Panama Trusts Part 1
Panama Private Interest Foundations are an alternative to Anglo-American trusts as a means of protecting assets. Trusts are a familiar element in the legal systems that are descended from English common law. As a former colony of the Spanish Empire, Panama’s legal code is a descendent of the Civil law system which has roots in the Napoleonic Code. As a result some of the concepts and strategies used for asset protection within Panama may not be familiar to those whose knowledge is based in Common law. This article explains more about how this vehicle can help you protect your assets, develop true wealth, and provide for your chosen beneficiaries.
While the Foundation structure, incorporated under Panamanian Law 25 of 1995, is a fairly new idea for Panama, the idea itself is not new. The law governing Panamanian foundations is based on the Stiftung and Anstalt (“Family Foundation”) laws, which were originally codified in Liechtenstein in 1926. Wealthy citizens of the continental European nations have been using Family Foundations as an estate and inheritance planning and asset protection tool since then. So, the nature of the Panamanian foundation is understood and appreciated by many continental Europeans; however, a Panama Private Interest Foundation is less expensive to establish and maintain, offers greater privacy, and perhaps most importantly offers the better flexibility than similar forms domiciled in Liechtenstein. The Panamanian Foundation, like the Anstalt, offers the best features of the Trust structure and offshore corporation in one entity.
To fully appreciate the benefits that can result from the Foundation structure, you first must understand the differences between a corporation and a common law (Anglo) trust before we can begin a discussion of Civil law Foundations.
The concept of a corporation is global and well understood. Corporations around the world operate along similar lines. Corporations are designed for doing business. Although they can be structured to hold assets, assets are usually held for the purposes of advancing the corporate interests. A corporation is a legal entity, separate and distinct from its owners or managers. It has all of the rights and responsibilities of a natural person under the law. It can sue or be sued in its own name, sign contracts, or take on debts in its own name, without creating a liability for its owners. The liability of the owners is limited to their invested capital; that is the key point. No court in any jurisdiction would entertain an argument to the contrary (except in cases of deliberate fraud).
A trust is a different vehicle; it is designed to hold assets in safe keeping for a designated beneficiary (or beneficiaries). A grantor trust does not have a separate legal personality from the grantor. Trust assets can be attached in the event of judgment against the grantor. Title to the Trust assets is held by a Trustee. Common law recognizes that the Trustee is holding those assets as a fiduciary responsibility to another person. Judgment against a Trustee or bankruptcy by the Trustee has no effect on the assets of the Trust; they can not be attached to satisfy the trustee’s creditors.
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