Panama Foundations for Asset Protection
The Panama Private Interest Foundation is an entity that is a crossbreed between a trust and a corporation. In reality it is neither. A Foundation is an entity that is different from any other legal entity known in Anglo-Saxon law because it is not the legal personification of a person or group of persons (as with a corporation), rather it s a legal entity that does not have owners (share-holders, participants, or partners), and it traditionally has a specific purpose for the benefit of a general group of individuals.
We also need to make the distinction early on between the Panama Private Interest Foundation and the Panama Public Foundation – that is one which operates as a charity for charitable purposes only. Both have their unique uses in offshore planning depending on the client’s circumstances. The discussion here introduces the concept of the Foundation and its origins as well as modern uses.
The Panama Private Interest Foundation is a legal entity that was developed based on the Private Interest Foundation models from three different jurisdictions including the Principality of Liechtenstein, Switzerland, and Luxembourg.
The Panamanian Government carefully designed the Panama Private Interest Foundation with the intentions of creating a more modern, more flexible, and more affordable estate planning vehicle for people from around the globe. The assets of the Panama Private Interest Foundation take on a separate legal identity from the personal assets of the Founder, Protector, Council, or Beneficiaries.
The Panama Private Interest Foundation offers clear advantages for international estate planning, providing the ultimate in privacy, anonymity, and protection to the Protectors, Founders, and Beneficiaries of the Foundation.
The Panama Foundation is a solution to a global need for an affordable, anonymous, flexible, private, estate planning vehicle that can be used to hold assets such as corporations, trusts, bank accounts, investment accounts, real estate, or any other type of asset.
A Panama Private Interest Foundation comes into existence upon its registration in the Public Registry. No approval from any public authority is required. Law No. 25 of June 12, 1995 regulates Panama Private Interest Foundations.
Uses of Panama Foundations
Panama Private Interest Foundations may be established for the benefit of a person or persons, a family, or a specific social purpose. In general, Panama Private Interest Foundations are used by people who wish to control and maintain ownership of foreign corporations, however, they do not wish to own their corporations themselves directly, due to the Controlled Foreign Corporation (CFC) rules in their home countries.
Several highly taxed countries such as the UK, Canada, USA, Australia, New Zealand, France, Italy, Spain, etc. have CFC rules which require that their citizens submit declarations (reports) to the appropriate tax authorities, in which they declare that they are the shareholders of such foreign corporations.
Instead of holding the corporations’ shares in their personal name or in bearer form, they establish a Private Interest Foundation in Panama that holds or owns the shares of their foreign corporation(s), thus avoiding the CFC reporting rules.
Hence, the advantage of using the Foundation as a shareholder for their corporation is to remove ownership from one’s personal name (or through a Bearer Share arrangement), and transfer ownership to the name of a foreign entity which does not have owners, rather has privately appointed beneficiaries, which are anonymous. In this way, there is no question as to who owns the company, since the company’s shares are issued to the Foundations’ name.
The Panama Foundation provides additional advantages other than just ownership. For example, the Panama Foundation can be useful in transferring funds offshore or receiving funds from offshore. In some cases, people use Panama Foundations as vehicles for these purposes.
Some people donate their funds to their Panama Foundations and later use the Foundation to give educational or special grants to their children, grandchildren, or any one else they choose. The advantage in this case, is to avoid fiscal regulations surrounding donations, where some governments impose “gift taxes” and exhaustive reporting requirements.
In general, Private Interest Foundations may not engage in habitual profit-making commercial activities as a corporation can. Nevertheless, they may carry out commercial activities from time to time, as long as the profits of those activities are used for the objectives of the foundation.
Elements of a Panama Private Interest Foundation
The Foundation has a Founder, a Council, a Protector, and Beneficiaries. Below we have explained what role each of them plays in the Foundation:
Founder: The Founder is the person or entity that establishes the Foundation in the Public Registry of Panama. Our law firm is generally the Founder of each Foundation that we establish, since it is our law firm that goes to the public registry to incorporate the Foundation. The Founder has no influence over the control of the Foundation, and is only recognized as the individual who presented the Foundation articles in the public registry when the entity was originally registered.
Council: The Foundation’s Council serves the same purpose as the board of directors on a corporation. The council members are each registered in the public registry with their names, addresses, and identifications as council members to the Foundation. Our firm can either appoint a “Nominee Foundation Council” to fill the council positions, so to provide additional privacy and confidentiality for our clients or the client his or herself can nominate the council.
If that is the case it is best that the client choose non-family members, and/or others who will have no beneficial interest in the Foundation itself. When we appoint a nominee council, we provide our client with pre-signed, undated letters of resignation from each nominee council member so that our client can replace the council at any time. The nominee council has no control over the Foundation or any of its’ assets, they are only there to fill in the blanks in the public registry.
Protector: The Protector is the person or entity who ultimately Controls the Foundation and all assets held within it. The Protector is appointed by the Foundation Council when the Foundation is created, however, once the Protector is empowered, the Protector can then remove the council members at any time without consent of anyone else.
The Protector can be appointed privately, through a Private Protectorate Document, signed by the Foundation Council. Hence, the Protector can maintain this position free of public knowledge.
Beneficiaries: Unlike a corporation that issues share certificates to certify who the owners are, the Panama Private Interest Foundation does not have owners, rather it has Beneficiaries. The Foundations Beneficiaries are appointed by the Protector through either a simple, privately written Letter of Wishes, or through a more formal set of Foundation By-Laws (Foundation By-Laws should be written with the assistance of a Panamanian Attorney).
Either way, the privacy and confidentiality of beneficiaries can be protected through their appointment in the Letter of Wishes, or By-Laws of the Foundation, since the contents of the Letter of Wishes or By-Laws may remain private and need only be known to interested parties.
Also, a Panama Foundation may be set up so that the Protector is the sole beneficiary until his or her death, at which time the foundation continues for the benefit of other beneficiaries. Many like to choose one or more charities as beneficiaries.
Letter of Wishes: The Letter of Wishes is a simple letter, you can call it a living Will, written by the Protector, which specifies exactly how the Foundations assets should be handled or distributed upon a triggering event such as the death or incapacity of the Protector.
The Letter of Wishes should also state whether the Foundation should continue existing, and have a new Protector appointed, or if the Foundation should be dissolved upon the death of the Protector. There is no specific format that the Letter of Wishes must be written, and it can be written or changed at any time after the Foundation is incorporated, per the Protectors wishes.
The Letter of Wishes can be held privately, or can be registered publicly. Generally, most people prefer to maintain the Letter of Wishes privately, so that the Beneficiaries and Protector remain anonymous and private.
A Panama charitable foundation provides international opportunities for wealthy individuals to establish a charitable structure to further their philanthropic goals – while still maintaining a degree of control over how the charity operates and parcels out its funds.
Of course the same would apply if such a charitable foundation were to be set up in the U.S. or U.K. for instance, but there is much red tape, and the fact that everything has to be disclosed to the revenue agencies and to always have them looking over your shoulder can get somewhat tiresome.
What if you could do the same thing offshore, where you would have no reporting requirements in your home country, but you can control how and where the funds are spent?
A wealthy individual with cash, marketable securities, liquid assets, or other assets can irrevocably transfer the assets to a foreign “charity”. A Panama Charitable Foundation is the perfect vehicle for setting up such a charity offshore.
If no deduction or reporting is acceptable, and virtually no governmental oversight is a desired element of the structure, then the assets would be contributed directly to a foreign charity.
Once the assets reach the foreign charity, there will be virtually no onshore connection or oversight with regard to the assets. The country in which the charity is formed ensures fulfillment of the foundation’s charitable mission. There is virtually no oversight by the Panamanian authorities so long as all contributions are derived from outside of Panama.
Each foundation is “custom tailored” for our clients. The foundation can be managed by a “perpetuating board.” That is a group of individuals who will serve as the directors and, who will have the right to re-appoint themselves or their heirs. Hence, control of the foundation can be maintained for generations.
The foreign charity can pay the directors to attend board meetings, and provide him/her with transportation to all board meetings.
There is no reason why some directors cannot be paid more than other directors. Any stipends paid to the client as a board member (or for other services provided to the charity) are includable in his/her income. Further, the client can provide services to or on behalf of the foreign charity and be compensated for such services.
Since a charity is separate from its founders, it offers a unique degree of isolation from creditors and former spouses. A foreign charitable foundation is an excellent vehicle to fulfill your dreams of doing good for society and mankind, immortalizing you goals – and at the same time generate international opportunities.
If you are interested in this rather novel approach to combining offshore asset protection and estate planning with a real charity doing real charitable works please contact us