Citywealth Quick Insight Series on the Latam Market – Juan Pablo Cucalón, 1291 Group, Panama
This week’s Citywealth Quick Insight Series on the Latam Market is dedicated to Juan Pablo Cucalón, partner at 1291 Group, Panama. Juan Pablo Cucalón has been a Partner at 1291 Group since 2021, where he drives client relationship growth for high-net-worth (HNW) families and businesses across Latin America. He holds a Bachelor’s degree in Law from Universidad Católica de Santiago de Guayaquil and an MBA from IDE Business School, Juan Pablo is a fully qualified Trust and Estate Planning (TEP) practitioner.
Are you seeing Brazilian clients use Uruguay for trust structures and estate planning?
Before Brazil introduced new rules for offshore wealth, residents often used relatively simple structures, typically involving a company registered in the British Virgin Islands or Nevis, with succession arranged through different classes of shares or rights of survivorship.
Legislation passed in 2023, and effective from 2024, clarified the Brazilian tax treatment of foreign trusts. Trusts are generally treated as transparent, with their assets attributed to the settlor and, later, to the beneficiaries. Income from those assets may be taxed at 15%. While this represents a tax charge where the treatment had previously been less clear, comparable foreign holding structures may also be subject to the same 15% rate. Trusts are therefore no longer necessarily at a tax disadvantage. Their additional benefits, including succession planning, family governance and the protection and orderly transfer of assets, make them a more attractive alternative to a conventional offshore company.
Uruguay, the British Virgin Islands, Nevis and the Bahamas are among the jurisdictions commonly considered for such structures. Private placement life insurance, or PPLI, has also attracted interest among Brazilian residents. Depending on how a policy is structured, it may offer tax and succession-planning benefits, although its treatment will depend on Brazilian federal and state rules.
For Latam Clients, PPLI works as a legal tax-efficient wrapper for high-net-worth individuals. Combining a variable life insurance policy with alternative investments or financial assets in general, earnings can grow tax- deferred and provide an additional layer of privacy, as the insurance carrier becomes the owner of the assets.
South Americans using domestic trusts in USA rather than offshore.
Latin Americans have different drivers for structuring. From political instability, prices of the structure and wealth preservation; depending on the Country there might exist other particular factors. Is a current trend to establish Trust in the US rather than in the Caribbean for several reasons:
- Confidentiality and privacy regarding sensitive information. States such as South Dakota have strong laws on these particulars, such as perpetual court sealing and a lack of public registry requirements that keep names of settlors, beneficiaries, and asset details completely confidential.
- Flexible rules for Foreign Grantor Trusts, which in other Jurisdictions may be cataloged as “Sham Trusts”
- The United States has a substantial body of case law on trusts, more than other Jurisdictions.
- The US Connection. Latin American Families around the region have a link with US due to the closeness. The location of the assets (investing or working with Custodians in the US) or family members living or studying in the US, means it makes sense to structure a Succession planning through the US.
Among the States for Trust, South Dakota, Wyoming and Delaware are very popular at the moment.
Are a large amount of family offices set up in Florida from Latam?
Latin Americans have always used the US for establishing Family Offices or Multi-family Offices, however sometimes the issue can be the cost of implementation or regulatory requirements. There are other Jurisdictions such as BVI or the Bahamas that can be used, but families will often take advice from RIAs or Custodians before proceeding.
What is going on in Panama, other trends in the UHNW market?
Panama enacted recently a Substance regulation, similar to other Caribbean Jurisdictions. Nevertheless, the regulation affects certain SPVs that are part of an “Multinational Group” (two or more related entities tax resident in other Countries) who earn passive income such as Royalties or dividends. The rest of the entities may fall out of the scope of this regulation.
Panama made substantial advances in international tax transparency, with accounting records, UBO register and now the Economic Substance. From our point of view, the usual offering of Entities in Panama (Companies and Private Foundations) for financial assets should not be affected as long as is not considered part of a Multinational Group.
Other trends we are seeing more often in Latin America are the implementation of PPLI and Capitalization Bonds, all them with a component to tax planning for International Families in their respective Countries. On the side of insurance, the solution can provide tax deferral for Families in Brazil, Colombia, Peru, Mexico or Chile.
Key Takeaways
- Juan Pablo Cucalón from 1291 Group discusses the evolving Latam Market, focusing on estate planning and trust structures.
- New Brazilian regulations on foreign trusts clarify tax treatments, making trusts more appealing compared to traditional offshore companies.
- Latin Americans increasingly choose domestic US trusts for their confidentiality and flexible rules, especially in states like South Dakota.
- Family offices are often established in Florida due to regulatory advice and costs, with other jurisdictions like BVI also being options.
- Panama’s new substance regulations aim to enhance tax transparency, while PPLI and Capitalization Bonds gain traction for international tax planning in Latam.
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