Panamanian
Foundations of Private Interests - Page Two
A Summary from a U.S.
Perspective
By Robert E. Payne
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| V. TRANSFER OF REAL
PROPERTY TO FOUNDATION
As illustrated earlier, Panamanian
Private Interest Foundations are an ideal vehicle for the holding of assets
designated for beneficial use and enjoyment. As such, the assets placed
within the jurisdiction of the Foundation are afforded protection from
attack by creditors, family members, third parties and intended beneficiaries.
This makes Foundations the preferred vehicle for the holding of valuable
assets such as real estate, appreciated securities and certain types of
family businesses.
With respect to real property, the
utilization of Private Interest Foundations as owners and holders of the
asset may provide certain additional advantages not found in the usual
and customary methods of holding real property. Unlike a corporation or
trust where one or more individuals or entities may serve as the manager
or trustee charged with the conservation of and increase of value of real
property assets and where these persons and/or entities may be professionally
retained for those purposes, the Founder of the Foundation may implement
the right to name a Supervisory Committee or “Protector” to oversee and/or
serve as the “watchdog” over the Foundation Council to insure the Founder’s
intentions are being served as well as to insure property preservation
for the benefit of beneficial owners. This additional layer of management
oversight can be critical for the long-term investor of real property or
to a family patriarch holding properties intended for the benefit of his
children or other beneficiaries. |
| Foundations are the preferred
vehicle for the holding of valuable assets such as real estate, appreciated
securities and certain types of family businesses. |
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Regarding the mechanics of moving
property into a Foundation structure, it is not possible in this writing
to describe the methods pertaining to each jurisdiction or country as to
the rules for an actual transfer. However, by using the U.S. model which
is representative for most industrialized nations, some guidance may be
found in that method. Under usual circumstances, the owner of property
transfers via deed his/her ownership interest to the Foundation which should
have been formed previous to the transfer. This deed of transfer, to be
legally effective in most states in the U.S., must be recorded in the office
of the county or local recorder of deeds. There will be, in most states
in order to complete the transferal process, a requirement to pay state
and local transfer taxes (which in some states may be as high as Ten (10%)
percent of the value of the property) as well as local recording or documentary
taxes (usually expressed either as a percentage of the value of the property
or a certain numerator per every amount certain of value, e.g., $3.00 for
every $1,000 of transfer value). Additionally, for U.S. property, the owner
that transfers for value will be subject to a capital gains tax of Twenty
(20%) percent of the transfer value as the transaction would be considered
the disposition of a capital asset. There are many strategic methods to
perfect a real estate transfer to the Foundation where taxes are mitigated,
deferred or avoided outright; these strategies and methods, however, are
an entire subject matter to itself and cannot possibly be covered with
any detail in this brief exposition. More on this particular topic may
be forthcoming.
When the transfer has been perfected,
title to the real estate will be registered in the name of the Foundation
through the person(s) or entity serving in the capacity of Foundation Council.
For example, in a transfer from John Smith to a Private Interest Foundation,
the title should read: “The John Smith Foundation of Private Interest,
XYZ Co., Ltd., Council and Trustees”. Whomever is the designated signatory
within the Foundation Council or, if the Council is an entity, that person
will have the legal capacity to bind the Foundation for contracts, notes
and other transactions.
VI. MISCELLANEOUS
With respect to the transfer of assets
which compromise the patrimony of the foundation, the transfer itself creates
a separate and autonomous being to itself and thus removes the assets from
the estate of the Fundor/Founder. However, with respect to U.S. persons
making transfers, the method and manner of transfer would be determinative
as to the successful removal of assets from one’s taxable U.S. estate as
well as determining if taxable gifts may result from the transfer.
Pursuant to Panamanian law, the assets
or patrimony in the foundation are exempt from Panamanian taxes provided
the assets originate from a source outside of the Republic of Panama. With
respect to transferred U.S. assets that appreciate, such as stocks or other
securities and real estate, normal trading activity with a broker/dealer
or arms-length purchaser would result in no imposition of capital gains
tax as the asset would enjoy the “safe harbor” of assets being traded offshore
not as a U.S. trade or business. However, under most circumstances, the
repatriation of assets or income to U.S. beneficiaries or other U.S. persons
would result in reportable taxable income to the recipient. The sale of
Foundation owned real estate in the U.S. may result in the payment of a
10% tax under FIRPTA (Foreign Interest in Real Property Transactions Act)
regulations.
Foundations may produce international
advantages such as changes in jurisdiction or change in the registry. Under
circumstances specified in either the Articles or the bylaws, the Founder
may elect to change the law of the foundation from Panamanian law to one
more akin to his/her nationality. Furthermore, the Founder may establish
the foundation in Panama but submit the relationship between the Foundation
Council, Protector or Supervisory committee and Beneficiaries to the law
of another jurisdiction, e.g., Bahamanian, Swiss, etc., in order to better
facilitate dispute resolutions. Again, this provision must be either in
the Articles or bylaws.
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| A Panamanian Foundations of Private
Interests may be viewed as a 'Will' for your beneficiaries with the added
advantage that it provides protection against capital gains and Inheritance
taxes - |
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V. CLOSING SUMMARY
Panamanian Foundations, when property
planned and utilized, are excellent adjuncts to existing estate and/or
business structure plans for both U.S. and non-resident persons. However,
it must be emphasized that foundations are not the panacea to all offshore
planning concerns and absolutely should not to considered by U.S. persons
as their primary planning vehicle for removing assets from the domain of
the U.S. Used in tandem and in harmony with other recognized planning vehicles
(i.e., trusts, IBC’s, limited partnerships, etc.), foundations present
a formidable protection tool for hard earned assets as well as providing
a means for transitioning assets from one generation to the next as per
the wishes of the Founder. Although there may be some estate and gift tax
benefits to the use of foundations by U.S. persons if planned and structured
properly as well as the potential for minimal reporting, foundations will
in no way reduce, avoid nor affect the income taxes of U.S. persons. It
may defer income taxation (again, with proper planning) with respect to
and until the ultimate repatriation of assets back to U.S. hands and, in
the case of appreciated securities, may defer capital gains taxation; otherwise,
foundations cannot be viewed as a pure tax-planning device. |
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Furthermore, one must raise a cautious
eye towards offshore planners and financial consultants that attempt to
push Panamanian Foundations as the penultimate planning tool to an otherwise
unaware public marketplace. There are those that proliferate the “one size
fits all” approach to planning which fails to take into consideration a
person’s total picture and variant life’s circumstances. Exposure to such
proliferations should be avoided if at all possible since neither everyone
needs nor have planning uses for foundations. However, in those cases where
foundations are mandated and desired, a professionally planned structure
incorporating their use would yield benefits and comforts to the disposition
of one’s assets.
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| Robert E. Payne is the Managing
Director of International Tax Consultants LLC, a boutique firm specializing
in providing professional consultation and planning in the areas of international
transactions, multi-jurisdictional tax issues, offshore banking and tax-advantaged
business structuring with offices based in Ft. Lauderdale, Florida and
satellite offices located in Panama City, Republica de Panama and Nassau,
The Bahamas. Prior to that, he served as the U.S. Tax Manager for a major
international trust company located in Panama. |
| Born and raised in Washington D.C.,
Robert graduated from the Cathedral Latin Preparatory Seminary and attended
Theological College, Catholic University of America with aspirations of
becoming a Catholic priest. Upon changing his direction towards the study
of law and business, he earned his undergraduate degree from the University
of Maryland, a Juris Doctorate (J.D.) from the University Of Baltimore
School Of Law and a Masters of Law in International Taxation (LL.M) from
St. Thomas University School of Law. With a solid background of not only
operating businesses but also advising numerous others regarding their
business activities, Robert gained the respect of an international and
domestic client base as well as became a highly requested speaker at many
economic development and business functions. He has been a guest on numerous
radio programs providing basic advice on business and tax issues and is
a prolific writer, having contributed articles to publications such as
the National Bar Journal, New York Times, Inc. Magazine and Emerge Magazine
and has taught law and business courses at the University of Maryland,
Prince Georges College, Florida Metropolitan University and the St. Thomas
Univ. Graduate Tax Program. |
| Robert is a member of a number of
organizations, including but not limited to, The Democratic Council of
Florida, Knights of Columbus, Concerned Christian Men of Maryland, Inc.
and holds many legal and professional affiliations. |
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