The main difference between a trust and a foundation in Panama is that a trust is a private legal arrangement, while a foundation is a registered legal entity with its own legal personality.
Unlike trusts, foundations can own assets directly, operate with a governing council instead of a trustee, and offer greater structural autonomy, making the comparison between trusts vs foundations in Panama especially important for international estate planning.
In this article, you’ll learn about commonly asked questions:
- Is a Panama Foundation a trust?
- How do Panama trusts and Panama foundations work?
- How to create a foundation in Panama?
- How to start a trust in Panama?
- What are the disadvantages and advantages of Panama trusts and foundations?
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La información contenida en este artículo es meramente orientativa. No constituye asesoramiento financiero, jurídico o fiscal, ni una recomendación o solicitud de inversión. Algunos hechos pueden haber cambiado desde el momento de su redacción.
What is the difference between a trust and a foundation in Panama?
The key difference is that a Panama trust is a contractual relationship without legal personality, whereas a Panama foundation is a separate legal entity that owns assets in its own name.
While both serve similar purposes like protección de activos, succession planning, and privacy, they are fundamentally different in structure and legal identity.
| Feature | Panama Trust | Panama Foundation |
| Legal Entity | Not a legal entity | Separate legal entity |
| Parties Involved | Settlor, trustee, beneficiaries | Founder, council, beneficiaries |
| Ownership | Trustee holds legal title | Foundation owns assets directly |
| Governing Law | Trust Law No. 1 of 1984 | Private Interest Foundation Law No. 25 of 1995 |
| Asset Protection | Strong, especially for foreign assets | Strong, especially with discretionary structuring |
| Registration | Private; not publicly registered | Requires public registration |
| Flexibility | High for customized structuring | High, with added legal personality |
How does a trust work in Panama?
A Panama trust is formed when a settlor transfers assets to a trustee, who manages them according to the trust deed.
It can be revocable or irrevocable and is commonly used by international clients for:
- Asset protection from creditors
- Avoiding forced heirship rules
- Estate planning outside home jurisdictions
- Holding bank accounts, shares, or real estate
Trusts in Panama are not required to be registered and can remain entirely private unless they own real estate in Panama.
They can also be designed to take effect during life or upon death.
What is the legal basis of a trust in Panama?
The legal framework for trusts in Panama is established under Law No. 1 of 1984, which provides one of the most flexible and protective trust regimes in Latin America.
Key features include:
- Wide-ranging purposes: Trusts may be created for any lawful objective, including asset protection, estate planning, and business structuring.
- Protection from foreign claims: Foreign judgments are not automatically enforceable against a Panamanian trust, enhancing its appeal for international clients.
- Privacy and confidentiality: Trusts can be drafted in any language and are not subject to public disclosure requirements.
- Regulated trustees: Trustees in Panama are typically licensed financial institutions, though private trustees may be permitted under specific exemptions.
How to set up a Panamian trust
Here are the basic steps to establish a Panama trust:
- Draft the Trust Deed – outlining the terms, purpose, beneficiaries (or classes), and powers of the trustee.
- Appoint a Trustee – either a licensed Panamanian fiduciary company or, in some cases, a private individual.
- Transfer the Assets – the settlor legally transfers ownership of the designated assets to the trustee.
- Determine the Type of Trust – revocable or irrevocable, fixed or discretionary.
- Optional: Include a Protector or Letter of Wishes – to guide trustee actions and preserve settlor intent.
Panama trusts do not require registration and can be fully private.
They can also be created remotely with the help of a licensed Panamanian trust company or legal advisor.
No residency is required for the settlor, trustee (if non-professional), or beneficiaries.
What are the advantages and disadvantages of trusts in Panama
Advantages
- Strong asset protection for both local and foreign assets
- Complete privacy (not registered publicly)
- No requirement for beneficiaries to be named immediately
- Flexibility in succession planning
- Exempt from Panama income tax on foreign-derived income
Disadvantages
- Trustee must be highly trusted (fiduciary risk)
- No legal personality (can complicate ownership)
- Not ideal for owning local Panama real estate unless properly structured
How does a Panama Foundation work?
A Panama foundation, governed by Law No. 25 of 1995, is a legal entity that holds and manages assets independently of its founder.
Unlike a trust, it does not have owners.
Instead, it has a foundation council that manages the assets and enforces the foundation charter.
It’s commonly used for:
- Estate planning with built-in succession
- Holding foreign and local assets
- Charitable or philanthropic purposes
- Privacy-focused asset structuring
Foundations must be registered with the Panama Public Registry, but beneficiary information can remain private through a confidential letter of wishes.
What is the Panama foundation law?
Panama’s foundation regime is governed by Law No. 25 of 1995, known as the Private Interest Foundation Law.
This legal framework was designed specifically to provide a civil-law alternative to common-law trusts, with features that appeal to international individuals and families seeking asset protection and estate planning.
Key highlights of the law include:
- Separate legal personality – Foundations can own, manage, and transfer assets in their own name.
- No owners or shareholders – Foundations operate independently, guided by a foundation council and the founder’s objectives.
- Purpose flexibility – Can be used for private gestión de patrimonios, charitable aims, or both.
- Confidentiality protection – Beneficiaries are not publicly registered and can be designated through a private letter of wishes.
- No local tax on foreign-sourced income – Foundations are exempt from Panama income tax on assets and income sourced outside the country.
How to create a foundation in Panama
Here are the basic steps to establish a Panama foundation:
- Draft the Foundation Charter – outlining its name, purpose, and structure.
- Appoint the Foundation Council – a minimum of 3 individuals or a legal entity.
- Register with the Public Registry – this creates the legal personality.
- Deposit the Initial Endowment – typically USD 10,000 or more.
- Optional: Draft a Letter of Wishes – to set out distribution terms privately.
Foundations can be set up remotely through a Panamanian lawyer or service provider. No local residency is required for founders or beneficiaries.
Pros and cons of Panama Foundation
Pros
- Full legal personality, can own assets directly
- Ideal for asset protection and inheritance planning
- Flexible beneficiary structure
- Can be perpetual (no forced termination)
- Exempt from tax on foreign-sourced income
Cons
- Public registration required (limited privacy compared to trusts)
- Initial and ongoing costs slightly higher than a trust
- Needs foundation council (additional compliance layer)
Trust vs Foundation in Panama: Which One Should You Choose?
If your priority is privacy and confidentiality, a trust is likely the better choice.
If you need legal personality and long-term control, a foundation may be more suitable.
| Use Case | Recommended Structure |
| Confidential asset protection | Trust |
| Estate planning with succession | Foundation |
| Holding company shares or accounts | Both (depending on control needs) |
| Philanthropy or multi-generational legacy | Foundation |
| Avoiding forced heirship laws | Trust |
For high-net-worth individuals and expats, the choice depends on whether they prioritize privacy (trust) or structured control with legal personality (foundation).
Conclusión
Whether you choose a trust or a foundation in Panama, both offer world-class tools for wealth protection and estate planning.
The ideal structure depends on your privacy needs, control preferences, and long-term goals.
With professional guidance, these vehicles can provide global asset security in a stable and investor-friendly jurisdiction.
Preguntas frecuentes
Is income earned by Panama trusts or foundations taxable?
No, Panama does not tax foreign-sourced income earned by trusts or foundations.
Can foreigners create Panama trusts or foundations?
Yes. There is no nationality or residency restriction. Both vehicles are widely used by international clients.
Can a Panama trust or foundation hold real estate?
Yes. Trusts can hold real estate but require proper structuring. Foundations, as legal persons, can own Panamanian or foreign property directly.
Are Panama trusts and foundations subject to CRS or FATCA?
Panama participates in CRS, so foundations with reportable accounts must comply.
Trusts involving US persons may also be subject to FATCA reporting, depending on the trustee’s classification.
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Adam es un autor reconocido internacionalmente en temas financieros, con más de 830 millones de respuestas en Quora, un libro muy vendido en Amazon y colaborador de Forbes.
