Benefits of a Trust and Panamanian Foundation

The main characteristic of a Trust is that the legal right to handle the Trust assets is separate from the right to benefit from them. The trust settlor transfers property to the trustees, who become the legal owners of these assets but are legally obliged to manage them in the best interest of the beneficiaries, who have the beneficial ownership.

A Foundation is a separate legal entity the purpose of which is usually to provide benefits for members of a family. It is usually formed in Panama, BVI or Liechtenstein due to the flexibility offered in these jurisdictions. A Board, appointed by the Founder, is responsible for managing the assets and distributing the benefits to the beneficiaries, in accordance with the foundation articles and by-laws.

One of the benefits of a Trust or Foundation is the ability to limit the first beneficiaries to income and/or part of the assets thereby preserving the family fortune for the benefit of several generations. Another possibility may be for the protection of minors and young adults, by having the Trust or Foundation to support them financially and defer their right to receive a share of the assets until they have reached a certain age.

For tax purposes, the use of a Trust or Foundation allows the elimination of wealth tax that would otherwise be imposed on the assets placed therein, as well as tax on capital gains resulting from their subsequent sale. Income tax is deferred or eliminated as long as the assets are kept within the Trust or Foundation and no distribution is made.

Transmission of the assets to the beneficiaries does not give rise to inheritance tax on the death of the settlor or founder, or if new beneficiaries are substituted for those no longer alive.