Panamanian Private Interest Foundations have a widely recognised reputation as an effective instrument for organising and protecting family wealth, particularly where assets and beneficiaries span multiple jurisdictions. Their ability to separate legal ownership from economic benefit, while setting clear rules for asset management and succession, makes them a valuable planning tool.
In practice, however, international real estate is often transferred directly to a Panamanian foundation as part of a broader effort to centralise ownership and control. While this approach may appear straightforward, it can give rise to legal issues that Require careful consideration.
A key principle of private international law is that rights over immovable property are governed by the law of the country where the property is located. This principle, known as lex rei sitae, means that any dispute, enforcement action or succession issue relating to real estate will ultimately fall under the authority of the local courts and regulatory framework, regardless of the structure used to hold legal title.
As a result, the effectiveness of a Panamanian private interest foundation can be constrained when foreign real estate is held directly. A foreign court may challenge ownership, impose injunctive relief, or even reverse transactions. This may happen despite the provisions of the foundation charter or bylaws. For example, if an investor transfers real estate located in Colombia to a Panamanian Private Interest Foundation, the administration, defense and enforcement of rights relating to that asset remain subject in all cases to the Colombian authorities.
Streamlined Approach to Ownership
A more robust alternative is to maintain ownership of the property through a company incorporated in the jurisdiction where the asset is located.
This approach is often complemented by a Panamanian holding company, which fully owns the foreign company that holds the property. The shares of the Panamanian company are, in turn, owned by the Panamanian Private Interest Foundation. This approach enables estate planning to be carried out at the level of the shares issued by the Panamanian company, which are governed by Panamanian law and can be aligned with the foundation’s succession provisions in an orderly manner and in accordance with local rules.
However, it is important to note that the ultimate transfer or recognition of rights in respect of the underlying real estate will continue to be subject to the corporate, regulatory and registration requirements of the jurisdiction where the property is situated. The lex rei sitae principle remains decisive.
Panamanian Private Interest Foundations remain a highly effective tool for international estate planning. Their proper use is achieved through careful structuring, correct alignment of corporate documents with the designed legal architecture, and a comprehensive understanding of the multi-jurisdictional context in which the underlying assets are located.
A coordinated analysis of the jurisdictions involved, together with a properly documented corporate structure, allows these structures to fully achieve their objectives and provide greater certainty, order, and protection in the long-term transfer and preservation of wealth.
Originally published in The Legal Industry Reviews: Panama.