A foundation is a distinct legal entity (unlike a trust) but without member shareholders (unlike a company). The purpose of the foundation is set out in the deed of incorporation known as the Charter. It is usually used to preserve assets for the benefit of a family, often as an estate planning vehicle; it enables the separation of assets from the estate of the founder and ensures their independence and autonomy. The Foundation also avoids assets being held, directly or indirectly, in the client's own name, although substantial control over them can still be exercised by the client.
A foundation is a legally independent estate which is managed by a Foundation Council.
The regulations, which are, unlike a trust's "letter of wishes", a legally bounding document, govern the actions of the Foundation Council, normally contain the names of the people whom the client wishes to benefit from the Foundation. This document is neither registered with any authorities nor is available to the public, thereby ensuring the utmost confidentiality in these details. The Beneficiaries of the Foundations are also known to the Foundation Council and the Founder, and these provisions may be changed at any time by the client. A Foundation is capable of holding any assets including stocks, bonds, cash deposits, real estate, art collections, etc., in its own name; there are no accounting filings, reports or audits required by law. The founder, or others, may be granted a Power of Attorney in connection with the administration of Foundation assets.
A Foundation is generally used to hold cash, investments and shares in private commercial or holding companies, particularly with a view to Estate planning, in which area it is an eminently suitable vehicle.
Beneficiaries can validly include the Founder, family members, third parties or institutions. The Founder or client may generally retain full control over the assets held by the Foundation throughout his lifetime, and the Founder may at all times amend his disposition or dissolve the Foundation; the Foundation Council may be required by the Regulations to act only upon the First Beneficiary's instructions.
Note that at law in Panama there are no reporting requirements beyond the filing of the Foundation Charter; the Regulations are not registered with any authority. Inasmuch as assets will not form part of the client's assets for probate purposes, the Charter continue to be affective after death.
Of course, the Foundation’s assets can generally be transferred to the Beneficiaries at any time, subject to the Charter and the Regulations. None of these events would raise any tax consequences in Panama and there are no public registrations involved, the documentation being entirely private.
The following steps will be used to establish a Foundations: