cross-border estatee,estate planning expats

Thanks to a unique blend of ecological diversity, pristine beaches, and economic prosperity anchored by the Panama Canal, Panama has long been a desirable destination for US citizens seeking to live abroad. With the Panama Canal expansion finally set to open, this Central American country is likely to see an even greater influx of capital and expats in the years to come.

If you are planning to relocate to Panama, or if you are a US expat currently living in Panama, among the many issues that you need to consider is how living abroad will affect your estate plan. Do you have an estate plan in the US? If so, will it remain valid in Panama? If not, should you create one? Do you need a separate plan to cover your Panamanian assets? These are just some of the important questions that you will need to address to make sure your final wishes are carried through.

Is My US Estate Plan Enough?

Owning Property in Multiple Countries

In the United States, owning property in multiple states can create significant challenges for administering your estate – particularly when you have assets that are subject to the probate process. With that in mind, you can imagine the complexities that are involved when you own property overseas.

From the Panamanian perspective, similar complications arise, as well. Suppose you have a will in the US and a will in Panama. If they overlap – even a little bit – which one controls? Does one will void the other? These are critical questions that counsel in favor of working with an experienced international estate planning attorney to make sure that you have a solid plan in place.

Validity of US Wills in Panama

Perhaps the “easiest” answer to cross-border estate planning is simply to have a carefully crafted will in both countries (this is a hypothetical example – for reasons discussed below, there are a number of reasons why other options may actually be better). If drafted appropriately to avoid inconsistencies and issues that can lead to one of your wills being disregarded, having one will that satisfies the appropriate state-level requirements in the US and another that satisfies the formality requirements in Panama may be the way to go. While Panamanian law will recognize some wills granted abroad (important side note: Panama does not recognize foreign joint wills), in order to have your US will recognized in Panama, you need to make sure that it both:

  • Satisfies all relevant formalities, and
  • Gets filed with the appropriate Panama Consul.

Rather than trying to have one will satisfy two jurisdictions’ legal requirements and address the distribution of assets held across multiple countries, it may make sense to have separate plans in each locale. That said, under appropriate circumstances, a single, comprehensive planning document will be most appropriate under certain circumstances. In short, there really is no one easy answer, and it will be important to evaluate your options and make an informed decision based upon a careful assessment of your own personal circumstances.

Will Substitutes in Panama

Of course, as we have previously discussed, wills have their drawbacks – the most significant of which is that they are subject to the probate process. Probate takes time, can be expensive, and often leads to unnecessary complications and disputes for loved ones left behind. As a result, we frequently advocate against using a will as the primary document in one’s estate plan.

To avoid probate as much as possible, one of the best options in the US will usually be what is known as a revocable living trust. In Panama, there are various “will substitutes” available, as well. Two of the most common are:

  • Panamanian Trusts
  • Private Interest Foundations

Panamanian Trusts

Trusts are an option for estate planning in Panama, as well as in the US. Similar to US trusts, trusts in Panama are, in legal terms, contractual relationships that allow for the transfer of personal assets to the trust which then holds the assets independent of the trust’s creator (often called a “trustor,” “grantor,” or “settlor”). As such, any assets transferred to the trust become the trust’s property, and the trust contract will dictate how the trust is to manage and distribute the assets both during and after the trustor’s death.

The Private Interest Foundation

Another option that is unique to Panama is the private interest foundation. Private interest foundations provide greater flexibility than wills, and can be used to avoid complicated (and often undesirable) scenarios where a person’s assets are required to be distributed to “mandatory heirs” under Panamanian law. A private interest foundation is a legal entity (similar to a limited liability company (LLC) in the US) that is formed by donating assets to the foundation (similar to a trust). As an independent legal entity, a private interest foundation is able to own property and bank accounts in its own name (thus avoiding issues of probate), while being able to take on debts and other obligations, as well.

Benefits of Panamanian Trusts and Private Interest Foundations

As compared to a traditional will executed under Panamanian law (and even certain US estate planning tools), trusts and private interest foundations can offer a number of important benefits. These include:

  • Simplicity – Living trusts can be executed before a Notary Public in Panama or abroad. Private interest foundations must be registered in Panama, but this can be done by a third-party representative (such as a local attorney).
  • Flexibility – Both trusts and private interest foundations provide greater flexibility for crafting your estate plan than Panamanian wills.
  • Revocability – Trusts and private interest foundations are freely revocable.
  • Confidentiality – Except with regard to the transfer of real estate in Panama (which requires registration of the trust owning the property), trust and private interest foundation documents can be kept private. In fact, Panamanian law provides for imprisonment of trustees and others who breach their duty of confidentiality.
  • Tax Benefits – Certain assets held in trusts and private interest foundations are exempt from taxation in Panama (although US tax laws may apply).

Final Note: Limited Effectiveness of Other Estate Planning Documents in Panama

Along with wills and trusts, a comprehensive US estate plan will often include a number of other documents, such as powers of attorney and other directives. While these are also options in Panama, their effectiveness here is limited. Under Panamanian law, all powers of attorney automatically terminate upon the grantor’s death, and any directives that are inconsistent with Panama’s laws governing intestate succession (the transfer of assets without an estate plan) will be disregarded.

This is yet another reason why it is critical to carefully consider your cross-border estate plan with an eye toward satisfying both US and Panamanian legal requirements.

Contact Jiah Kim & Associates | International Estate Planning Attorneys for US Expats

At Jiah Kim & Associates, we provide comprehensive estate planning services for business owners, families, retirees, and other expats living in Panama and other countries worldwide. If you live or are planning to live in Panama, we encourage you to contact us to discuss preparing an estate plan that will meet your needs. Call us at (646) 389-5065 or contact us online to schedule a consultation today.

This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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Jiah Kim & Associates

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New York, NY 10028