.

What Makes Panama Trusts Stand Out

Panama trusts are appealing for global estate planning for several important reasons:

• Protection of Assets: Generally, assets held within a Panama trust are protected from creditors and legal claims against the person who created the trust (the settlor). This is because the trust itself, not the settlor or the beneficiaries, legally owns the assets.
• Confidentiality: Panama trusts offer a good level of privacy. The trust deed, which details the trust’s terms, is a private document and usually doesn’t need to be registered publicly unless it involves property in Panama.
• Flexibility: Panama trust law allows for various trust structures and rules. This allows settlors to customize the trust to fit their specific needs and goals. This flexibility includes choosing which country’s laws will govern the trust agreement, allowing for the inclusion of foreign law provisions.
• Tax Advantages: Panama has a territorial tax system. This generally means that income earned outside of Panama is not taxed in Panama. This can be helpful for those living abroad who have income from other countries.

Different Kinds of Panama Trusts

Panama’s legal system allows for different kinds of trusts, each designed for specific aims:

• Revocable Trusts: The person who sets up this type of trust can still change or cancel it while they are alive. This offers flexibility, but may not provide as much protection for your belongings.
• Irrevocable Trusts: With this type, the person setting it up gives up control of the assets, which offers greater protection for those assets but less flexibility.
• Discretionary Trusts: In this case, the trustee decides how and when to give income or assets to the people who benefit from the trust.
• Trusts for Good Causes: These are set up for charitable purposes, with the assets used to support specific causes.

Choosing the right type of trust depends on what the person creating the trust needs and what their goals are for planning their estate. For instance, a trust that cannot be changed and where the trustee has control might be a good option for someone wanting to maximize the protection of their belongings.

Panama Private Interest Foundations

Panama private interest foundations stand out as a distinctive and attractive option for managing estates across countries, offering an alternative to traditional trusts. Established under Law No. 25 of 1995, these foundations provide a strong structure for shielding assets, maintaining confidentiality, and planning for the future transfer of wealth. Because of these benefits, they are a favored choice for individuals looking to protect their assets and ensure they pass smoothly to their heirs.

How Panama Foundations are Legally Organized

A Panama foundation operates as its own legal body, separate from the person who creates it, similar to a company. Its establishment involves a charter, a legal document detailing its aims, organizational structure, and operational guidelines. A council, generally consisting of a minimum of three individuals, oversees the foundation, managing its assets and working towards its stated goals. The individual establishing the foundation has the option to serve on this council or to designate trusted individuals or organizations as council members.

Advantages of Panama Foundations for Estate Planning

Panama foundations provide several key benefits when it comes to planning your estate, making them an attractive option for those looking to protect their belongings and decide how they are given out:

• Protecting Your Assets: When assets are moved into a Panama foundation, they become the foundation’s property. This protects them from personal debts and legal actions against the person who created the foundation. This separation offers strong protection, keeping wealth safe from potential dangers.
• Keeping Matters Private: Panama foundations offer a good level of privacy. The foundation’s charter and its internal rules are not registered publicly, so details about the foundation’s assets and who benefits from it remain confidential.
• Customizable Plans for the Future: Panama foundations allow for flexible planning for what happens after you’re gone. The person who sets up the foundation can detail in the charter how the foundation’s assets will be distributed when they die. This ensures their wishes are followed without needing to go through probate. This adaptability allows for personalized estate plans that fit specific family needs and situations.
• Avoidance of Forced Heirship Rules: Some countries have laws that dictate how a portion of someone’s estate must be given to certain family members. Panama foundations can help work around these rules, allowing the person who created the foundation to distribute their assets as they wish.

Foundations Compared to Trusts: Selecting the Best Approach

Panama foundations and trusts both serve as valuable instruments for global estate planning, yet they possess unique attributes that make them better suited for different circumstances.

Here’s a breakdown of their key differences:

• Level of Control: Trusts generally allow for greater oversight by the person creating the trust (the settlor) or a chosen protector, who can supervise the trustee’s actions. In contrast, foundations typically give more independence to the foundation council, which manages assets based on the charter’s guidelines.
• Flexibility: Trusts usually offer more flexibility in terms of changing their terms or even canceling them while the settlor is alive. Foundations, once established, are generally designed to be permanent and cannot be easily changed.
• Intended Use: Trusts are often utilized for a broader array of purposes, such as managing assets, supporting charities, and conducting business activities. Foundations are primarily geared towards safeguarding assets and planning for estate distribution.

Deciding between a Panama foundation and a trust hinges on an individual’s specific requirements and goals. If the priority is maximum asset protection and privacy, a foundation might be the better choice. Conversely, if more control and the possibility of making changes are desired, a trust could be more appropriate. It is essential to seek guidance from knowledgeable estate planning experts to identify the most fitting structure for your particular situation.

Protecting Your Assets with Panama Structures

Panama is known as a place that values asset protection, and its trust and private interest foundation options are often used for this reason. Let’s explore how these setups can help keep your assets safe.

Keeping Your Assets Safe from Creditors

Panama’s legal system offers strong protection against claims from creditors, especially those from legal judgments in other countries. The idea that trusts and foundations are separate legal entities means the assets within them are not considered the personal property of the person who created them or the beneficiaries. This separation is key to preventing creditors from seizing those assets.

Consider a situation where someone faces a major lawsuit in their own country. If their assets are held in a Panama trust, these assets are generally out of reach for creditors trying to enforce a judgment from that lawsuit. Panama’s legal system doesn’t automatically recognize judgments from other countries, and creditors would face significant legal challenges in trying to access assets within a Panama trust or foundation.

Maintaining Privacy

Panama’s focus on privacy is another major reason people choose to set up trusts and foundations there. Panamanian law strictly protects the confidentiality of trust and foundation matters. The identities of those who create the trusts or foundations and those who benefit from them are not part of any public record. Also, trustees are legally required to keep this information confidential.

This high level of privacy is very appealing to those who want to keep their financial affairs private. For example, a very wealthy person might use a Panama foundation to hold a valuable art collection, ensuring the details of who owns it remain private.

Considerations for Tax Planning

While Panama’s tax system, which generally only taxes income earned within Panama, can offer potential tax benefits, it’s important to remember that using Panama structures for tax planning needs careful thought and adherence to the tax laws of your own country.

Panama’s tax rules mean that income earned outside of Panama is usually not taxed in Panama. This can be advantageous for people who have income from sources in other countries. However, it’s vital to seek advice from tax professionals in both Panama and your home country to make sure you are following all the necessary tax rules. Not doing so could lead to fines and legal problems.

Estate Planning for Expats in Panama

For those living abroad in Panama or thinking about moving there, planning for their estate involves some unique things to consider. It’s important to understand the different ways to become a resident in Panama, the rules about who inherits your belongings, and the complexities of planning your estate when dealing with more than one country. This is key to protecting your assets and making sure your wishes are followed.

Ways to Become a Resident in Panama

Panama offers several paths to residency that can be helpful for estate planning. These programs can offer tax advantages and make it easier to set up legal arrangements like trusts and foundations. For example, the Pensionado Visa is a popular choice for those who have retired, offering various benefits and simplifying the residency process.

Wills and Inheritance Laws in Panama

Panama’s inheritance laws dictate how your assets are distributed after you die. While Panama generally allows you to decide how your assets will be given out, there are some limits. For instance, rules about forced inheritance might apply, meaning a portion of your estate must go to certain family members, like children or spouses.

It’s important to know how Panama’s inheritance laws work with wills from other countries. Imagine a situation where someone from the US living in Panama has a will written in the US. While Panama usually recognizes wills from other countries, problems can occur if the US will goes against Panamanian law. If this happens, getting legal advice from estate planning experts is vital to ensure your will is valid and can be enforced in Panama.

Challenges of Planning Your Estate Across Borders

Planning your estate when dealing with more than one country means navigating the legal systems of those countries. For people from the US living in Panama, this means making sure their estate plans follow the legal rules in both the US and Panama.

One common issue is dealing with assets located in different places. For example, if a US citizen living abroad owns property in Panama and has bank accounts in the US, it can be complicated to figure out which country’s laws determine how these assets are distributed. Additionally, tax rules can be very different between countries, so careful planning is needed to minimize potential taxes.

To handle these challenges effectively, a comprehensive approach is necessary. Consulting with legal professionals who specialize in international estate planning is essential to creating a strategy that effectively protects your assets and ensures your wishes are followed in all relevant countries.

Setting Up a Panama Trust or Foundation

Selecting a Trustee or Foundation Council

A very important step when establishing a Panama trust for estate planning is choosing your trustee. This individual or entity will be in charge of handling the trust’s assets and distributing them according to the trust deed. It’s vital to select someone or an organization that is trustworthy, dependable, has experience in financial matters, and possesses a strong understanding of Panama’s trust laws. You have the option of selecting either an individual or a company to serve as your trustee. If you decide on a company, ensure it has the necessary license to operate as a trustee in Panama.

Similarly, when forming a Panama foundation, you will need to select a foundation council. This council, which must have at least three members, will be responsible for managing the foundation’s assets and making decisions according to the foundation’s charter. You can choose individuals or legal entities to be members of this council.

Creating the Trust Deed or Foundation Charter

The trust deed is the legal document that officially creates the Panama trust and outlines its terms. It’s important that it clearly states:

• The trust’s purpose.
• Who the beneficiaries are?
• What powers does the trustee have?
• How the assets should be managed and distributed.

A well-written trust deed is crucial for preventing disagreements and ensuring the trust operates as intended.

For a Panama foundation, the equivalent document is the foundation charter. This document details:

• The foundation’s purpose.
• Who the beneficiaries are?
• What powers does the foundation council have?
• The rules for managing and distributing the foundation’s assets.

Registration and Meeting Requirements

Once the trust deed or foundation charter is created, it needs to be officially registered with the appropriate authorities in Panama. This process involves submitting the required paperwork and paying the necessary fees.

After registration, there are ongoing requirements that must be met. These may include submitting yearly reports, keeping accurate financial records, and following Panamanian laws and regulations.

Conclusion

This guide has explored the details of Panama trusts and foundations, showing their significant benefits for planning estates across borders. Panama provides a strong legal system for protecting your legacy through asset protection, privacy, potential tax benefits, and flexibility in international matters. The territorial tax system, along with the confidential nature of Panamanian trusts and foundations, offers a secure environment for those looking to make the most of their estate plans.

However, dealing with the complexities of global estate planning requires careful thought and guidance from experts. It is very important to seek advice from legal professionals specializing in Panamanian law to ensure you are following the regulations of your home country as well as Panama’s legal requirements. By understanding the details of Panama’s trust and foundation laws, you can make informed decisions to create a complete and effective estate plan that protects your assets and carries out your wishes for the future.

Frequently Asked Questions