One of the most common questions we receive is: What happens with my assets in Panama when I die? What kind of rights and/or obligations will my heirs have under the laws of Panama or even overseas?

If you do not have a Testament in Panama or if you have one, in fact in both cases, all assets in Panama will be subject to a judicial probate in Panama. With the aim to transfer all property rights of all assets that belonged to the deceased to his/her heirs, a procedure that our legislation calls SUCCESSION. What is complicated about this process is how long it takes and how expensive it is to your heirs, because the lawful fee structure for lawyers in Panama (by the National Bar Association of Panama) establishes a minimum legal fee of 15% of the total value of the estate. While the average time frame to complete the succession and administer the estate is one to two years. Which means that practically after having inherited a debt with the lawyer your heirs must wait one to two years in order to receive the final decision of the Panamanian Judge and finally accept their inheritance. 
 

For this reason, a Private Interest Foundation in Panama directly competes with a Trust as a vehicle for wealth and estate management, permitting separation of assets between the founder and the beneficiaries, but without necessarily losing control of such assets, as it happens in a Trust.
 

A Panamanian Private Interest Foundation is the combination between a corporation and a will. In general, a foundation has some similarities with companies; once registered in the Public Registry of Panama, the assets of this legal entity are kept separated from the incorporators, considering that they are created to maintain the confidentiality of the owners of the mentioned assets. 
 

Foundations differ from corporations in relation to the presence of an owner, or the need to issue share certificates (corporations). Unlike a Corporation, a Private Interest Foundation can be created as a tool for a living will.
 

A Private Interest Foundation is created when one or more natural or legal persons formalise a document called the “Foundation Charter”, which must be registered in the Public Registry of Panama. By means of this act of incorporation, the members commit to offer a declared value of no less than $10,000.00 USD as Initial Capital or “Assets of the Foundation” (Panama Foundations do not require Paid-In Capital.). This amount may be raised when additional assets are aggregated to the foundation. This amount may be endowed at any time, being only a declarative amount for tax purposes when the Foundation is registered. The assets will be managed by the Foundation Council under the supervision and authorisation of the “Protectors”, for the benefit of the “Beneficiaries” or “Successors”.
 

The main focus of Private Interest Foundations in Panama is to provide asset protection. For this reason, the Law provides that the Founder may designate natural or legal persons as professional advisers, auditors, supervisory or protection bodies, and any others to supervise that the foundation achieves its purposes, that the rights and interests of the beneficiaries are protected, to request accountability from the Foundation Council, supervise the management of the assets of the foundation and to ensure these are used for the purposes described in the Foundation Charter.
 

MAIN CHARACTERISTICS OF PRIVATE INTEREST FOUNDATIONS IN PANAMA

Below is a description of the main characteristics of Private Interest Foundations in Panama:

- Asset Protection: For legal purposes, the assets of a Private Interest Foundation in Panama constitute a separate entity from the assets of its founder and those of the beneficiaries, preventing asset seizure, confiscation or any other action or precautionary measure, except for obligations incurred in, or damages caused when carrying out the purposes of the foundation, or related to legitimate rights of its beneficiaries.

- Foundations can be holders of securities and are able to receive dividends from company shares.
 

- Considering that Foundations are not contingent on the life or death of their founder, they have a permanent character subject to the terms established in the Foundation Charter, which makes Foundations similar to Trusts, Corporations, and Testaments, avoiding the testamentary proceedings and probate. A specific duration may be stipulated for the Foundation in the incorporation document where the Foundation is created, and then it may be registered.
 

- The Law regulating Private Interest Foundations indicates that all members of the Foundation Council, Protectors, or any entity that is related to the legal activities of the Foundation, must maintain strict confidentiality, even after the Foundation’s dissolution. Any breach to this provision constitutes a crime that has a penalty of six (6) months in prison and a $50,000.00 USD fine.
 

- The Law does not require that the names of the Beneficiaries or Protectors are disclosed or published in the Public Registry or in a Public Deed. This shows how with the new regulations governing bearer shares and the taxes that must be paid after a transfer of corporate shares, Private Interest Foundations and its by-laws have become the new legal vehicle, providing confidentiality in all aspects, and replacing the legal figure of bearer shares as used in companies.
 

- They are not required to file annual Income Statements. In fact, Private Interest Foundations must not be used to participate in traditional businesses such as the provision of services, the sale of goods, opening restaurants, offering consulting services, or wholesale or retail transactions. If this is the case, they are authorised to carry this activity sporadically, from time to time, but not as a permanent activity.

- Foundations are only required to pay $400.00 USD as an Annual Franchise Tax, together with the annual resident agent’s fee; they are exempt from paying other taxes.
 

- The foundation books may be kept both in Panama and abroad.
 

- There is no restriction regarding the maximum amount of permitted initial capital, but it must be at least ten thousand dollars ($10,000.00 USD); as mentioned before, this amount does not need to be deposited, and you do not need to prove to own such an amount, nor should it be accredited within a period of time.
 

- The Law does not require Annual Meetings of the Foundation Council, Founders or Protectors to be held.
 

- Founders and Members of the Foundation Council may hold meetings anywhere in the world or may be represented by proxy.
 

- Founders, members of the Foundation Council, Beneficiaries and Protectors may be both natural and legal persons of any nationality and domiciled anywhere in the world.
 

- Founders may be different from the Foundation Council members.
 

- Founders, Protectors or Custodians or members of the Foundation Council may be Beneficiaries of the Foundation.
 

- Foundations of other jurisdictions may change their domicile to Panama to continue developing activities as Private Interest Foundations and vice versa.
 

DIFFERENCES BETWEEN PRIVATE INTEREST FOUNDATIONS AND CORPORATIONS

The main difference between corporations and foundations is the purpose; while the former is created to carry out commercial activities, foundations are created to protect assets (family assets) and/or “Private Interests”, preventing them from carrying out commercial activities on a regular basis. For this reason, they are called “Private Interest Foundations”.
 

They also differ in terms of their legal structure. With the structure of a Corporation, the shareholders are the owners and are entitled to the enjoyment of assets, since the share capital is the contribution of each member. In foundations there are two features: the founder transfers assets to the foundation as a capital contribution, and the beneficiaries are legitimated to the enjoyment of such assets. Still, the founder may also be a beneficiary.
 

With Foundations, there is an entity that oversees the actions of the Foundation Council, the Protector, while with Corporations, the actions of the Board of Directors are not supervised.
 

INCORPORATION PROCESS

To begin the incorporation process of a Private Interest Foundation, the Foundation Charter will be drafted by a lawyer according to the client’s instructions. Once the Foundation Charter has been approved by the person wishing to establish the foundation (the Founder), the founder in the company of the lawyer must be present before a Notary Public of the Republic of Panama to sign the Foundation Charter (Public Deed).
 

Subsequently, the Foundation Charter will be duly filed with the Public Registry - Mercantile Section of Panama. Opposite to the process for Public or Social Interest Foundations which require the approval of the Ministry of Government and Justice, a Foundation of Private Interest does not require any governmental authorisation, which is a big difference, considering that a foundation requires only the intention of the founder.   EG