The Cook Islands has one of the most secure asset protection structures anywhere in the world. The small island nations trust regime was created in 1984 and has stood the test of time, evidenced by many legal challenges, and continues to protect international trust beneficiaries. Subsequently, this guide will walk you through some of the key points of the Cook Islands International Trust Act of 1984.
For your reference, you can download a copy of the trust act here:
The Purpose of the Cook Islands International Trust Act
The Cook Islands International Trust Act was enacted in 1984 with the express purpose of detailing a framework to protect the assets of settlors, within the trust, from litigation. In short, the idea was to create a very strong legal framework that made sure that the settlor’s interests were abided by.
Through significant consultation with industry professionals around the world, the Cook Islands produced something quite special at the time. A purpose-built asset protection trust that has proven highly reliable and which has withstood the test of time, and legal challenges, to become the gold standard for asset protection.
Their goal of ensuring that asset transfers into a Cook Islands trust are prevented from being set aside by courts has largely been reached. There are very few cases where correctly settled trust assets have been set aside. In fact, it has really only occurred during cases of significant fraud where the Settlor is also the trustee, protector, and beneficiary of the trust.
The Practicalities of Litigation Against a Cook Islands Trust
As the Western nations continue to become more litigious judgment enforcement has become a critical component for attorneys. What this means in practice is that a vexatious litigant will seek to commence legal action against a party. Upon receiving a judgment in their favor, they are now in the position of having to enforce it.
At this point, what normally happens, is they start to look seriously at what assets the defendant possesses, and then seek to claim those assets wherever they may be in the world. Unfortunately, this has meant that many “foreign” judgments and orders have been landed in countries around the world seeking to restrain or dispose of assets.
The perverse nature of this is that a US-based judgment, being landed in Australia, goes through none of the checks and balances as required by local law. Obviously, it isn’t as simple as just landing a judgment and collecting payment, but the principle of national sovereignty seems to have been eroded by many of these vexatious judgments.
As part of this assessment of assets, attorneys will typically look for asset disposals to determine where assets have gone. Typically, in the case of international trusts, the plaintiff’s attorneys would seek to have any trust settlements set aside.
Unlike other countries, the Cook Islands does not simply allow foreign judgments to be landed for collection. Any such action would need to recommence from scratch within the courts of the Cook Islands.
Additionally, setting aside a transfer into an international trust is exceedingly difficult in most cases. Any potential plaintiff would need to show the courts that the conveyance of the asset into the trust was fraudulent as per S 13A & B and S 13 K of the Fraudulent Transfer Act.
However, Cook Island’s regime for fraudulent transfers is significantly different from other countries and does not include the recognition or enforcement of foreign debts. Subsequently, it is very difficult to enjoin trust assets in this jurisdiction and it would require a plaintiff to receive a local judgment in the Cook Islands to even consider invalidating the trust transfers.
What Are the Key Provisions Contained within the Act
As mentioned, the key differences to other trust regimes involve very strict rules around the piercing of the trusts’ protections and require no registration of any settlor or beneficiary’s information.
Another key factor is that the Cook Islands disregards foreign inheritance laws, and the country has no forced heirship. This provides for very different treatment and the disposition of assets upon death and is more in line with the actual wishes of the estate.
Additionally, the rule around accumulations has been removed and this means that trustees can accumulate income within the Cook Islands trust indefinitely. This can be a huge benefit for those looking at potential long-term tax sheltering.
The set aside rules are also incredibly strict with the disposition of assets only being able to be set aside within a 2-year window and under very specific circumstances which typically involve proven fraud on behalf of the settlor.
The Act allows the re-domiciling of foreign trusts, to the Cook Islands, and the date of the original execution of the trust is considered the effective date, not the date of re-domiciling. However, it should be noted that to undertake this is complicated and, normally, requires “pour over” provisions within the original trust deed.
Major Conclusions on the Cook Islands International Trust Act
It is clear, that the Cook Islands International Trust Act provides a highly reliable asset protection framework. This framework has been well tested in a variety of legal cases and has proven to have stood the test of time in both enforceability and practicality.
Additionally, the legislation is quite flexible in regard to international trust management and allows plenty of scope for the settlor to determine exactly how assets are treated and when they are to be disposed of. The appointment of extra discretionary beneficiaries, or even additional trustees, is relatively simple and the compliance impost is small.
Overall, the Cook Islands is an excellent jurisdiction to undertake trust and asset protection activities in. You would be hard-pressed to find an English common law jurisdiction that provides the same level of protection that the Cook Islands does.
If you are considering setting up an Asset Protection Trust then you should talk to us, confidentially, about your needs. We have executed many Cook Island’s structures and know exactly how to get things done on the island to your benefit. It is important that your international trust is structured correctly before you think about executing any such trust deed. Subsequently, we can advise you on your options and the “REALISTIC” costs of setting this up.
Please contact us at our consulting arm for a confidential discussion: