The Panama Trust |
General Information about the Panama Law on
Trusts
Trusts in Panama are regulated by Law 1 of
January 5, 1984 and Decree N. 5 of 1997.
A Trust is basically a special type of contract
recognized by law.
A contract between an individual (the "settlor")
who transfers certain assets owned by him or her (the "trust
fund") to one or more persons (the "trustees") with specific
instructions, legally binding for the trustees, that the
trustees should hold the trust fund upon prescribed terms (the
"beneficiaries").
The document in which the settlor's instructions
are contained, is called the "trust instrument", which governs
all future dealings by the trustees of the trust fund. Trusts
are either revocable or irrevocable.
The trust instrument is usually signed and sealed
by both the settlor and the trustees. If the settlor does not
wish to be named personally in the trust instrument, the trust
can be formed by a "declaration of trust" which is signed and
executed under seal by the trustees alone.
The choice of trustees is very important as the
trustees are under a strict legal obligation to carry out the
precise terms of the trust. Trustees can either be individuals
or companies or even a combination of the two.
The trust fund can consist of a variety of assets
including accounts, cash, company stocks, businesses,
investments, property, homes, insurance policies or interests in
other trusts.
The most common form of trust established in
offshore jurisdictions is the "discretionary trust". This is a
very flexible trust and gives a high level of confidentiality, as
usually there is no requirement to file the trust instrument
with any government agency so that privacy of the settlor, the
trust's activities and the identity of the beneficiaries is
fully protected.
Typically, the trust is created in a country
which imposes no tax of any kind on the settlor, the
beneficiaries or in the income or capital gains earned by the
trust. Further, more jurisdictions selected for forming offshore
trusts do not have any requirement for the trustees to file
trust accounts with the local tax authority - thus further
preserving the confidentiality of the trust's activities.
Depending upon the residence for tax purposes of
the settlor and the beneficiaries, it is often possible to make
distributions of capital or income from the trust completely
free of tax.
Frequently, international business community
employs offshore discretionary trusts to hold their various
investments. In this matter, many reporting requirements are
either eliminated or vested in the trustees.
Specially designed trusts can effectively protect
the settlor's assets from attack by creditors, thereby
preserving the settlor's assets for the enjoyment of the settlor
and his or her selected beneficiaries.
