Panama Foundation vs Nevis Trust: Which Fits Your Asset Protection Goals?

A Panama Private Interest Foundation is an excellent tool for families to create a separate legal entity to manage assets and pass a legacy from one generation to the next. A Nevis Asset Protection Trust is generally used to protect assets against future creditors.

All of these alternatives have to be carefully considered for long-term wealth planning, depending on the assets to be transferred, tax implications, the degree of control required by the transferor and the beneficiaries later on, and, last but not least, the ongoing structure’s costs and its respective restrictions and reporting requirements.

Key Takeaways

• Key differences between the Panama Foundation and the Nevis Trust include the manner in which assets are held within each structure. A Panama Foundation is a settled fund where all assets are held by the Foundation itself. In contrast, a Nevis Trust is set up as a vehicle to hold assets and is managed by one or more trustees in accordance with the trust deed.
• Both structures offer excellent asset protection and a very efficient way to transfer wealth from generation to generation. It is important to plan and set up a suitable structure for your client; once established, it will function efficiently.
• It does not guarantee the protection of your assets, and, most importantly, any assets introduced to the new structure after its establishment will not be protected by its provisions. So timing the transfer of assets to the new structure is crucial.
• References to the privacy afforded by a Panamanian Foundation or Nevis Trust are, in most cases, misleading, as such structures are not anonymous, and in most jurisdictions, disclosure of all parties involved to banks, solicitors, other agents, and regulatory bodies is required.
• Even if local taxes are waived in a particular jurisdiction, there are always global tax implications to consider with respect to any contributions, income, or distributions by an owner. All of these should be fully considered in detail by a client’s tax advisors.
• Importantly, ongoing annual fees to comprehensively maintain an asset-owning structure are typically greater than the initial establishment costs. Reference here is made to the ongoing annual fees.

Panama Foundation vs Nevis Trust at a Glance

The following comparison identifies the questions to explore before choosing either structure.

Panama’s Law 25 and the Nevis International Exempt Trust Ordinance provide the respective legal frameworks.

How the Two Structures Work

Before discussing the protection and costs of each structure, it is important to outline the basic framework of a private interest foundation in Panama, including how its assets are distributed among beneficiaries and who manages its funds and makes key decisions.

Panama Private Interest Foundation

A Panama Private Interest Foundation gains legal status upon registration. The Council of a Panama Foundation manages the Foundation's assets within the limits set forth in the Foundation's Charter and bylaws and in accordance with its purpose. Unlike other legal entities, the founders of a Panama Private Interest Foundation are not shareholders.

The Panama Private Interest Foundation is a very suitable structure for families and single individuals to establish a permanent vehicle for wealth management. It enables the creation of a long-lasting structure to distribute assets to beneficiaries in the best possible way.

• Who is going to approve payments to beneficiaries?
• What is the procedure for replacing decision-makers?
• What alternative option(s) might other family members want to consider?
• How are the founder's wishes to be continued after he or she has passed away?

It is important to address these critical provisions when drafting the Directive, but including them in the registration of the Foundation does not give rise to a complete succession plan for the founder. 

Nevis Asset Protection Trust

For the purpose of this discussion, a trust shall refer to a Nevis trust that includes a settlor (the trust’s grantor) that funds the trust with assets, a trustee (or trustees) that manages the trust assets, and a beneficiary or beneficiaries for whom the trustee distributes trust assets or otherwise receives benefits from the trust, in accordance with the trust agreement. A protector and/or alternate forms of trusts (such as a spendthrift trust) may also be included as part of a trust arrangement.

Also important is the relationship between the settlor and the trustee with respect to the investment of assets and making distributions. A clear procedure for removal and replacement of a trustee is also important.

We go into more detail about Nevis trusts in this Nevis trust guide. 

How Their Asset Protection Rules Differ

When considering asset protection, it is imperative to realize that transferring funds to another person’s name is not enough. In order to complete a satisfactory asset protection plan, a thorough review of the relevant laws must be conducted in conjunction with the planned asset transfers, as well as the administration of the assets transferred to the new structure.

Creditor Challenges and Transfer Timing

Pursuant to Panama’s Law 25, in order for asset protection to be effective, special qualifications must be met for the separation of assets and the contribution of funds to the structure. Article 15 spells out the specific time frame within which a creditor has to challenge the founder or any other individual who has contributed to the asset protection structure as a fraudulent contributor. That time frame is within a three-year period in which the contributor or transfer has taken place.

Specifically, Nevis deals with attempts by creditors to defeat an asset protection arrangement based on a fraudulent conveyance and makes a distinction between the date a creditor's cause of action arises versus the date an asset is placed into the protected arrangement (including the date an asset is transferred into the protected arrangement) and the date a statute will preclude any challenges from creditors. 

How long will it take to set up an asset protection structure and transfer assets to be protected? This will depend on:

• When did any liability or claim arise?
• When was the asset protection arrangement established?
• When were assets actually settled into the new arrangement?
• What are the relevant dates and applicable laws?

Establishing an asset protection arrangement and funding it with assets are two different issues that must be thoroughly analyzed, and only relying on the date of registration is not sufficient.

Foreign Judgments and Assets Held Abroad

In Nevis, a foreign judgment would have no effect on an international trust and would be dealt with in new proceedings in a court in Saint Kitts and Nevis to recover trust assets. The Nevis Financial Services Regulatory Commission assesses this matter.

Another way to look at whether another court could hear the same case as yours and what the implications of such would be for you and your proposed arrangement/structure.

An additional area of research could be an overview of foreign laws worldwide with respect to cross-border assets like real estate, a listing of the advantages and disadvantages of each country, and the implications of setting up an offshore structure to hold such assets.

Control, Revocability and Administration

"Control" of an investment designated by you does not necessarily mean that you can approve its purchase and then withdraw all of its funds at some later date.

• Appoint or remove administrators.
• Approve investments.
• Authorize distributions.
• Change beneficiaries.
• Amend or revoke the arrangement.
• Review the scope of your powers in order to reach your protection goals and your tax planning objectives.

The new family structure is just as important to manage as the rest of the family as it grows. Decisions and their approvals must be recorded on an ongoing basis in order to deal with each new request as it occurs.

Which Structure Fits Your Planning Goals?

These examples are offered solely for illustration. When planning for his client’s needs, the same kinds of issues and questions will arise as they would for an attorney planning for his or her own needs.

Planning for Future Business or Professional Risks

This client is a relatively new solo operator who has recently ventured into business. He currently operates a number of side ventures — many of which are big money makers for him and are costing him a lot of hard cash.

This new business in development needs to protect its owner from liability. Set up an asset protection structure such as a Nevis Asset Protection Trust with a debtor.

• Which assets can be placed into the trust?
• What assets will remain outside of the trust?
• How much access does the settlor require?
• Does the trustee arrangement meet expectations?
• What tax and reporting requirements may exist?

In addition to the capital expenditures and constraints listed above.

Organising Family Wealth and Succession

The Panama Foundation is used in this investigation by an investor family to explain why this or that investor transferred assets to his or her children and/or grandchildren. The intentions of the family member(s) transferring the assets must be set forth in writing, whether based on love or another reason.

Furthermore, said Family Member(s)’ intentions regarding distribution of the herein mentioned assets among the Children and/or Grandchildren of said Family Member(s) should be clearly set forth in the Memorandum or Articles of Association of the here-described Panama Foundation. All such assets are held in a Nevis trust, and the family member(s) here described have a special succession plan for themselves.

When Neither Structure Is the Right Starting Point

The ongoing structure to retain a few assets in offshore jurisdictions will likely cost more than it brings.

Consider changes to the liability structure of your business outside of the laws of your home country and the limits of your current business insurance while a claim of uncertain merit is under litigation.

Taxes, Privacy and Reporting

Of course, the protection of assets is crucial, but there are many more issues to consider when choosing an appropriate vehicle for asset management.

Local Tax Treatment Is Only Part of the Answer

Local tax treatment is only a part of the answer. Beyond local tax treatment, other important factors must be considered when choosing an asset management vehicle. Examples of such factors include whether any exemptions with respect to national or foreign assets and transactions, as stipulated in Article 27 of Panama Law 25/2007, will be affected by the tax regime of the country where the founder(s) and/or the beneficiary(ies) of a trust are resident.

Always seek legal counsel when establishing a structure.

If a trust is created outside of the U.S. (foreign trust) and reports any transactions with U.S. persons or all reportable foreign ownership interests in any year, then a Form 3520 and corresponding Form 3520-A would be required to report all distributions to all current beneficiaries for that year.

There are additional tax implications within a jurisdiction where the non-resident trust is administered/created by a settlor (and/or beneficiaries) who are UK residents. A trust administered in the UK or created by a settlor (and/or beneficiaries) who are UK residents for the benefit of that settlor (and/or beneficiaries) and/or other UK resident settlors (and/or beneficiaries) will be treated as if it were a resident trust in the UK.

Privacy: Who Can Access Your Information?

The word “confidentiality” and the difference between confidentiality and masking identity to illegal activities are concepts contravening the tremendous amount of information that currently exists today and which is mostly private and disclosed in accordance with and pursuant to law.

Information that is part of the public record regarding a Panama foundation is listed above; all other private information with respect to such foundation shall be disclosed on a confidential basis to the foundation or third parties with such private information on a confidential basis as permitted by law.

This is different than masking identity for illegal activity. A registered agent may ask for identification to open a bank account or a safe deposit box for a client.

It is also important to understand what information will be part of the public record and what private information a client’s registered agent and financial institutions will have access to and be able to refer to or share with others on a confidential basis in contrast to forming an anonymous entity to achieve client objectives.

Costs, Banking and Ongoing Administration

The cost of forming a Panama Foundation or a Nevis Trust consists of an initial setup fee plus an annual fee for administrative services. Ensure that you receive a full breakdown of services included in the price for forming a foundation or a trust from any service provider that you consider. The lowest price for forming a foundation or a trust may not include, for example, legal advice or government fees, and there may be additional unexpected costs subsequently incurred.

Compare the Full Cost

Please have your attorney provide you with a comprehensive and detailed list of the initial setup fees for the first year as well as the ongoing annual fees and charges for administration of a Nevis Trust. This list will include all government fees and charges as well as those of your Nevis attorney who will administer the Nevis trust on your behalf. The full list of setup fees for the first year as well as the ongoing administration fees for a Nevis trust are detailed in our Nevis trust cost guide.

Income tax in Panama is not imposed on a Panama entity. However, we maintain a complete and updated set of accounting records with respect to the entity as required by Law 254 of 2021 and Executive Decree 177 of 2024.

Assess Banking Before Formation

Before meeting with a wealth planner, it is worth forming a view on banking before setting up a Panama Foundation or Nevis Trust as part of a client’s life plan. The key questions with which to acquaint yourself when considering an inheritance structure, a structure to protect a business, or a family investment structure are:

Factors to Consider Before Establishing an Inheritance Structure, Protecting a Business, or Establishing a Family Investment Structure, such as a Panama Foundation or a Nevis Trust.

1. The reason for setting up an inheritance structure. Protection of business or businesses should a business or businesses enter into bankruptcy. A suitable family investment vehicle that can protect your relative(s) from themselves.
2. A complete list of all assets worldwide that will be transferred within the framework of your inheritance structure and any restrictions that apply with respect to certain assets and how these are currently held by you.
3. Beneficiaries. Where are they from? What are the tax and legal implications of establishing a Panama Foundation/Nevis Trust for them.
4. Can any capital sums be paid into the structure, or will there be ongoing payments required by the new structure? Are there decisions that require to be made from time to time with regard to the new structure, and if so, can these decisions be taken by another person?
5. What will be the tax implications for you and the other beneficiaries in the Panama Foundation structure? Are there any banks where the new Foundation will have better relationships?
6. It is also important to detail a complete budget for the formation of your offshore structure as well as the ongoing annual fees and all other costs and expenses that will need to be paid on an ongoing basis by the structure after it has been formed. This article covers offshore structures in Panama and focuses on the so-called Panamanian Foundation.

What to Assess Before Choosing

A comprehensive planning brief will also outline fixed positions on matters related to capital and decision-making.

• Define your ‘opening positions’ regarding capital and decision-making (projected annual benefits and optimal target within a time frame of your choice).
• Please create a list of your current global assets together with all relevant proofs of ownership and any restrictions that may impede transfer of said assets.
• Identify all pertinent jurisdictions (e.g., founder/settlor, beneficiaries).
• Define limitations and liabilities of the proposer vs. the proposed transfer to the individual designated to execute the proposed transactions.
• The capital and decision-making structure of the proposer should be set out too.
• Consideration of the tax implications and other banking options too.
• State your fixed positions on capital and decision-making (i.e., estimated annual value and optimal target within a time frame of your choice).

Conclusion

If you are organizing your family’s wealth and looking at options to pass wealth from one generation to another, or are worried about the risk of a creditor claim, you may be considering a Panama Foundation or a Nevis Trust. Both options have a number of key considerations, including who manages the structure, how distributions are to be made to beneficiaries, and the ongoing cost to maintain the structure.

Q Wealth compares the options offered in Panama with Nevis for you to make an informed decision as to the key objectives and your circumstances and the fine print involved for each of the structures and how they work in practice.

Frequently Asked Questions