An Essential Step if You Own Property in Panama

Panama Real Estate
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One thing I’ve learned from the consultations I offer at my Global Citizen service is how popular Panamanian real estate is. Out of every 10 people with whom I’ve spoken, three or four have got a property there, or are planning to buy one.

But the other big lesson is that many of them haven’t thought about estate planning for those properties.

As soon as you acquire any asset in a foreign country, including real estate, you have an estate there. That estate is usually governed by the laws of that country (although some countries let you use the laws of your own country instead). This introduces a number of complications you must think about before you take title on that foreign property:

Will you be able to distribute your assets according to your own wishes or does the law tell you how you must do it?

How does probate work in that country and how long does it take?

What are the fees and taxes involved in winding up your estate in that country?

Panama is a case in point. It’s a civil law country. Portions of a deceased person’s estate must be reserved for close family members regardless of your own wishes. The probate process is notoriously slow and can take two years or more. Fees and taxes can eat up 10% of your estate’s value during that process.

Panamanian property in your own name isn't necessarily a problem, of course. You may be comfortable with the Panamanian estate process, or you may hold joint title with other members of your family. But if you have specific plans for your global estate, and your own property in Panama, it's important to consider your options before you take title.

One option many people consider is putting a Panamanian property in an existing trust, either in the US or abroad. But that won't work. Panama doesn't recognize the concept of a trust. To put a Panamanian property into a US or foreign trust, you need to put it into a separate legal entity first.

One possibility is to create a Panamanian Private Interest Foundation (PIF). First introduced in 1995, this is a hybrid of a trust and a limited liability corporation (LLC).

Like a trust, a PIF holds and manages assets on behalf of specific beneficiaries. It involves a founder, a council that manages the PIF, and beneficiaries. Unlike a corporation, it doesn't have shareholders. As a bonus, Panamanian law prevents the exposure of the names of the founder, council members, and beneficiaries of a PIF.

Setting up a PIF is similar to creating an LLC or a trust in the US. You have a founding document that specifies how assets owned by the PIF will be managed and who the beneficiaries will be. You appoint two or three people to oversee the PIF—an attorney, friends, or relatives. If you like, you can appoint a separate protector to oversee the council itself. A PIF costs about $1,500 to set up.

Properties held by a Panamanian PIF don't go through probate since the founding documents specify how they will be passed on when the founder passes away. That saves you time, money, and hassle.

What happens if you don't already have already have property titled in your own name in Panama? You have the option of transferring it to a PIF. You'll pay a transfer duty of 2%, as well as legal costs. But compared to the costs and headaches of Panamanian probate, that'll be well worth it.

As part of my Global Citizen service, I keep contacts with Panamanian attorneys who can do all this for you if a PIF makes sense. Give me a shout, and let's talk.

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