Panama Private Foundations: Asset Protection & Succession
Missuly Clark, Senior Associate at ARIAS Panama and expert in Corporate and Financial Law, presents this article on Private Interest Foundations in Panama.
In Panama, private interest foundations, regulated by Law 25 of June 12, 1995 (Law 25), have become one of the most widely used legal vehicles for families for estate planning. Unlike corporations, which have shareholders and may engage in commercial activities, the foundation is organized around beneficiaries who receive the benefits of the assets it manages in accordance with its bylaws or regulations, and it lacks the capacity to pursue profit-making activities.
An Instrument for Estate Planning and Succession
The foundation is especially attractive for those seeking to protect assets, organize estate succession, and manage family property. Unlike a traditional will, where assets must undergo a judicial succession process, the foundation functions as an autonomous and separate entity. Assets contributed to it no longer belong to the founder and become part of the legal entity, which means they are not included in the estate inventory in the event of death. Thus, distribution is carried out according to the foundation’s regulations, without the need for a court proceeding and with the confidentiality this mechanism offers.
Structure and Functioning
The structure of the foundation also has particular features. The founder is the one who incorporates the foundation and makes the initial capital contribution, which may not be less than US$10,000.00, but his or her role is not necessarily one of control. That role falls on: (i) the foundation council, which administers the assets and ensures the foundation’s purposes are met; and (ii) the protector, who supervises the foundation council and ensures that the founder’s will is respected. In practice, the protector often becomes the most powerful figure, as he or she can approve, veto, or condition the foundation’s most relevant decisions. This combination of governing bodies allows for a flexible design that can be tailored to the needs of each family or investor.
Asset Protection and Flexibility
One of the greatest advantages of this vehicle is asset segregation. The assets forming part of the foundation are not mixed with personal assets of its participants, offering a significant degree of protection against legal contingencies or third-party claims. Therefore, such assets cannot be seized, attached, or subjected to injunctions, except for obligations incurred, damages caused in the pursuit of the foundation’s purposes, or the legitimate rights of its beneficiaries. Law 25-1995 also establishes clear safeguards: foundations may not be used to defraud creditors or as instruments of money laundering. Transfers made with the intent of evading existing obligations may be challenged, reinforcing the need to use them within a legitimate and transparent estate planning framework.
Another element that makes a foundation an attractive instrument is that its beneficiaries are not registered with the Public Registry. Their names and rights are recorded in a private regulation that may be modified over time, providing a high level of confidentiality and flexibility. This allows, for example, the designation of minors as beneficiaries with mechanisms for administration until they reach majority, or the modification of the list of beneficiaries in line with the family’s and estate’s evolution.
Limitations and Legal Obligations
Although private foundations are highly flexible instruments, the law establishes certain limitations. As mentioned, foundations may not habitually engage in profit-making commercial activities, although they may hold passive investments, receive dividends, own real estate, or be shareholders of operating companies. Panamanian law also requires them to have a resident agent and comply with due diligence standards, thereby reinforcing international transparency and compliance requirements.
Conclusion
Ultimately, the Panamanian private interest foundation combines flexibility, confidentiality, and succession efficiency. It is a tool that allows for the orderly management and protection of assets, reduces exposure to probate proceedings, and ensures the founder’s will is upheld over time. Its success depends on proper structuring, tailored to the particular needs of each family or investor, and on strict compliance with applicable regulations.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.
In Panama, private interest foundations, regulated by Law 25 of June 12, 1995 (Law 25), have become one of the most widely used legal vehicles for families for estate planning. Unlike corporations, which have shareholders and may engage in commercial activities, the foundation is organized around beneficiaries who receive the benefits of the assets it manages in accordance with its bylaws or regulations, and it lacks the capacity to pursue profit-making activities.
An Instrument for Estate Planning and Succession
The foundation is especially attractive for those seeking to protect assets, organize estate succession, and manage family property. Unlike a traditional will, where assets must undergo a judicial succession process, the foundation functions as an autonomous and separate entity. Assets contributed to it no longer belong to the founder and become part of the legal entity, which means they are not included in the estate inventory in the event of death. Thus, distribution is carried out according to the foundation’s regulations, without the need for a court proceeding and with the confidentiality this mechanism offers.
Structure and Functioning
The structure of the foundation also has particular features. The founder is the one who incorporates the foundation and makes the initial capital contribution, which may not be less than US$10,000.00, but his or her role is not necessarily one of control. That role falls on: (i) the foundation council, which administers the assets and ensures the foundation’s purposes are met; and (ii) the protector, who supervises the foundation council and ensures that the founder’s will is respected. In practice, the protector often becomes the most powerful figure, as he or she can approve, veto, or condition the foundation’s most relevant decisions. This combination of governing bodies allows for a flexible design that can be tailored to the needs of each family or investor.
Asset Protection and Flexibility
One of the greatest advantages of this vehicle is asset segregation. The assets forming part of the foundation are not mixed with personal assets of its participants, offering a significant degree of protection against legal contingencies or third-party claims. Therefore, such assets cannot be seized, attached, or subjected to injunctions, except for obligations incurred, damages caused in the pursuit of the foundation’s purposes, or the legitimate rights of its beneficiaries. Law 25-1995 also establishes clear safeguards: foundations may not be used to defraud creditors or as instruments of money laundering. Transfers made with the intent of evading existing obligations may be challenged, reinforcing the need to use them within a legitimate and transparent estate planning framework.
Another element that makes a foundation an attractive instrument is that its beneficiaries are not registered with the Public Registry. Their names and rights are recorded in a private regulation that may be modified over time, providing a high level of confidentiality and flexibility. This allows, for example, the designation of minors as beneficiaries with mechanisms for administration until they reach majority, or the modification of the list of beneficiaries in line with the family’s and estate’s evolution.
Limitations and Legal Obligations
Although private foundations are highly flexible instruments, the law establishes certain limitations. As mentioned, foundations may not habitually engage in profit-making commercial activities, although they may hold passive investments, receive dividends, own real estate, or be shareholders of operating companies. Panamanian law also requires them to have a resident agent and comply with due diligence standards, thereby reinforcing international transparency and compliance requirements.
Conclusion
Ultimately, the Panamanian private interest foundation combines flexibility, confidentiality, and succession efficiency. It is a tool that allows for the orderly management and protection of assets, reduces exposure to probate proceedings, and ensures the founder’s will is upheld over time. Its success depends on proper structuring, tailored to the particular needs of each family or investor, and on strict compliance with applicable regulations.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.