Panama Trusts Part 2
There are two major problems with Common Law trusts:
• The Trust concept is grounded in Common Law and does not exist in Civil Law. This can lead to odd interpretations of Trust agreements by those grounded in Civil Law. If a country where assets are located interprets trust law differently from the domiciliary country of the Trustor, the results could be unexpected. As more people are choosing to live, invest, retire, and do business in the global economy, this problem is becoming more prevalent.
• Second, trust rights have been under pressure from many sources in recent years, even in Common Law countries. Grantor trusts have never shielded trust assets from attachment by creditors, tax authorities, or greedy ex-spouses; irrevocable trusts are used for that purpose. However, the statutes that concern “fraudulent” transfer to irrevocable trusts have changed. The timeframe in which the assets are in jeopardy has been extended, and the definition of ‘fraudulent’ has been watered down.
For these reasons, and in particular the second reason, Trusts that are domiciled in the U.S. and other common law countries may not be as secure as previously thought. This is not to say that the laws regarding these structures are poor. The laws are good. The problem is one of interpretation and of courts reacting to political expediencies. Overall, common law trusts are not as powerful an asset protection vehicle as they once were. When you become serious about protecting your assets, you should choose the most secure vehicle available to you.
There is nothing inherently wrong with offshore trusts, although some writers try to infer that anyone who owns such a vehicle has ‘something to hide’ and must therefore be guilty of ‘something.’ Offshore trusts and offshore banking can be ideal vehicles for establishing privacy, and for tax and inheritance planning in some circumstances. There are a significant number of privacy havens offering trusts. Each jurisdiction has tailored its laws and jurisprudence in slightly different manners, so offering a comprehensive examination of ‘acceptable’ and ‘improper’ types of trust is not possible here; that effort could fill several thick volumes. So, in summary, the main difference between trusts and corporations is that trusts are designed for holding and preserving assets, while corporations are designed for doing business.
Where does the Panama Private Interest Foundation, which is a Civil law Foundation, fit into the spectrum of available tactics?
The Panamanian foundation offers the best features of a trust and the best features of an offshore corporation. There are no shares in a Panamanian foundation, so it has no ‘owners.’ The founder does not own the foundation and through this separation gains important tax reporting and asset protection benefits.
While the foundation cannot engage directly in business activities, it is an excellent vehicle for owning the shares of a company engaged in business activities. Since the foundation has a fiduciary responsibility to its beneficiaries, the foundation is obligated by law to make the assets of the foundation productive. This allows the foundation to engage in any activity designed to increase the value of assets, meaning that a foundation can be the owner of bank accounts, securities brokerage accounts, real estate holdings, and can be the sole shareholder of a corporation.
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