Based on an article by Luigi Wewege

Offshore financial and bank accounts are excellent tools for asset protection, but they are not the best way to protect assets. As we have stated in many of our articles, keeping your money in one jurisdiction is the same as keeping your cash under a mattress at home. The more diversification through different countries, the better the protection that you´ll have. Moreover, the interest rates are usually better in foreign jurisdictions than at home. However, although this is an important step towards asset protection, it is not the best as bank interest rates are usually low and over the years, they cannot beat inflation. 

The trust has been one of the best asset protection strategies since the crusades and has helped the richest families in the world to maintain and grow their estates over the centuries. A foundation, like the Panama foundation, can also bring you much benefit as it works in a very similar way, although with some technical differences. 

Let us compare both of these structures so you can make the best decision when it comes to choosing the structure that will protect and grow your wealth for yourself and future generations.

Trusts and asset protection: what you should know about a Nevis trust

A Nevis trust will have practically the same characteristics of your domestic trust. The trust is a contract that will allow you to assign various types of assets to the trust so that they can be managed and legally owned by the trustee. The management of the assets is in compliance with the terms stipulated in the trust deed, i.e., trust agreement. 

Using a trust to protect assets is a smart decision, but what assets can you hold in a trust? You can hold any legal assets such as stocks, bonds, real estate, works of art, cash, etc. It is also possible to assign the payout of a life insurance to a trust structure. If you want to know specifically about your own assets and how can they be protected by a Nevis trust, please contact our experts. 

Benefits and limitations associated with a Nevis trust

The jurisdiction of Nevis does not impose tax on foreign sourced income of a Nevis trust. This means that, if you hold assets abroad such as brokerage accounts or real estate, these assets are free of tax as long as they are held under the Nevis trust. Let me remind you that, when property or assets are put under the trust ownership, you are not the legal owner anymore. Thus, Nevis trusts are tax-free vehicles, allowing you to grow your family money free from taxation forever.

Moreover, Nevis presents the beautiful concept of dynasty trust, which is a trust that can be maintained in perpetuity, meaning that your assets will be grown and protected for the next generations and your grandchildren will still be able to enjoy the benefits of this structure. 

Your Nevis trust is the best way to protect assets because this jurisdiction does not recognize foreign judgements. This means that, if your ex-spouse wins a legal claim against you, she or he won´t be able to touch the assets held under this structure. 

Exploring the merits of a Panama foundation

The Panama foundation is very similar to the trust in the sense that the founder transfers the assets to the foundation in order to protect them. The basic model for this type of foundation is rooted in the same principle of the trust in which the assets are given to somebody for protection and legal ownership, in the case of a foundation, the assets are transferred to a legal entity (the foundation) and not to a person. Thus, the founder can designate how these assets will be distributed. 

The foundation can be structured either as a family foundation or a charity entity. Thanks to the Panamanian law, it is highly possible that the assets will be free of tax in your home country, but this depends on the case. We recommend consulting with a tax expert in your jurisdiction. If you hold official Panama tax residency, on the other hand, and your assets and dividends are located or generated abroad, then they will be free of tax in Panama. If you hold money in a foreign bank, then they will report to Panama (if you are an official tax resident) under the CRS, but this won’t generate tax liability because of the territorial taxation regime.

Passively holding assets in a Panama foundation

The foundation has no owner. Unlike a company, which is owned by the shareholders, the foundation is not owned by anyone. It has no initial capital and it is established with a deposit made by the founder. This means that there is nobody actively managing the assets nor taking actions intended to promote growth, instead, the assets are being held and tracked.

However, you can still appoint a person to locally act on your behalf. The Panamanian laws regulating foundations include provisions for appointing a director who can take independent action according to your instructions. This person can also carry out directives issued by you under unusual circumstances that may arise and may require immediate attention. 

A balance between a trust and an IBC

Some think that the Panama foundation is a mixture between an IBC and a trust, and this is true in some way. The Panama foundation gives you more control, but the level of asset protection may be lower than with a trust. The foundations are great options for those who want to keep their privacy and also remain in control. 

The costs

When establishing an asset protection structure, it is important to consider costs. Usually the trusts are more expensive, and the foundation costs approximately a third of what a trust costs. However, although the costs are to be considered, they should not be the reason for your final decision. The most important things to consider are your plans for the future and what these structures can offer to effectively implement those plans. It is important to consider the types of assets that you want to protect and where they will be directed in the future according to your long-term objectives. 

It is vital to carefully consider the advantages of both structures and how can they be of benefit in order to achieve your own financial goals while protecting your privacy. 

If you want to know more about trusts and asset protection, and about what the best structure for you is, then please ask for a consultation with our experts. We help you to develop the best asset protection strategies in order to protect your wealth in perpetuity. 

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