Legal Distinctions:
Private Interest Foundations vs. Trusts 

In Panama, both Private Interest Foundations and Trusts are very useful legal tools to protect and manage assets. Each one has specific advantages that adapt to different estate planning needs, whether for family, succession, or investment purposes. Below, we will examine the main differences between these two structures and how they can be used to protect your assets effectively.

Legal Framework of Foundations and Trusts

Both figures are supported by a solid legal framework in Panama:

• Trusts: They are regulated by Law 17 of February 20, 1941. This law establishes the bases for their creation and administration, requiring that the trustee comply with all the obligations established in the constitutive document of the trust.

• Private Interest Foundations: They are regulated by Law 25 of June 12, 1995. This legislation allows the founder to transfer his assets to a foundation, which will be independently managed by a foundation council.

Although both figures offer legal protection, there are important differences in how the assets are managed and who can administer them. The law firm Panama Legal Lab specializes in guiding its clients to select the most appropriate structure, whether a trust or a foundation, according to their estate objectives.

Definition of Trust and Private Interest Foundation

• Trust: It is a legal agreement through which a person (the settlor) transfers the ownership of certain assets to a trustee. The trustee is responsible for managing those assets for the benefit of a third party, called the trust beneficiary. In some cases, the settlor can also be the beneficiary.

• Private Interest Foundation: It is a legal entity created by a person (natural or legal), called the founder, who transfers assets to the foundation. These assets are administered by a foundation council that acts for the benefit of a third party or of the founder himself, depending on what is established in the act of constitution of the foundation.
  
  

Requirements for Administration

One of the most significant differences between both structures lies in the requirements for the administration of the assets:

• Trust: The trustee, who is the person or entity in charge of managing the assets, must have a special license issued by the Panamanian authorities. This guarantees that the trustee complies with the professional and legal standards established by law.

• Private Interest Foundation: The foundation council, in charge of managing the assets of the foundation, does not need any special license to perform its function. The founder himself can be part of the council and have an active role in the administration of the assets. This allows the founder to have greater control and customization in the management of his assets.
  
  

Control and Ownership of the Assets

The way in which the founder or settlor can exercise control over the assets also varies between both structures:

• Trust: Once the assets are transferred to the trustee, the settlor loses direct control over them. The trustee has the obligation to manage the assets in accordance with what is established in the constitutive document of the trust. Although the settlor can be the beneficiary, he must trust that the trustee will comply with what is stipulated.

• Private Interest Foundation: The founder has the option to maintain greater control over the transferred assets. He can appoint a protector, who supervises the decisions of the foundation council and ensures that the wishes of the founder are respected. This structure is ideal for those who wish to continue influencing the management of their assets even after having transferred them to the foundation.
  
  

Confidentiality and Asset Protection

Both structures are designed to offer high levels of protection and confidentiality, but each one does so in a different way:

• Private Interest Foundations: One of their main advantages is confidentiality. The founder can choose to appoint nominal members on the foundation council, which preserves the privacy of the true controllers of the assets. In addition, by appointing a trusted protector, the founder can supervise the administration of the assets without compromising his identity. This option is especially useful for those who seek discretion both in management and in ownership of their assets.

• Trusts: Although the trust also offers asset protection, the control of the assets passes to the trustee, who is legally obligated to act for the benefit of the beneficiary. However, the constitutive documents of the trust are private and can only be disclosed under specific circumstances, which ensures a high degree of confidentiality.
  
  

Which Option Is Best for You?

The choice between a Private Interest Foundation and a Trust in Panama depends on the client’s specific needs and objectives. Both structures are excellent options for asset protection, but offer different levels of control and flexibility:

• Trusts: They are ideal if a more structured and regulated management of the assets is sought, with a trustee who acts under strict legal standards.

• Private Interest Foundations: They offer greater flexibility, allowing the founder to maintain more direct control over the assets and greater confidentiality.

The firm Panama Legal Lab specializes in providing personalized advice to ensure that its clients choose the structure that best fits their needs for confidentiality, control, and asset protection.