Panama Trusts: A Strategic Guide for Asset Protection and Estate Planning

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A Panama trust is a legal arrangement where a settlor transfers assets to a trustee, who manages them for the benefit of a third party.

Panama trusts are widely used by international clients for wealth preservation, asset protection, and succession planning due to the country’s flexible legal framework and high level of confidentiality.

In this guide, we’ll explore:

• What are the 4 types of trusts in Panama?
• How to open a trust in Panama
• What are the tax advantages of Panama?
• What are the pros and cons of Panama trust?

My contact details are hello@adamfayed.com and WhatsApp ‪+44-7393-450-837 if you have any questions.

The information in this article is for general guidance only. It does not constitute financial, legal, or tax advice, and is not a recommendation or solicitation to invest. Some facts may have changed since the time of writing.

What is a trust and what does it do?

A trust is a legal arrangement where one party (the settlor) transfers assets to another party (the trustee), who manages them for the benefit of a third party (the beneficiary).

Trusts are used globally for asset protection, inheritance planning, charitable purposes, and financial privacy.

In Panama, trusts offer confidentiality, asset segregation, and legal protection from creditors and political risk.

They’re commonly used by expats, entrepreneurs, and family offices seeking to structure their wealth across jurisdictions.

What are the 4 types of trusts in Panama?

The following are the most common trust structures used in the country:

1. Revocable Trusts – The settlor retains the right to modify or cancel the trust at any time.
2. Irrevocable Trusts – Once established, the trust cannot be modified or revoked without the beneficiary’s consent.
3. Discretionary Trusts – The trustee has full discretion over how and when to distribute assets to beneficiaries.
4. Charitable Trusts – Created for public benefit or philanthropic purposes, often exempt from taxes in Panama.

How to set up a trust in Panama

Setting up a trust in Panama involves a few key steps, from choosing a trustee to transferring your assets and finalizing the trust deed.

Here’s how the process typically works:

1. Choose a trustee
   The first step is to appoint a trustee, who will be legally responsible for managing the trust assets. This can either be a trusted individual or a Panamanian licensed trust company. Most foreign clients prefer using a professional trust company due to its regulatory oversight, experience, and ability to ensure long-term continuity.
2. Draft a trust deed
   The trust deed (also called a trust instrument) is the legal backbone of the structure. It outlines the purpose of the trust, names the beneficiaries, defines the trustee’s powers, and describes how the assets should be managed or distributed. This document can be tailored to suit various objectives, from asset protection to estate planning.
3. Transfer the assets
   Once the deed is in place, the settlor (the person creating the trust) must legally transfer ownership of the designated assets to the trustee. These assets can include real estate, bank accounts, company shares, intellectual property, or other investments. Upon transfer, the trustee becomes the legal owner of the assets, although they must manage them for the benefit of the trust’s beneficiaries.
4. Register the trust (optional)
   One of the advantages of Panama trusts is that registration is optional. Trusts can remain private unless public registration is needed. For example, to enforce legal rights or when the trust holds property located in Panama. If privacy is a priority, the trust can remain unregistered and confidential.

Legal support is often recommended to ensure compliance with local laws and to structure the trust according to your specific needs.

Panama trusts requirements

To establish a trust in Panama, the following are typically required:

• A trust deed (or written trust instrument): This is the foundational legal document that sets out the terms of the trust, including its duration, the powers of the trustee, and the rights of the beneficiaries. It must be signed by the settlor and the trustee.
• A licensed trustee (if not self-managed): While Panama permits a wide range of trustee types, if the trust is to be administered professionally, the trustee must be a Panamanian trust company duly licensed by the Superintendence of Banks. The trustee holds and manages the assets in accordance with the trust deed.
• Identification and background details of the settlor and beneficiaries: This includes full legal names, nationalities, and in most cases, proof of identity and source of funds to comply with anti-money laundering (AML) regulations.
• A clear description of the trust assets: The trust deed should define the type and value of the assets being transferred, whether real estate, securities, bank accounts, intellectual property, or other investments.
• Purpose of the trust: Whether the trust is being set up for estate planning, asset protection, succession planning, or philanthropic aims, the intent must be explicitly stated to guide the trustee in fulfilling their duties.

Importantly, Panamanian trust law allows trusts to be governed by foreign laws if so stated in the deed, offering additional flexibility.

What is the minimum to set up a trust in Panama?

There is no official minimum capital requirement to establish a trust in Panama.

However, practical considerations, such as trustee fees, legal drafting, and administration costs, mean that most trusts are funded with at least USD 10,000 to USD 50,000 or more.

Some licensed trustees may impose their own minimums, particularly for discretionary or complex international trusts.

What is the trust law in Panama?

Panama’s trust law is primarily governed by Law No. 1 of 1984, which regulates the formation, administration, and termination of trusts in the country.

Key features of this law include:

• Asset protection – Trust assets are separate from the settlor’s and trustee’s personal estate.
• Confidentiality – Trustees are bound by strict confidentiality unless required by a Panamanian court.
• Recognition of foreign trusts – Panama allows for trusts governed by foreign laws.
• Perpetual duration – Trusts in Panama can exist indefinitely unless stated otherwise.

The legal system provides strong protections for settlors and beneficiaries, making it one of the most favorable jurisdictions for trusts in Latin America.

Is Panama a tax-free country?

What are the advantages and disadvantages of trusts in Panama?

Panama trusts combine strong asset protection, tax efficiency, and privacy, but they can involve setup costs, compliance obligations, and cross-border complexities

Advantages:

• Strong asset protection – Panama trusts offer robust legal safeguards against creditors, lawsuits, and political instability, making them ideal for shielding assets from external threats.
• No taxes on foreign income or gains – Income and capital gains earned outside Panama by the trust are not subject to Panamanian tax, which makes the structure highly tax-efficient for international assets.
• Complete confidentiality – The identities of the settlor and beneficiaries, as well as the trust’s operations, are kept private by law, offering a high degree of discretion.
• Flexible structures – Panama allows trusts to be governed by foreign laws and to have perpetual duration, giving settlors wide latitude in how the trust is designed and managed.
• No forced heirship – Panamanian trust law does not impose inheritance rules based on family lineage, so the settlor can freely choose how and to whom assets are distributed.

Disadvantages:

• Initial setup and ongoing costs – Establishing and maintaining a Panama trust requires professional services, such as legal drafting and trustee management, which may involve significant expenses.
• Cross-border complexity – If not properly structured, Panama trusts may create complications in international estate planning, especially when coordinating with laws in the settlor’s home country.
• Limits on local property – While Panama trusts can hold property within the country, doing so requires proper registration to ensure legal recognition and enforceability.
• Compliance risks – If a Panama trust is not disclosed in the settlor’s country of residence, it may trigger penalties or audits, especially in jurisdictions with strict foreign asset reporting laws.

Who should consider setting up a Panama trust?

Panama trusts are ideal for:

• High-net-worth individuals with international holdings
• Families looking for multigenerational wealth transfer solutions
• Expats seeking estate planning without forced heirship
• Entrepreneurs wanting to shield assets from business risks

What is the difference between a trust and a foundation?

Trusts are often better suited for dynamic estate plans or where fiduciary discretion is needed. Foundations may be preferable for philanthropic or multi-beneficiary family purposes.

• Trusts are based on a fiduciary relationship where the settlor transfers assets to a trustee, who manages them for the benefit of designated beneficiaries. They are governed by a trust deed and rely on the trustee’s legal obligation to act in the best interest of the beneficiaries.
• Foundations, on the other hand, are independent legal entities with no owners or shareholders. They hold assets in their own name and are managed by a council or board in accordance with a foundation charter and bylaws.

Conclusion

Panama’s legal framework makes it a strategic jurisdiction for setting up flexible and internationally oriented trusts.

Whether your goal is generational wealth transfer, safeguarding assets from external risks, or enhancing global estate planning, a Panama trust can be tailored to suit.

However, proper structuring and expert guidance remain key especially to navigate cross-border compliance and avoid costly missteps.

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