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.

 

2017 Executive Order 62: Non Profit organizations

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March 30, 2017 – Executive Order #62

Rules for Non profit Organizations: associations & foundations

This Order was issued by the Ministry of Government (“MinGob“), regulating Non Profit Organizations, such as associations and foundations.
Examples of such Not-for-Profits are:

  • associations
  • private not-for-profit foundations
  • churches
  • religious churches, congregations or communities
  • federations or other entities which are not tied with cooperatives, sports, agriculture or other types which have special legislation.

In simple terms, this Executive Order establishes the basic requirements for registering a Not-For-Profit with MinGob, who is in charge of granting “legal status”, which is later published and made known through the Public Registry of Panama.  Unlike companies, which receive their legal status simply through the filing at the Public Registry, in the case of Non Profit entities, it is MinGob who grants them legal standing.

It is easy to present the papers to MinGob, but you will require the services of a lawyer.  The basic requirements are:

  1. Power of attorney and Application by the lawyer
  2. Articles of Association, establishing the Board of Directors and approval of the Bylaws, signed by the President and Secretary
  3. List of the members of the Board of Directors (at least 3 members) – natural or legal persons.  If you include a legal person, this entity must approve (shareholders or stakeholders) participation in the Board of Directors.
  4. The Bylaws, which should be duly signed by the President & Secretary
  5. Two full sets of copies of the entire set of documents.

The entity must not have private beneficiaries and may in no way dish out income or donations received to members, board members or founders.  It may, however, hire staff.

Bylaws of Non Profit Organizations

The Bylaws of the Not-For-Profit Organization should contain the following:

  • Name – in Spanish or with a translation to Spanish
  • Registered Address in Panama (changes must be notified)
  • Geographic area in which it will operate
  • Detailed objectives – is it philanthropic, union or other nature
  • Initial capital or donations to the entity and money raising actions
  • Will it require quotas?  If so, who sets the quotas?
  • How to become a member, how human rights are upheld, and other basic Constitutional rights
  • Losing membership
  • Rights and duties of members
  • Governing bodies: General Assembly, Board of Directors
  • Who is the legal representative?
  • Changing the bylaws?
  • How the accounts will be registered? Manner in which you will record funds received and spent?
  • Can branches or chapters be set up?  How is this to be done?
  • What is the process for dissolving and liquidating? How will the funds be used on dissolution?

If there are mistakes or errors in the documents handed in, you have 60 days to fix them (once notified), otherwise the request will be denied.

Board Members

Members of the Board  must be residents of Panama: natural or legal persons, Panamanian or immigrants.  Embassy staff, diplomats, and other State or international entity envoys, may also be members.  Global Non Profit bodies may also help establish local Not-For-Profit bodies and appoint resident board members, such as:

  • Chambers of Commerce
  • Philanthropy
  • Culture
  • Religion
  • Education
  • Science
  • Art
  • Sport

Other matters

Order #62 regarding Non Profit Organizations also covers other matters like:

  • Review and Inquests
  • Records
  • Use of funds – prudence and purpose
  • Changes of Bylaws
  • Setting up branches of foreign bodies
  • Dissolving and liquidating
  • Supervision, follow-up and reviews

For more information regarding setting up a Non Profit Organization, please contact Betsy Moran.  She will assist with the registration process, and follow up to get all of the permits, including tax exemption status.

Footnotes:

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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.