Offshore Foundations

An overview on the foundation structure, with a particular focus on Private Interest Foundations in Panama. There are many countries offering legal entities known as offshore foundations. A private offshore foundation is a private entity usually set by an individual or married couple to provide for their children and their heirs.
Most countries restrict their offshore foundations from engaging in commercial for profit activities but do allow for passive income like earned interest from bank accounts or owning real estate and corporate stocks which rise in value.

Over the centuries offshore foundations were created in Europe to provide charitable, religious, or social work. Liechtenstein created a law in 1926 allowing the creation of private offshore foundations which many families have taken advantage of for asset protection, estate planning, and avoiding probate upon the death of the founder. Holland allows private offshore foundations for government and educational pension funds, helping Dutch museums, provide health care and to do social work. Australia, the Bahamas, Canada, Luxembourg, Switzerland, and the United States have laws allowing for private offshore foundations.

In most of these countries it is fairly simple to form an offshore foundation. Usually just a notarized deed filed with the government’s Registry of Deeds. Sweden requires the founder to donate the administered assets to the private foundation with a Letter of Donation explaining the purposes of the private offshore foundation.

Offshore foundations can remain idle until some triggering event takes place like the death or disability of the founder. There is no need for having a will because when the founder dies the terms of the offshore foundation letter written by the founder dictates who gets what assets. This avoids costly and time consuming probate as well.

Panama has unique laws regarding their Private Interest Foundations. For instance, the offshore foundation’s beneficiaries can’t revoke the offshore foundation as it will become perpetual. In fact the founder’s Letter of Wishes is the road map for how the offshore foundation’s assets will be distributed and controlled. Only the founder can change the Letter of Wishes requiring that it be written in a very detailed manner taking into account any unforeseen circumstances after he passes away. A Panama offshore foundation cannot be declared invalid by another country where the beneficiaries or administrators live.

The assets of a private offshore foundation can include bank accounts, cash, jewelry, real estate, corporate stocks, precious metals, vehicles, furniture, personal property, and securities. Panama requires that private offshore foundations must have a minimum of $10,000 USD in assets.

Most jurisdictions allow private offshore foundations’ assets to be separate and independent from a founder’s estate, corporations, or group which created the offshore foundation. This protects the assets of the offshore foundation from being seized by civil court order resulting from divorce or lawsuit judgments or by government agencies unless the offshore foundation was involved with the event. The founder’s creditors will also be stopped from seizing offshore foundations assets. There is one exception called a “Fraudulent Conveyance” which some countries laws allows an entity like an offshore foundation from being able to hold onto the founder’s assets if it can be proven that the founder knew of a pending claim or already had a lawsuit judgment in place when the offshore foundation was created. The fraudulent conveyance occurred when the founder tried to hide assets subject to seizure in a fraudulent manner.