Panama Trusts Part 3
The underlying fundamentals that govern Common law (Anglo-American) trusts have eroded recently. Trusts are not as secure as they once had been. The Panamanian Private Interest Foundation, which is based in Civil law, is worthy of consideration. It is an alternative method of creating privacy and has some attributes that can make it superior to trusts for this purpose.
Most of my clients are seeking to establish privacy foremost. Those who are willing to go beyond the basic ideas, such as opening an offshore bank account, often ask about Panamanian foundations. They have many questions, but the question I hear most is: “What’s the difference between a common law trust and a Panamanian foundation?”
A Panama Foundation operates like a trust but acts like a company. A rough translation of this concept into the ‘common law’ framework would be “an incorporated company without participating shareholders but still having limited liability.” In place of a trustee, a foundation has a management council that acts as a board of directors. Your wealth team will be the foundation’s council. The foundation owns its assets rather than vesting ownership in a Trustee.
A common law trust is governed by its Trust agreement. There is no structure that a trust must follow other than the five basic elements of a valid trust. Every agreement is different. Each trust is open to ‘interpretation’ if scrutinized by the courts. In contrast, much of the foundation’s structure is codified in civil law, it is not open to interpretation like a trust. However, this codification of structure does not impair the ‘flexibility’ of the foundation in accomplishing its purposes just as corporate operational ‘flexibility’ is not impaired by incorporation laws. A foundation even has the flexibility to move itself into, or out of, Panama by changing domiciles.
To establish its legal domicile in Panama, the Panamanian foundation must have a local Registered Agent. You could use a qualified lawyer or law firm as the Registered Agent to add the layer of attorney-client privilege. I would be happy to help you make a suitable arrangement.
A Foundation is created by filing a charter. The charter is registered at the Public Registry in Panama City, in the same way as a Panama company (IBC). The goals and operating terms of the foundation charter can be loose or rigid; whichever you desire. A well-written charter has provisions that allow for changes as the goals and objectives of the foundation change. You are not locked in. The management council retains the ability to deal with contingencies.
The Foundation charter is the only document that is public. It will include the names of the nominees who serve as the management council. The typical approach is to appoint ‘Protectors.’ The Protector(s) is responsible for the day-to-day operations, and operates through a Power of Attorney from the council. As a check on his power, a misbehaving protector can be replaced by the council.
The Protector, perhaps you, a trusted friend, or a professional manager, is the ‘main man.’ He has a fiduciary responsibility to the beneficiaries, and holds sole signatory power over bank and brokerage accounts. The Protector appoints the Beneficiaries in a private document. A well-drafted charter allows him to change the Beneficiaries at any time, without prior consent from any party. A beneficiary does not have to consent to being named a beneficiary; but permission should be gained beforehand to avoid creating an adverse tax situation for the beneficiary.
Often the Protector has the latitude to change nearly any aspect of the arrangement without consent. This in itself offers more flexibility than a common law trust. After a thorough review of your circumstances, you may find that the Panama Private Interest Foundation offers better privacy, security and asset protection than a trust or fiduciary arrangement in advancing your goals.
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