“Which is better, a foundation or a trust?” is often the first question. I would begin with another: What circumstances are motivating you to create a structure, and what do you want it to achieve? The reason may involve a family need, a business transition, administration of certain assets or rules for current and future beneficiaries.
In Panama, these are distinct legal instruments. Law 25 of 1995 governs private interest foundations and provides for assets dedicated to the purposes established in the foundation charter. Article 3 states that the foundation may not pursue profit-making purposes, although it may carry out non-habitual commercial activities or exercise rights derived from shares forming part of its assets, provided that the proceeds are devoted to its purposes. Law 1 of 1984 governs trusts, under which the settlor transfers assets to a trustee to fulfil a purpose. The choice depends on the complete design, not on which name sounds more protective.
Five questions before comparing proposals
What is the objective? State the needed outcome in one sentence. Is the motivation family-related or commercial? Do you want to organize a transition, administer education funds or establish rules for a business? A concrete purpose permits a more serious assessment than a general reference to “protecting my assets.”
Which assets would participate? Assets do not all have the same ownership, location or transfer requirements. Identify what would enter the structure, what would remain outside and whether it would undertake any business-related activity or only administer assets.
Who decides and who supervises? Identify every participant and examine the powers: founder, foundation council and beneficiaries; or settlor, trustee, beneficiaries, protector and trust council, if any. Ask for examples of ordinary and extraordinary decisions.
What are the ongoing costs and obligations? Request written information about initial fees, periodic administration, third-party expenses and procedures for amending or terminating the structure.
Control, cost and coordination
Are other countries or professionals involved? When foreign assets, banking, tax matters or other specialties are involved, confirm which external opinions are required. A Panama structure does not resolve every consequence outside Panama.
Protection does not cover bad-faith transfers
Neither structure should be presented as a means to conceal assets or prejudice third-party rights. Panama law provides two public examples. Article 15 of Law 25 of 1995 allows creditors to challenge contributions or transfers to a foundation when they constitute acts in fraud of creditors. Similarly, Article 15 of Law 1 of 1984 creates an exception to the separation of trust assets when property has been transferred or retained fraudulently to the detriment of third parties.
The instrument follows the problem.
It is therefore important to document the source of assets, the timing and purpose of the transfer, existing obligations and applicable compliance. Responsible asset protection is planned before a dispute and within the law; it does not cure a transfer made to harm a creditor.
At Carolina Solís Law, I begin by mapping the motivation, objectives, assets, beneficiaries, participants and powers. This review helps determine which question to ask each provider and whether a structure is necessary at this stage.
Compare the design, not only the name
This matrix helps prepare questions. It does not replace structural analysis or mean that one option always provides greater protection.
