Trust vs. Private Interest Foundation in Panama: Which Is the Best Option to Protect Your Assets?

A trust is a legal arrangement where an individual or entity (settlor) transfers the management of assets to a trustee to fulfill a specific purpose for the benefit of a third party (beneficiary). Regulated by Panama’s Trust Law, this instrument is highly flexible and is commonly used for asset protection, financial management, and estate planning.

On the other hand, a private interest foundation in Panama is an autonomous legal entity established through a foundation charter registered with the Public Registry. The foundation has legal personality and is typically used to protect assets, ensure inheritance distribution, and achieve specific non-commercial purposes. It is primarily regulated by Law 25 of 1995.

Both instruments are excellent for estate planning, but their objectives, legal nature, and modes of operation differ significantly.

• Ownership and Legal Identity: In a trust, assets remain under the control of the trustee as a fiduciary entity, whereas in a private interest foundation, assets become the property of the foundation as an independent legal entity.
• Public Registry Requirements: A trust does not require mandatory registration, while a foundation must be registered with the Public Registry of Panama, granting it a unique legal personality.
• Confidentiality: Trusts offer greater confidentiality as they are typically not publicly registered, whereas foundations have certain elements that appear in public records.
• Control and Administration: In a trust, the trustee has operational control over the assets following the terms detailed in the trust deed. In a foundation, the Foundation Council is responsible for administration based on the foundation charter and internal regulations.
• Main Uses: Trusts are commonly used for inheritance management and financial assets, whereas foundations are more frequently employed for wealth preservation and succession planning.

Both entities serve as powerful tools for wealth management, yet they offer specific advantages depending on a person’s needs:

• Trust: Ideal for protecting assets from potential lawsuits, ensuring financial stability for future generations, and fulfilling specific fiduciary purposes such as investment trusts.
• Private Interest Foundation: Provides long-term asset protection by segregating property ownership, ensuring that assets cannot be seized to cover the founder’s personal debts. Additionally, it allows for clear inheritance planning without conventional probate procedures.

The choice between a trust and a private interest foundation depends on your specific asset management goals:

• If you prioritize privacy and flexibility: A trust is the right option, especially for managing financial investments or establishing private succession plans.
• If you need structured asset protection: A private interest foundation is the ideal choice for consolidating your legacy and ensuring your wishes are honored in estate matters.
• Keep in mind that both instruments can complement each other within your estate planning strategy to maximize their advantages.

Taking into account the basic legal requirements for each figure is essential:

• Trust: A written contract between the trustor and the trustee that clearly defines the assets and purpose of the trust.
• Private Interest Foundation: Founding act, foundation regulations and registration in the Public Registry. It is also required to appoint a Founding Council and designate one or more beneficiaries.

The advice of lawyers who are experts in trust and property law is recommended to ensure compliance with all legal provisions in Panama.