- Trust or Private Interest Foundation?
- February 23, 2011
- Law Firm: Morgan Morgan - Panamá Office
Aging parents, the loss of a spouse, having young children, a desire to avoid tax burdens, planning for retirement or a possible disability: these are concerns of our daily life. Estate planning is a way to address all these family issues and ensure that our wishes are fulfilled once we are no longer among our loved ones.
Now, once we have recognized the importance of planning ahead, new questions often arise: How do I do this? What is the most appropriate legal vehicle? What are my options?
The best and most popular legal vehicles created for estate planning are the Trusts and the Private Interest Foundations (PIF). While both are well suited for the issues presented above, it is important to recognize their differences and similarities when deciding which one to use.
The Panamanian Trust is a hybrid of features taken from the original Anglo-Saxon Trust and the Roman fideicomisum. This useful and versatile instrument is mainly composed of an obligation undertaken by an institutional third party acting as trustee (e.g. MMG Trust), which manages an autonomous estate transferred by an individual (settlor) for the benefit of other third parties (beneficiaries) as per the wishes of the settlor set in the trust instrument.
On the other hand, the Panamanian Private Interest Foundation, of Roman origin, emerged as an alternative to Latin American families from foundations of Liechtenstein. The PIF is a legal person created when its Foundation Charter is registered in Panama’s Public Registry. Its purpose is to protect a particular family asset for the benefit of third parties (beneficiaries). The founder creates the Foundation and the responsibility for managing its assets relies within the Foundation Board, which is appointed by the Founder.
The Foundation is the sole owner of the assets to be transferred, while in a Trust, assets are held by the Trustee but don’t belong to it; i.e. they belong to the trustee “in its capacity as trustee of the Trust”.
To carry out a trust’s normal business, a trust license, issued and regulated by the Superintendency of Banks, is required. This is not the case with PIFs.
The word “fiducia” is Latin for faith or trust. When deciding to organize our assets and how these shall be transferred to our loved ones, seeking legal advice is essential. In Morgan & Morgan, we are here to help.