Estate planning: Asking the right questions

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Estate planning: Asking the right questions

Estate Planning

If you have relocated to Panama, or you are thinking of retiring to Panama, then you should consider estate planning in Panama.  As an estate planner, I look at how you anticipate, during your life, to manage and dispose of your estate during and after death.  We consider issues of estate tax, gift tax, and income tax for the beneficiaries, as well as the costs of the transfer of the estate to the next generation. Asking the right questions is essential to make sure the estate plan works for you.

Wealth management

Accumulating wealth is a great accomplishment that requires skill and determination. It also requires a uniquely developed plan for your personal circumstances or that of your business.  Part of our job is to outline how our clients assets should be managed and preserved throughout their life and then distributed afterward to the people or causes they love.

During your lifetime, needs and goals will change. There will be the time for saving and investment, portfolio growth, business growth and investment, and then there are considerations of retirement.  During these different stages, priorities in the estate plan may change. Family situations may change. Estate plans should be updated.

The assets and their liquidity will change during these years. For some clients, business succession will need to be considered or having a golden parachute with which to leave the company.  Exit strategies need to be considered.  One of the most difficult parts of estate planning is family businesses and organising an orderly succession and transfer to the next generation.

Your plan

One part of estate planning may include a Last Will and Testament, for assets held in your personal name. Another option is to structure the assets in entities (corporation, trust or foundation), so that probate can be avoided and the transfer can happen quickly. The estate plan should also consider issues of a Living Will (for taking medical decisions and possible mental disability).  You will want to consider issues of guardianship or conservatorship.

To be effective, you need to be open with the estate planner about all the details of your life that need to be cared for.

Wills or  Intestate probate

Part of this estate planning process may include writing up a Will (Last Will & Testament). A will will cover assets held in your personal name (real estate, investment accounts, bank accounts, cars, etc.).

Types of Wills

There are a number of different types of wills that are acceptable in Panama, including these:

  1. Holographic will: the testator hand-writes their will on simple paper. They also date the will and sign it at the end (signing each page if it is more than one page long). This Will may, or may not, be inside a sealed envelope or not and is not normally witnessed. In order to be valid, this will must be presented for probate within five years of the death of the testator.
  2. Open will: A lawyer typically prepares this will, as a Public deed.  It is written before a Public Notary and three witnesses. The Notary will then  read the Will aloud before the witnesses, and the Testator confirms that the will fulfills their wishes.  The original Will is kept at the Public Notary archives, a copy is handed to the person making the will.
  3. Closed will: like the above, this will is written on special stamped Notarial paper. The Testator signs each page and at the end. The notary and three witnesses simply witness that the Testator expressed that they are issuing a closed will. They do not read the contents thereof.  The Notary then seals the will in an envelope with a deed that confirms this was done, signed by the Notary and three witnesses. The testator takes custody of their envelope. The contents of the document will only be known by the person who wrote the will. Once the person dies, the will is opened by the judge in charge of the probate proceedings.
  4. Immanent death: Known as an oral will, this is valid if the person is in risk of imminent death. In this case, the person expresses his/her last will before five witnesses, and this type of will is valid where the decedent dies within two months after so doing.

Probate

Nevertheless, in Panama the probate process (either testate or intestate) will require a lawyer (not simply an executor) and will go through the court system. Lawyers in Panama charge for the probate process based on the value of the assets in the estate. Their fees usually run between 10-40% of the value of the assets.  While the fees established for the process run from ten to fifteen percent, these are the minimum fees charged. Clients often find that local lawyers are charging substantially more than this percentage for the probate process, so we attempt to use structuring to avoid the process.

Estate planning options

Nevertheless, you may prefer to structure your estates so as to avoid probate and the process above.  Instead of holding property and investments in your personal name, you could own property through a corporation, Private interest foundation or a trust.  These offer the benefit that assets do not have to be “transferred” to the beneficiaries by the court. They are managed and disbursed by the Board of Directors, Trustee or Foundation Council.  Nonetheless, there may still be costs involved (such as real estate commissions on the sale of the house or property transfer taxes to the buyer). There are also annual costs associated with the entity (management, government fees).

We understand that your estate is more than simply your wealth or money. It is somehow a reflection of a life well lived.  More than anything, it gives you the opportunities to live in retirement the way you envisioned living.  You can provide for your family or contribute to charities or causes that are meaningful to you. Once you have achieved your financial goals, you want the freedom to choose how you will spend your life and make use of your resources, knowing that you have taken care of all the details.

We know that this process should be all-encompassing, and are experienced in asking the right questions to help you move through this process. We want to ensure that your estate plan is personalised to your particular goals.

Contact us for more information regarding how we can help you with your estate plan.

 

Q&A Accounting Records in Panama

So, since posting the article regarding the need for accounting records, we have a number of questions asked by clients, so we thought we would provide a “Q&A Accounting Records”:

Q&A Accounting Records, Questions regarding accounting records in PanamaIs this true even for companies that do no business but only hold title to a property?

Yes – if the company does not actively do business but is holding assets of any nature, it should at the very least have a balance sheet. This would show the value of the asset (the property) and the value of the capital or loans made to the company which provided for the purchase of the proprety.  Additionally, there should be included in the accounting the annual property taxes which are paid on the property, or any maintenance costs that are paid by the company that owns the property.  Correspondingly, you would need to indicate where the funds come from to pay for these taxes (capital into the company, loans, or rental income).

qa2…I will also need to be advised as to just what I need to keep records of.  My  corporations are solely to hold real estate and are within my foundation.  Other than the corporations,  a bank account, the foundation has no other purpose.

For the corporations which hold the real estate, you will need to prepare an accounting such as that suggested above:  a balance sheet that shows the value of the asset (the property) and the value of the capital or loans made .

For the Foundation which owns the corporations, you should prepare a balance sheet which shows the assets (corporations – with their values – and the bank account).  Funds moving in or out of the bank account should also be accounted, and you should attach to your accounting the monthly bank statements.  As explained in our original article, there is no requirement to have a “formal accounting”, but it should at the very least have a balance sheet with assets, liabilities and capital.

Following are some basic examples of sample balance sheets:

balance sheet, Q&A accounting records

Accounting Records example balance sheet

Q&A accounting records, sample balance sheet

Sample Balance Sheet

As more questions are asked, we will attempt to update and provide answers to these questions about what is required in 2017.

Accounting Records in Panama – your 2017 update

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Accounting Records in Panama – your 2017 update

Last year Panama had many changes in the financial sector:  the Panama papers scandal lead to greater international pressure for OECD compliance and exchange of information.  Months later the Clinton list added Waked and Grupo WISA (affecting some 6000 local employees), including two newspapers.  The US alleged money laundering, although these allegations to date have been ruled unfounded by the courts.  Nevertheless, these measures have resulted in company liquidations, interventions and sell-offs.  There was also increased regulations introduced for lawyers and law firms, regarding bearer shares and due diligence, with registration of firms both with the Supreme Court of Panama and also with the Intendent that supervises Professionals (such as Realtors, Accountants, Casinos, Money Exchanges, Free zone and others). Furthermore, the pressure has increased against Panama to require all companies to provide accounting records.

As of January 1, 2017, Panamanian corporations that are open and operating, are required to have accounting records.  They will need to notify their Registered Agent in Panama where these records are being kept.

Accounting Records for Offshore Companies & Foundations

The new rules adopted by Law 52 (2016) are for those offshore companies and foundations, even though they hae no direct business transactions in Panama.

Who?

  1. Offshore corporations – irrespective of whether or not they have bank accounts, are holding property or their purpose and function.  If the company is in good standing, it is required to keep accounting records
  2. Private Interest Foundations – irrespective of what assets or holdings the foundation have
  3. Holding companies – even companies whose sole purpose is to hold share in other companies are required to have accounting records

What?

Accounting records in Law 52 are described as “that data that clearly and precisely indicates the commercial operations that the entity has, its assets, liabilities and capital contributions.”  In the Commercial Code of Panama, we find that the accounts are described as being essencial the the “Diario” and the “mayor”, and the supporting documentation.  The “mayor” is the ledger , and the “diario” would be the book where you register the day to day transactions .  The supporting documentation would be the invoices, cheque stubs, banking statements, contracts for sale or purchase, or other documentation.  All of this data should ensure that the company can provide an updated balance sheet at any time of assets, liability and capital.

Accounting records for Panamanian corporations and Foundations

Accounting records for Panamanian corporations and Foundations

How?

The law does not specify “how” these records are to be kept, but in Panama the Commercial code establishes 2 principal ways of keeping your accounting records – manually (in accounts books) or digitally.  In this second case, Panama does not recognise Excel sheets as being an acceptable digital form.  It is recognised that Excel can be easily modified and does not have a double-entry system.  Sage / PeachTree is typically used by businesses in Panama to run their accounting or tailored accounting programs for this purpose.

What is important is that the information MUST be kept up to date – i.e. no more than 60 days  after month end.

Where?

Panama does not require that these records be maintained physically in Panama or that you hire or retain a Panamanian accountant or book-keeping firm to maintain the accounts.  Nevertheless, each company must inform the registered agent which officer/director/agent (natural person, not a company) will be responsible.  The company must inform where these records will be physically located.  In the event of any changes (the person moves or changes), the registered agent must be informed in no more than 10 days of said change.

For how long?

These records must be kept for no less than five years after the period ends, even in the event that the company is closed down.

What does Gray & Co. expect from clients?

All clients have been sent an Accounting Records declaration form, in which the client is required to indicate:

  1. who is the person that will be responsible for keeping these accounting records?
  2. where will the accounting records be kept?
  3. how will the accounting records be kept – format?

The Registered Agent’s responsibilities:

The registered agent of a company is expect to:

  1. Have from each client that does not have their accounting records with the law office, a sworn declaration as mentioned above
  2. In the event of a request for accounting records from a duly authorised Panamanian official, notify the client that they have 15 days in which to comply and provide the records
  3. Should the client fail to comply in these 15 days, the registered agent is required by law to resign.

Other books & registers

After you have considered the matter of accounting records, you might also turn to look at other documentary requirements.  Panamanian corporations are also required to maintain the following books and registers:

  1. Minutes book – all minutes of meetings of the Board of Directors or Shareholders – these should be in chronological order and should include signed originals.  The Company Secretary should hold these.
  2. Shareholder Register – the register which shows who is(are) the current shareholder(s), and any previous shareholder(s).  This should include details such as:
    1. the number of shares issued
    2. the share certificate number
    3. the payment made for the shares (fully paid or partially paid)
    4. the date of issue
    5. the name and address of the shareholder

Bearer Shares

If the company still has bearer shares, these must now be held in custody (since December 31, 2015).  For more information, please see our article Bearer Share Custody.  If you had bearer shares, and failed to make the change to registered shares, then you need to contact your registered agent to get the company records into order.

For more information regarding these requirements and how Gray & Co. can serve you, please contact us.