The Cook Islands is a world leader in the creation of trust legislation specifically designed to afford robust protection from creditor claims. Some important features of international trust law in the Cook Islands are:
A trust, which is registered under the Cook Islands International Trusts Act 1984 (as amended), is entitled to the benefits and protection provided by that Act.
The Act provides a registration system whereby a registered trust is sheltered from both the general common law and Cook Islands statue law insofar as those laws are inconsistent with the Act.
Application for registration is made by a licensed Trustee Company. The application must certify that no resident of the Cook Islands is a beneficiary, advise the date of the trust deed, the name of the trustee and the name of the trust. There is no requirement to file the trust deed with the Registrar.
Any information pertaining to an international trust, including the deed of trust and the identity of parties connected with the trust is confidential and subject to the secrecy provisions of the Act.
The Act creates a flexible tax neutral environment in which the familiar English trust concept can be used for both tax planning and asset protection purposes.
The trustee(s) beneficiaries and settlor of an international trust are exempt from any form of taxation and duty in the Cook Islands.
The legislation resolves some of the difficult aspects of the common law relating to trusts. The modern rule against perpetuities has been abolished although if desired a specific perpetuity period can still be selected by the settlor at the time the trust is established. Other common law rules such as the rule against accumulations and double possibilities do not apply.
The Act, as a consequence of amendments in 1989 and 1991, contains innovative statutory provisions for the protection of assets held under international trusts.
The legislation overcomes specific common law problems to provide protection for settlors and beneficiaries from unwarranted claims against trust assets.
More recent amendments in 1996 and 1999 have expanded the definition and role of the protector, expanded the scope of the Purpose Trust and adopted with slight modification Section 50 of the New Zealand Trustee Act 1956 in respect of Custodian Trustees. See asset protection trusts for further details.
Some important asset protection features of the International Trusts Act are:
An international trust will not be void or voidable as a consequence of the settlor's bankruptcy, notwithstanding any law to the contrary in the settlor's domestic jurisdiction.
If a creditor establishes that an international trust was settled with the principal intent of defrauding a creditor and such settlement rendered the settlor insolvent or without property by which the creditor's claim could be satisfied, the settlement shall not be void or voidable but the trust shall be liable to satisfy that creditor's claim from trust property which was the subject of such settlement.
Foreign judgements cannot be enforced against an international trust in the Cook Islands.
An transfer of property to an international trust is deemed not be fraudulent transfer if:
(a) the transfer of property takes place more than two years after the date upon which the creditor's cause of action arose; or
(b) where the transfer does takes place within two years from the date of the cause of action accruing to that creditor, the creditor fails to bring that action against the settlor of the trust within one year from the date of such transfer.
The settlor may retain certain powers and benefits without invalidating the trust. The interest of a "spendthrift" beneficiary in an international trust may not be alienated by a creditor.*
The avoidance of forced heirship rights does not render an international trust void or voidable.*
A trustee may delegate its functions, discretion's and powers (other than dispositive powers) beyond the general common law rule on delegation.*
Co-trustees may make valid decisions as a majority rather than unanimously. Title to trust property may be held by a single co.-trustee.*
The settlor, beneficiaries and the international trust are not subject to any form of taxation in the Cook Islands.*
* It is important to note that whilst the legislation allows such flexibility, these provisions do not apply unless specifically adopted in the trust document.
It will be apparent that the Cook Islands constitutes an ideal legal environment for asset protection trusts whilst preserving commercial responsibilities to the creditors.
Please follow the links below for more information on Cook Islands companies:
Cook Islands Limited Liability Companies
Cook Islands International Companies
Transfer of Corporate Domicile
Stock Exchange Listing
Share Capital
Banks and Merchant Banks
Partnerships
