Foundations and Trusts
Private Offshore Foundations and Offshore Trusts
Foundations and Trusts are specific tools for asset protection. Asset protection is the most fascinating branch of jurisprudence but also the least known. Asset protection requires various actors who perform actions in a harmonious way to allow assets to be encountered, managed and protected. Asset protection is also in terms of required services , the first ever . All customers request some form of asset protection even if often the words used or the requests received are not precisely specific on asset protection but more generic such as "opening an offshore company" or "opening Foundations and Trusts for asset management purposes" ” or ” redeem a testamentary deed ” or why not a private contract. Even if we do not explicitly talk about asset protection, in reality all these services already contemplate some form of asset protection. Then it is good not to miss the opportunity to request a special asset protection service and receive it with the utmost professionalism from those who are really competent in the matter. Ultimately, we are talking about your personal asset protection or your loved ones. Foundations and Trusts are therefore mentioned for the occasion as the legal instruments available which are the most popular in the case of heritage protection. The defense of assets via foundations and trusts has very ancient origins to be found in England, Luxembourg, Switzerland, the progenitors of many of these instruments. Over time, foundations and trusts have been adopted by many other countries, called tax havens, where today they work on a daily basis. The difference between the foundations and trusts of the old European economies and the new ones between Panama and the Caribbean going towards the Pacific and New Zealand is that in these new countries the foundations and trusts have taken on more streamlined rules, assimilated much more modern regulations and drafted deeds of much more armored constitution. The reason why, therefore, generally when deciding to comply with ad hoc asset protection instruments of Panama foundations and trusts are used rather than the Cook Islands or the Caribbean is because these foundations and trusts are decidedly more efficient and safer to use for the protection patrimonial .
What is a private interest foundation and how does it work?
A Private Interest Foundation (“PIF”) or Private Interest Foundation is a legal entity exhibiting the characteristics of both a corporation and a Trust that is fast becoming the wealth protection and tax planning tool of choice for astute investors. To date, a Private Interest Foundation is the first legal and juridically accepted instrument in Italy and Europe for tax planning, testamentary, patrimonial and possession of assets as well as for preventing judicial seizures. Therefore opening a foundation of private interest is precisely in the interest of each of us. We at Studio Panama Italia too, on our own behalf, all own a Private Interest Foundation, which once opened becomes a convenient, simple, smart, intuitive and powerful tool, to be used for any economic purpose you wish.
Overview of a private interest foundation
Unlike Trusts (which are a creature of English common law ) Private Interest Foundations are a by-product of European civil law (particularly Liechtenstein) and have existed since the Middle Ages when they were mainly used for charity. Nowadays Private Interest Foundations are more commonly set up to protect family assets (and as highly effective tax minimization tools).
Like a corporation, a Private Interest Foundation is a separate legal entity (i.e. it can hold property and sue and be sued in its own right) and its operations are governed by a statute and bylaws (similar to the articles of incorporation and articles of association of a company). Usually a private interest foundation can only be used as an asset holding entity (although it can perform certain commercial functions depending on the country of registration).
Management of the Private Interest Foundation
The day-to-day management of a PIF is overseen by a Director or Board (such as a board of directors in the case of a corporation). However, instead of shares, a Foundation, such as a Trust, has Beneficiaries who are ultimately entitled to the Foundation's assets and income. Importantly, the creator of the Foundation (usually referred to as the “Founder” – see below) may still lead the direction of the Foundation's registration after being appointed Financial Advisor or Protector. Furthermore, certain powers may be reserved to the Founder from the outset (eg the right to appoint or remove Directors, to exclude or change Beneficiaries or to appoint and remove Protectors).
Private Interest Foundations versus a Trust
The key difference between a Foundation and a Trust is that in the case of a Foundation the legal owner of the Foundation's assets is the Foundation itself, a separate legal entity (usually) established in a non-tax jurisdiction. This is different from the situation of a Trust where the subordinate owner of the trust assets are the beneficiaries (currently entitled). This can have a significant impact on your tax liability (see below).
Benefits of tax planning for a private interest foundation
In particular, the Seychelles Foundation Law is cleverly drafted as it stipulates that, until such time as the property of the Foundation is actually transferred to the beneficiaries, the beneficiaries have no legal interest in the assets of the Foundation. The legitimate owner of the assets held by the Foundation is the Foundation itself. When you register a Seychelles Private Interest Foundation to hold the shares of an IBC, the assets of the IBC remain safe from the reach of your creditors AND the income remains potentially non-taxable (until such time as you are actually paid as a distribution by the Foundation) .
Other common characteristics of Private Interest Foundations include:
- Limited requirements for record keeping
- No obligation to file an annual return Corporate Councilors may be appointed (which has important privacy benefits)
- No income tax is payable in the country of registration
While a number of offshore financial centers offer foundation products, by far the most popular places to register a tax-free private interest foundation are Panama, the Seychelles and Dominica and Nevis.
Why an Offshore Foundation?
Establishing an offshore foundation essentially means wanting to have personal or commercial affairs governed by the statutes of a foreign country ; that is, not the country of domicile of the founder. So why settle your interests with the worst countries in the world in terms of "Private Interest" such as Italy, France and the whole EU? It is therefore necessary to incorporate the Private Interest Foundation in an offshore jurisdiction.
By doing so, the founders agree that the foundation is established, regulated and endowed with certain rights, interests and characteristics by the statute of foundations (offshore / international) of that territory.
One of the major benefits of going offshore to set up a private interest foundation is that it creates a smoke barrier that protects the foundation and its property from being voided, invalidated or made tainted in any way by reference to the law of a foreign jurisdiction .
This high-tax strategy and advanced tax engineering makes it possible to transfer properties, assign shares or bequeath gifts discreetly, anonymously, immediately and in conditions of total tax protection.
Additional uses that arise from offshore foundations include:
- Estate planning for personal estates
- Succession planning in terms of corporate ownership
- Reduce personal net worth to minimize risks of legal damages (compensation)
- Eliminate property transfer fees
- Broaden your horizon for investment opportunities
- Acquire resources through a "person" other than yourself
- Accumulate portfolio income (annuities, interest, royalties, dividends, yields)
- Avoid forced inheritance
Any of the foregoing benefits/uses may be derived by an offshore foundation in furthering the interests of its beneficiary or purpose (charitable, philanthropic or any other lawful private or public entity).
For advice on an asset protection structure based on your specific needs, please contact us.
Complete AEOI and CRS legal evasion
Differences between an offshore trust and a foundation
There are some key differences that should be emphasized between Private Interest Foundations and Trusts. We encounter most of the differences in their structure and in their juridical determination.
Features of the offshore foundation:
- It needs to be registered to exist
- The Charter of the Foundation is public (not in Panama, Dominica and Nevis)
- Incorporate a legal entity much like a corporation (not Panama, Dominica and Nevis)
- The assets are owned by the Foundation itself
- The foundation can sue and be sued in its own name
- It does not require assets at the time of incorporation
Characteristics of the offshore trust
- It is not necessary to be registered in any deed
- The deed of trust is not public (it can be confidential)
- The trust is not a legal person and therefore the rights rest with the trustees
- Division between ownership of the goods and the goods themselves
- Trustees sue and are sued in their own name rather than with actions taken for or against the Trust
- The assets must be placed in the Trust or in the hands of other trustworthy persons
- The Trust is a contract between people, not an entity for its own sake like the Foundation
In addition to opening your Private Interest Foundation or Trust, you will probably be interested in creating a life insurance policy on your taxation, taking up a second tax residence, in a country with territorial taxation, such as a Residence in Panama or a Residence in Paraguay
Private Interest Foundation of Panama
The Private Interest Foundation of Panama is most likely the first instrument along with the Cook Islands foundations for asset protection, estate management and will enforcement. The Panamanian Private Interest Foundation is perhaps the most widely used asset protection tool in the world. Foundations and Trusts are dissimilar in many aspects, but when one decides for truly effective and legally recognized asset protection anywhere in the (civil) world then private foundations are the best structures for asset protection. One or more legal or natural persons acting on their own behalf or through another (i.e. attorneys of clients in Panama) may set up a Panamanian foundation. In other words, the Panama foundation can be set up directly by the client or by trustees or offshore companies acting on his behalf. Our company can act and provide the trustee or the offshore company. Panama foundations must not pursue profit, they are non-profit foundations, they serve for asset protection, but they can participate in commercial activities in an unusual way or exercise rights deriving from the representative titles of the share capital of companies actually engaged in business, provided the economic result or income from such activities is dedicated exclusively to the purposes of the foundation. The key concept here is to think of the foundation as a holding company. So the best way to use a Panamanian foundation in a corporate setting is to manage it like a holding company of other legal entities. Asset protection in itself means the protection of any asset (tangible or otherwise).
It should be noted that the statute of incorporation of the Panama Foundation as well as any of its amendments can be drawn up in any language and must comply with the rules relating to the transcription of deeds and titles in the Public Register, therefore, in the first place, it must be authenticated by a notary public of the Republic of Panama. If the founding charter or its modifications are not written in Spanish, it must be authenticated together with its translation into Spanish made by an authorized public translator of the Republic of Panama.
The registration of the deed of incorporation of a private foundation in Panama in the Public Register will give it legal personality, without the need for any other legal or administrative authorization. Registration in the Public Register will also constitute a means of publicity towards third parties. This is a very important concept of the Law on Foundations in Panama.
The assets of the Panama foundation constitute a separate patrimony from the personal assets of the founder for all legal purposes, and cannot be attached or seized or be the subject of any precautionary measure, except in the case of contractual obligations. In no case will these elements be affected or used to meet the personal obligations of the founder or beneficiaries.
This does not mean that a Panamanian foundation is not subject to litigation. This means that if there is litigation, it will have to be brought to that specific jurisdiction and will have to comply with the legal requirements of the causes of action that are recognized in that jurisdiction. In some cases, the jurisdiction may limit the length of time during which this can happen. Once the limitation period has elapsed, the right to sue ends legally
All members of Panama's board of trustees and supervisory bodies, as well as public or private employees who have any knowledge of the activities, transactions or operations of the foundations, must maintain secrecy and confidentiality at all times. Failure to comply with this obligation will be punished with six (6) months of imprisonment and a fine of US $50,000.00 , without prejudice to the corresponding civil liabilities (article 35). The requirements for maintaining and penalties for breaches of confidentiality are strong.
The publicly accessible information of the Panama foundation such as the public record is obviously outside the rule of secrecy. However, this secrecy provision should not serve as a pretext against lawful investigations through the relevant channels in relation to certain criminal actions, such as: drug trafficking and money laundering, for which the Republic of Panama has initiated specific legal procedures with great effort to enhance and protect Panama as an international offshore center.
While it does not provide any legal or tax advice, however, for some individuals or companies, offshore companies may offer specific tax advantages over other jurisdictions. Any prospective client seeking legal or tax advice should consult their individual legal or tax adviser.
From these previous articles and their considerations, it is important to review the regulations of a foundation in Panama because in them you will find the answer or treatment of many questions and possible scenarios.
For more information on foundations you can read about the foundation of Panama here.
For more information on asset protection, read on WikiPedia
Trusts Versus Foundations
| Explanation Item | 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 fill one or more of three roles. | A foundation is a separate legal entity separate from the founder's estate. It's not a company. It does not issue shares. It has no owners. It is a non-profit organization. Usually provides support to others through grants directly or to other charities. Some foundations engage in other activities besides making grants. |
| Examples | – Parents who make a trust so that their children and grandchildren receive their assets after their death. – People who have concerns about lawsuits set up an asset protection fund to keep assets away from creditors. – Those who want to own real estate privately transfer ownership into a land trust. – An elderly person sets up a trust and transfers all assets into the trust so that (after a 5 year holding period) personal assets do not exceed the amount that qualifies for Medical support | Individuals, families, companies or public entities (such as hospitals and churches) create foundations to support a charitable cause such as childhood disease, hunger, education, general health care, etc. and for any seemingly non-profit activity. Some well known foundations include The Make-A-Wish Foundation, Bill and Melinda Gates Foundation, PBS Foundation, Rockefeller Foundation, Nobel Foundation, Walton Family Foundation. Foundations can enter as sole shareholders of offshore companies to secure the capital associated with them in business operations |
| Legal Basis | Common law (England) | Civil law (mainland Europe) |
| Who does the incorporation, opening, incorporation? | Settlor (also called Grantor, Trustor) | Founder |
| Document of Incorporation – foundation – opening | Act of trust | Paper |
| Manager | Trustees | Board of directors (consultant) typically also has a chief executive officer and other officers |
| Managerial role | Role of Trustee – 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 questions of the beneficiaries | Role of the board of directors – Decides its organizational direction – Ensures it follows its mission – Establishes ethical standards – Monitors its results – 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? | [Trust Name], acting as trustee of [Trust 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 assets (cars, housewares, etc.) – Charity – Special needs (for people with disabilities) | – Independent (usually funded by individual or family) – Corporate (funded by a corporation but is a separate legal entity. Corporate officers often manage and can make endowments) – Operational (purpose may be research, public benefit, etc. Most funds or grants go to the purpose stated in its statute). |
| Taxation | Two major tax categories are "simple" trusts and "complex" trusts. With simple trusts, the parties associated with the trust (steady, beneficiary) pay taxes on the profits of the trust. With complex trusts, the trust itself pays tax on the profits of the trust. | Private foundations are exempt from most taxes by providing social benefits according to the following criterion. (1) The offshore foundation pays 0% of the value of its endowment and none of this must be for the benefit of a private individual. (2) Must not own/operate a business for profit. (3) Must submit detailed reports and conduct audits every year in Europe only. (4) Must meet the accounting requirements of non-profit organizations. Operational and administrative expenses count towards the minimum 5% annual spend in Europe |
