Set Up a Trust in Panama

Our Panama incorporation specialists assist those who open a trust in this jurisdiction.

How do I set up a trust in Panama?

A trust is based on a document called the trust deed which will create a fiduciary relationship between two parties: the one that entrusts the protection of the assets and the one that undertakes to secure this protection to the best interest of the beneficiaries.

Below, our Panama incorporation agents list the main elements of the trust and outline the requirements for its setup: 

• The settlor: the individual who entrusts the assets or property to another party, as he sees fit.
• The trustee: the party that engages to protect the assets and distribute them accordingly.
• The beneficiaries: the party or parties who will receive the assets in the trust, as directed by the settlor.
• The trust deed: the document that includes information about the appointment of the parties, the assets, the duration, the powers, duties, or limitations of the trustee.

In Panama, a trust can be created to fulfil any lawful purpose. After the trust deed is drawn up, both the settlor and the trustee must sign it, and the document is to be authenticated in front of a notary. It is useful to note that the trust is not perpetual unless this is stated in the Deed. In all other cases, the duration of the trust will be clearly stated.

What information does the Trust Deed include?

As mentioned, the trust deed (sometimes also called the trust instrument) is an essential, written document used to set up a trust in Panama. Trust creation is not accepted without this legally drawn up document.

The Trust Deed includes the following details:

• Information on the settlor, the trustee, and beneficiary (or beneficiaries, if applicable);
• The manner in which the future beneficiaries or classes thereof will be identified in the future (if applicable for that type of trust);
• The trustee designation (or that of their substitute, if any);
• A description of the assets placed within the trust (the patrimony, as it is sometimes called);
• The trust founder’s explicit statement to set up the trust;
• The powers and duties of the trustee, as well as any limitations to their powers and how these may apply (if this is the case);
• The rules for accumulating assets within the trust, as may apply depending on the type of trust that is being set up;
• The trust’s place and date of creation;
• The designated Panamanian registered agent (our own agents can act in this capacity), who endorses the trust instrument;
• Information on the domicile of the trust in Panama;
• Other details, as may be required (such as a conformity statement with the Panamanian trust laws).

Those interested can only set up a trust in Panama by way of a written trust deed. The settlor’s willingness to open the trust is made in writing, and verbal statements cannot be taken into account for the legal creation of this instrument. If you want to start a company in Panama, our team can help you.

The infographic below summarizes some important details about Panama trusts:

What types of trusts can I open in Panama?

In broad terms, there are two main types of trusts that can be set up in Panama. They are the revocable and the irrevocable forms. The main difference is that the revocable one can be subject to change after its creation and the irrevocable one will not allow this option or, if possible, it will be only under strict conditions. The main advantage of the latter is that it can provide tax-shelter benefits, which the revocable (sometimes called the living trust) cannot.

The choice will depend on the investor’s needs and whether or not it is likely that a change in beneficiaries will occur at some point in the future. Likewise, the revocable trust leaves the option to remove beneficiaries, if the case should arise, as well as change the manner in which the assets are managed.

The main issue to consider when choosing between these two trust forms is that the revocable one, although flexible, will not offer the same degree of protection against creditors because it can be liquidated to satisfy creditor claims (under certain conditions). Moreover, the tax treatment of the trust (in certain jurisdictions) can be different when it is a revocable one.

Given the characteristics of the irrevocable trust, it is used for asset planning purposes. The grantor (settlor) can choose to include both tangible and intangible assets in the trust. An important issue to consider is that the grantor of an irrevocable trust is no longer considered the owner of the assets (thus allowing for the particular tax advantages).

The trust can be a valuable asset planning instrument which, when properly set up, will allow the settlor to determine the precise manner in which the beneficiaries will access the assets, all in accordance with the Trust Deed, the founding documents on which the trust was based.

We invite you to watch a video about the Panamanian trust:

Can a trust be terminated?

Yes. According to law, a trust may be terminated when one or more of the following apply:

• It has fulfilled the purpose for which it was crated;
• It is impossible to continue its purpose;
• The beneficiary resigns from their role (and there is no substitute);
• The trust loses all of its assets;
• The sole beneficiary becomes the sole trustee;
• Any other reason, as may be stipulated in the Trust Deed.

Should a trust be extinguished without any beneficiary that can receive the assets placed therein, these are transferred into the National Treasury by the trustee.

Must I place certain types of assets into a Panamanian trust?

There is no legal stipulation in this sense. A trust may be formed to hold assets of any nature, present or future.

The settlor may open a trust in Panama that will include only part of their assets, or their entire patrimony, if agreed.

Nonetheless, a trust in Panama can only be formed for reasons that do not contravene Panamanian laws, public order, or moral matters.

Must I follow a special trust law in Panama?

Law No. 1 of January 5, 1984, governs the creation of trusts in Panama.

What are the main advantages of a trust in Panama?

Panama is one of the top offshore locations in the world, with many foreign investors looking to establish their financial planning and asset protection vehicles here.

The advantages for investors who set up a trust in Panama are the following:

1. Ownership: a Panamanian trust is fully foreign-owned and there are no requirements for any local control or management.
2. Foreign-based: this means that a foreigner can set up a trust that has the assets based in other countries and also the beneficiaries live in other countries.
3. Privacy: the trust is not registered with the Government or any agency, and this allows for complete privacy. 
4. Tax: there is no tax applicable in Panama for trusts, however, there are requirements for foreign taxpayers to disclose all of their income, depending on their country of origin.
5. Asset protection: the trust is a suitable vehicle that allows for complete protection against possible creditors.
6. Estate planning: a common use for the trust in Panama as it can be set up with no expiry date.
7. Easy formation: opening a trust in Panama is a simple procedure that can be accomplished in one day.

The fact that the trust documents can be drawn up in English is another important advantage for many foreign investors, especially those from the United States. Our team of Panama incorporation specialists can help entrepreneurs or individuals who are interested in drawing up the mandatory documents for a trust in the country. 

In case you need more details about setting up a trust in Hong Kong, this local team of experts – OpenCompanyHongKong.com – can assist you in this matter.

Investors who are interested in opening a trust, as well as Panama incorporation for offshore legal entities, can contact us.