Article: Comparing Private Interest Foundations and Trusts
A PANAMANIAN PERSPECTIVE

Anthony R. D'Aniello, MBA, LLB, JD, TEP
President
STANFORD TRUST COMPANY LIMITED

The fundamental similarity between private interest foundations and trusts is a requirement of absolute confidence, between the client and foundation council in the first case and between the client and the trust company in the second. This correlation is due to the fact that the foundation council has considerable decision-making powers over the assets in a foundation by reason of lack of ownership of it.
 
That being said, there are still substantial differences between a private interest foundation and an international trust:
 
First of all, a trust is a legal act by means of which a person called the settlor transfers ownership of assets to a person called the trustee, who will manage or dispose of them in favor of a beneficiary (who can also be the same settlor). The trustee is normally a firm or company engaged professionally in the business of managing properties, investing liquid assets and transferring assets which are legally under the ownership of said trustee, but subject of the provisions of the trust instrument. Whereas, a foundation charter grants independent legal personality to the private interest foundation, meaning the foundation can purchase and hold assets of any kind and can enter into any agreements. In contrast to a trust agreement, the foundation is the owner of its own assets. These assets are managed by the foundation council, which has the function to fulfill the objectives and the purposes of the foundation.
 
The use of the foundation as a structure or vehicle for the ownership of any movable or immovable assets is not applicable to trusts since trusts per se do not form a legal entity different from the trustee. In order to transfer the authority of the settlor over to the trustee, other formal documentation is required with the same requirements used when the settlor transferred assets to the trustee.
 
Another basic difference is who has control over the trust or foundation. In the case of a trust, control and administration of the assets is the power of the trustee. In a private interest foundation, this power is in the hands of the foundation council. Moreover, a trust requires the appointment of one or more trustees, without specifying a maximum number. A foundation council requires at least three individuals or one corporate director.
 
Another difference is in the asset protection offered. Trust law does not contain provisions for asset protection against future claims from creditors, whereas a private interest foundation has very clear provisions limiting legal claims against the founder.
 
The trust is used mainly as an alternative to a will and to execute commercial transactions such as the purchase of real estate, opening an administration of bank accounts, investment in stock markets and mutual funds, and the entering into international agreements. On the contrary, the private interest foundation is a discreet vehicle to open and operate bank accounts and is created principally for testamentary protection, to manage and administer the distribution of wealth and families properties, to act as a philanthropic or ecclesiastic institution, or to become a holding entity that operates as owner of corporations.