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Private Interest Foundations in Panama are an ideal tool for success planning and asset protection. They can either be inter vivos (active during your lifetime) or testamentary (activated upon death). The Foundation may, for example, serve as a substitute for a will, thereby legally avoiding probate. In this respect it is similar to a 'living will.'
It can very effectively isolate a portion of your estate dictating the management and success of specific assets. Needless to say this is very important for international assets that may not be easily bought within the scope of a traditional last will and testament.
The key to making this work is the selection of beneficiaries. Let's say you want to divide your assets evenly between your two children – you simply appoint these two persons as beneficiaries. You may choose to tell your heirs or not as you wish.
Of course, confidentiality can only exist up to a point. Although you could choose to keep the entire Foundation entirely under wraps, from a practical point of view it is very important to leave some details so that after your death, someone will inform the beneficiaries. You could, for example, leave detailed death instructions in a sealed envelope with a trusted friend or lawyer. The best idea, however, is probably to appoint a trusted third party as a 'Protector' of the Panama Foundation. Remember you can appoint more than one Protector, or you could even appoint a Corporation as protector.
What about using a Panama Foundation for simple offshore asset protection during your lifetime? Here too,
Foundations provide a very attractive alternative to the Trust for purposes of asset separation and protection. Compared to asset protection trusts, they are lower profile and less vulnerable to hostile interpretation by the courts. Panamanian law is unequivocal that assets transferred to the Foundation can not be identified or attached and they can not be used to satisfies the obligations of either the founder or the beneficiaries.
As always, however, I do not recommend relying on purely legal protections. The ultimate protection is to make sure that even in Panama, any assets the Foundation holds are completely unknown and invisible to anyone such as the Foundation Council or Registered Agent who could possibly be subpoenaed in a court case. What they do not know, they can not be forced to tell – even in the illegally event that a Panamanian court tries to enforce a sentence contrary to Panamanian law.
The only exception to this rule is that creditors have a right to challenge a Panamanian foundation within a period of 3 years from the date the assets being claimed are given to the foundation. It's important to note that this period runs from the date that the assets went into the foundation, not from the date the Foundation was registered.
The Foundation's financial affairs are nobody's business but its own, and it should be up to you to decide who to tell about the existence of the Foundation. So for added security, I typically recommend what I call 'strategic geographic diversification' when setting up a long term structure for estate planning.
Put simply, this means that you should open a bank account where most of the Foundation's assets will be held outside Panama. European banks fit the bill perfectly here, and when forming a foundation you should seek introductions and recommendations of reputable European banks that understand Panamanian legal documents. Banking outside Panama gives a strong extra level of protection.