International Management Trust Services

Private Foundations

Asset protection can be easily and comfortably established and enjoyed for generations to come, or a complete nightmare if not structured properly.

There are three basic structures that can be employed, based on the specific needs and requirements; IBC's, trusts and private foundations.

Here we discuss the PIF; please also see trusts and IBC's.

International Business Corporations (IBCs) are the best known vehicles for conducting business abroad, The IBC structure is used to carry out a business enterprise and keep the owners business assets (and liabilities) separate from their own. As a separate entity, the IBC may even have its own tax identification number, and is considered to be a juridical person. It has all of the rights and responsibilities of a natural person under the law. The key point is that the assets and liabilities of the corporation are separate and distinct from those of the shareholders.

The Trust structure, however, is a vehicle usually only found in English speaking, common law countries. Structures such as the "Offshore Trust" or "Common Law Trust" or Asset Protection Trust, are used for offshore estate tax planning, or to protect assets from frivolous litigation.

The Trust structure was meant to be a safe haven, with the Trustee as the guardian of that safe haven. It was not meant to be a structure that would engage in business activities, as an IBC was meant to do. Like a corporation, however, under current interpretation the Trust structure is a separate juridical person, thus separating the Owner from his Assets and protecting them under the law. The purpose being to keep the owner's previously held assets safe and secure from violation or attachment.

Unfortunately, the outcome of recent court cases in the US suggest that some judges either do not understand the essence of what a Trust is, or simply have made decisions wherein they have disregarded the trust legislation altogether. This being the case, any Trust structure domiciled in the US, and some domiciled in other common law countries, can not be depended upon for the purpose intended. It may not necessarily be that the laws in these countries are lacking in respect to Trust structures. The danger is that the judges responsible for upholding those laws may interpret them in a way that results in no real protection being provided by the Trust structure.

Under the circumstances, Foundations formed in Civil Law jurisdictions are now considered superior to Trusts formed in Common Law jurisdictions, as domiciles for asset protection vehicles. For this reason, as a possible alternative to granting a Trust to protect assets, IMT suggests clients consider founding a Private Interest Foundation ("PIF"), governed by law codified in Panama, a stable, democratic, Civil Law country.

The PIF vehicle is relatively new in Panama, becoming law in 1995, but the Foundation concept has existed in Liechtenstein for many years, and, although based upon the well established Liechtenstein legislation, the Panamanian structure has additional attributes, and is more flexible.

A Foundation is generally used to hold cash, investments and shares in private, commercial, or holding companies, particularly with a view to Estate planning; in which area it is an eminently suitable vehicle. Beneficiaries can validly include the Founder, family members, third parties or institutions. The Founder or client may generally retain full control over the assets held by the Foundation throughout his lifetime, and the Founder may at all times amend his disposition or dissolve the Foundation; the Foundation Council may be required by the Regulations to act only upon the First Beneficiary's instructions.

Protected Confidentiality

The Panamanian law on Foundations imposes strict sanctions on the members of the Foundation Council and associated bodies, as well as on any private or public employees, which may have any knowledge of the activities, transactions, or operations of a Foundation in case of any unwarranted breach of confidentiality. These penalties are without prejudice to any corresponding civil liability. This implies that, as a matter of law, all information regarding a Foundation is strictly the property of the Foundation itself, no unauthorized parties having access to same, and any knowledgeable persons being liable to sanctions should any information regarding the Foundation be unduly shown to others. Therefore, access to documentation regarding the Foundation is strictly limited, which may not be the case in Foundations established in other jurisdictions.

Panama PIF can usually be created for around US$2,000.00, while the cost of a Liechtenstein Foundation may exceed US$10,000.00 while offering no advantage to justify the extra expense. In Panama, the annual PIF maintenance is similarly less costly than Liechtenstein.

The PIF can be created by three or more natural persons or by a juridical entity, such as a corporation. The founder can be nominee. A foundation charter is created, which in essence, is similar to IBC incorporation, and like IBC incorporation documents, the foundation charter document is public record.

The Foundation is directed by a Council of three or more members which can also be nominee. In addition, like a trust, a private protector may be named to have special oversight authority. The client may wish to take this position, especially if nominee council members are being used. The position of 'Protector' is not required, but it is advisable. The position of protector can be by private agreement between the Foundation and the person acting as protector, but there is extra protection for the client if the position is spelled out in the foundation charter.

Panama Private Interest Foundation Charter Requirements:

Name of the Foundation - The name of the foundation can be expressed in any language, but must contain the term 'foundation' as part of the title to indicate that the entity is in fact a foundation structure.

Initial Patrimony - The initial patrimony is the amount used to fund the foundation. The foundation can be funded in any currency, but the initial patrimony cannot be less than the equivalent of US$10,000.00. The initial funding or contribution does have to be done at the time the foundation is created. There is no public record of the foundation assets other than the fact it was originally funded with ten thousand dollars.

Council Members - The foundation structure must have a minimum of three council members who are natural persons, or a juridical person, such as a corporation that has three directors. The names and addresses of the council members is public record.

Purpose of the Foundation - The foundation may be created for any lawful purpose, such as the maintenance and welfare of minor children, a college tuition or scholarship funding for any person, the maintenance and welfare of the founder upon his or her retirement, the maintenance of a building or property, the benefit of any charitable foundation or organization, or any other purpose the founder desires within the confines of the law.

Beneficiaries - Like a trust document, the foundation structure must name beneficiaries and the basis of distribution entitlement for each beneficiary. The foundation charter must also indicate the manner in which any assets are to be disposed of upon its dissolution. The founder of the foundation, or the client, may be named as a beneficiary.

Domicile - The domicile of the foundation can be located or indicated as any desired jurisdiction, but IMT suggests that Panama, or another 'civil' law jurisdiction, be used.

Resident Agent - The foundation must have a local Resident Agent which is ordinarily a duly authorized lawyer or law firm, with a physical presence in Panama.

Foundation Duration - The foundation can have a specified life span if the client so desires.

The practical uses and strategies possible through the PIF are many, and for asset protection, there is probably no better entity available in any jurisdiction at this time.

Assets placed in a PIF are sole and separate property and cannot be seized or attached to satisfy the personal debts, or judgments, including divorce judgments, or lawsuits, or any other liabilities, or obligations of the founder or the beneficiaries.

Although a PIF cannot technically engage in business activities, it can be the beneficial owner of the shares of onshore, or offshore, companies engaged in business activities. It is also permissible for the PIF to engage in any activity, which will increase the value of its assets. The PIF can own bank accounts, securities, brokerage accounts and real estate holdings, and since there are no ownership shares in a PIF, the founder does not own the foundation, and thereby may benefit in areas such as tax reporting and asset protection.

If there is interest IMT can furnish a legal brief prepared by our attorney in Panama.

No representations, warranties or guarantees are offered or implied to suggest that any company, or other structure, will be successful for any purpose whatsoever, or regarding the tax effects, benefits, or implications involving any company or company structure. All individuals contacting IMT are encouraged to seek competent legal and tax counsel in the jurisdiction wherein they reside.