Foundations and Trusts
Foundations and Trusts: The Definitive Guide to Offshore Asset Protection
Why asset protection is not optional
Asset protection isn't about tax avoidance or "creative offshore." It's a serious legal discipline that serves to legally separate assets from individuals, reducing the risk of asset seizures, litigation, chaotic successions, and operational blockages.
Real estate, company shares, cash, financial assets, or cryptocurrencies: without a segregation structure, everything remains exposed. The difference between those who are protected and those who aren't isn't income, but the legal structure .
At Studio Panama Italia, we personally use these tools. Not because of theory, but because they work. European civil law jurisdictions are slow, invasive, and often hostile to private wealth. Panama and some offshore jurisdictions offer modern, recognized, and legally sound tools such as Private Interest Foundations (also known as Offshore Foundations) and Anglo-Saxon Trusts (also known as Offshore Trusts).
Private Interest Foundation vs. Trust: The Real Legal Difference
The key point is just one: they are not the same thing .
Private Interest Foundation
The Foundation is an autonomous legal entity , similar to a company but without members.
Legal nature: registered legal entity
Ownership of assets: registered directly to the Foundation
Origin: Civil Law
Regulatory reference: Law 25 of 1995 (Panama)
It's the most intuitive tool for those coming from European jurisdictions. It exists "in itself" and legally holds the assets.
Anglo-Saxon trust
The Trust is not an entity, but a contractual fiduciary relationship .
Legal nature: fiduciary contract
Ownership of assets: registered in the name of the Trustee
Origin: Common Law
Foundation: split ownership (legal title / equitable title)
It is extremely flexible, but requires real dispossession to not be considered a sham trust.
| Characteristic | Private Interest Foundation | Anglo-Saxon Trust |
|---|---|---|
| Legal nature | Autonomous legal entity | Trust agreement |
| Legal system | Civil Law | Common Law |
| Registration | Registered in the public register | Often unregistered |
| Management | Board of Trustees | Trustee |
| Founder Control | High (Council / Protector) | Limited (necessary dispossession) |
| Ideal assets | Real estate, shareholdings, holding companies | Financial assets, crypto, cash |
| Privacy | High (non-public beneficiaries) | Maximum |
Focus: Private Interest Foundation
The Private Interest Foundation (like a Panamanian foundation) is one of the most solid tools in the world for asset protection in the Civil Law field.
Key Features of Private Interest Foundations:
- assets legally distinct from those of the Founder
unseizable after the clawback period (3 years)
extra-testamentary estate planning
use as a holding company for operating or offshore companies
unregistered private regulation (total privacy)
Components:
Founder: confers the assets
Advice: manage the Foundation
Protector: Veto power and control
Beneficiaries: indicated only in the private regulation
The Foundation allows for control, continuity, and international legal recognition.
Focus: Offshore Trusts
The Trust is the most flexible asset segregation tool available, if used correctly.
Advantages of the Trust:
total discretion in distributions
strong legal barrier in jurisdictions such as Nevis or the Cook Islands
separation between legal and beneficial ownership
high protection in international litigation contexts
Main limitation: The Settlor must give up direct control to avoid contestation.
Trusts or Foundations: What to Choose?
Choose the Private Foundation if:
- you reside in a Civil Law country
you want to maintain control or veto power
you need to protect real estate or company shares
you are looking for a recognized and stable tool
Choose the Trust if:
you own high-risk financial assets or cryptocurrencies
you want maximum privacy
you accept formal dispossession
operate in Common Law contexts
Taxation, CRS and Compliance for Foundations and Trusts
Foundations and Trusts are not tax evasion tools .
They are tools of segregation and protection.
If foundations and trusts hold bank accounts, they fall under the Common Reporting Standard (CRS). The taxation of foundations and trusts depends on the settlor's tax residency and the overall structure.
The correct strategy is not to hide through a trust rather than a private foundation, but to legally separate.
Studio Panama Italia assists in the structuring and drafting of private regulations and international tax coordination, in full compliance with applicable regulations.
Trust Versus Foundations
| Article Explanation | Trust | Foundation |
|---|---|---|
| Description | A three-party relationship in which a "settlor" (aka "grantor" or "trustee") transfers assets to a "trustee," who holds assets for the "beneficiaries." The trustee must follow the terms of the trust and act in the best interests of the other parties. Depending on the purpose of the trust, a party may serve one or more of the three roles. | A foundation is a separate legal entity separate from the founder's assets. It is not a corporation. It does not issue shares. It has no owners. It is a non-profit organization. It typically provides support to others through grants directly or to other charities. Some foundations engage in activities other than grantmaking. |
| Examples | – Parents who set up a trust so that their children and grandchildren will receive their assets after their death. – People who are unsure about legal action set up an asset protection trust to protect their assets from creditors. – Those who want to own real estate privately transfer the property into a land trust. – An elderly person sets up a trust and transfers all assets into the trust so that (after a five-year holding period) their personal assets do not exceed the amount qualifying for Medicare support. | Individuals, families, companies, or public entities (such as hospitals and churches) create foundations to support charitable causes such as childhood illnesses, hunger, education, general healthcare, etc., and for any seemingly non-profit activity. Some well-known foundations include the Make-A-Wish Foundation, the Bill and Melinda Gates Foundation, the PBS Foundation, the Rockefeller Foundation, the Nobel Foundation, and the Walton Family Foundation. Foundations can become sole shareholders of offshore companies to shield their associated capital from business transactions |
| Legal Basis | Common law (England) | Civil law (mainland Europe) |
| Who does the incorporation, opening, incorporation? | Settlor (also called Grantor, Trustor) | Founder |
| Incorporation Document – Foundation – Opening | Deed of Trust | Paper |
| Manager | Trustee | Board of directors (consultant) typically also has a CEO and other officers |
| Managerial Role | Trustee Role – Follows the terms of the trust – Administers the trust according to the trust agreement – Makes decisions that follow the trust guidelines – Prepares or delegates the creation of records, statements as needed – Communicates with beneficiaries – Answers beneficiaries' questions | Role of the Board of Directors – Decides its organizational direction – Ensures it follows its mission – Sets ethical standards – Monitors its performance – Ensures responsible management |
| Property Type | Beneficial interest (beneficiaries essentially “own” the trust) | It has no owners (there are no shareholders) |
| How are the assets assigned and in whose name? | [Trustee Name], as trustee of [Trustee Name] | In the name of the foundation |
| Publicly filed? | Certificate of trust but not the trust itself | Publicly filed as a company |
| Common typologies | – Asset protection (offshore and domestic) – Estate planning (living trust or inter vivos trust) – Real estate (land trust) – Personal property (cars, household goods, etc.) – Charity – Special needs (for people with disabilities) | – Independent (usually funded by an individual or family) – Corporate (funded by a corporation but is a separate legal entity. Corporate officers often manage and may provide endowments) – Operational (the purpose may be research, public benefit, etc. Most funds or grants go to the purpose stated in its charter). |
| Taxation | Two broad tax categories are "simple" trusts and "complex" trusts. With simple trusts, the parties associated with the trust (the trustee, the beneficiary) pay taxes on the trust's profits. With complex trusts, the trust itself pays taxes on the trust's profits. | Private foundations are exempt from most taxes by providing social benefits under the following criteria. (1) The offshore foundation pays out 0% of the value of its endowment and none of this must be for the benefit of a private individual. (2) It must not own/operate a for-profit business. (3) It must submit detailed reports and conduct audits annually in Europe only. (4) It must meet the accounting requirements of non-profit organizations. Operating and administrative expenses count towards the minimum annual expenditure of 5% in Europe |
Is privacy really guaranteed?
Yes. Panamanian law imposes very stringent confidentiality obligations on foundations and trusts, with criminal and financial penalties for violations.
Can a Private Interest Foundation replace a will?
Yes. It works like a living will, regulating succession through private settlement and avoiding ordinary probate procedures.
Can the transferred assets be seized by personal creditors?
No, once the clawback period provided by Panamanian law, which is generally three years, has passed.
Does the foundation have to be for-profit?
No. It is a non-profit organization, but it can hold shares in companies and act as a holding company.
Is it possible to use a foundation as a holding company?
Yes. The foundation can own 100% of the shares of offshore or operating companies.
Does the founder lose control of the assets?
Not necessarily. It can retain oversight powers through the Council or Protector.
What is the main difference from a Trust?
A foundation is an autonomous legal entity, while a trust is a contractual fiduciary relationship.
Are foundations and trusts subject to the CRS?
Yes, if they hold accounts or financial assets. They are not tax evasion tools.
Are the beneficiaries public?
No. The beneficiaries are only indicated in the unregistered private regulation.
Why is Panama suitable for European citizens?
Because it offers a more easily recognizable civil law instrument than common law trusts.
For more information on foundations, you can read about the Panama Foundation here.
For more information on asset protection, it is useful to read on Wikipedia
