Cook Islands Foundation
Advantages and uses
Validity of a foundation in the Cook Islands
- Foundation is a separate legal entity from its founder.
- Foundation is valid even if the law in the founder’s jurisdiction does not recognise or prohibits foundations.
Foundation can be used for charitable or non-charitable purposes, inheritance and estate planning, wealth management.
Protection from Creditors
- 2 year statute of limitations on claims to set aside the foundation or attack the transfer of an asset to the foundation.
- Courts cannot recognise or enforce a foreign judgment against the foundation.
- Stringent fraudulent transfer rules that make it difficult for creditors to bring a claim for fraudulent transfer.
- Foundation stands independent from the founder’s personal circumstances. The foundation cannot be void or voidable in the event of the founder’s bankruptcy, insolvency, or liquidation.
Cook Islands foundation management
- Founder establishes rules that govern the operation of the foundation.
- Foundation is managed by a board, allowing for input from a number of relevant persons.
Foundation supervisor or enforcer
Law recognises someone to oversee the board’s management of the foundation, an ‘enforcer’ or ‘supervisor’.
Strict privacy laws against disclosure of the affairs of the foundation.
Cook Islands foundations investment opportunities
- Foundation can derive earning from investments/broad investment powers may be authorised in the foundation rules.
- Foundation cannot be used for regular trade or commercial activity.
Foundation and its beneficiaries are exempt from paying tax in the foundation’s jurisdiction.
Application of foreign law to a Cook Islands foundation
Forced Heirship laws of another jurisdiction cannot be enforced.
Foreign law will not apply notwithstanding that a dedication of assets to a CIF has the effect of avoiding, defeating (or potentially avoiding or defeating) a right, claim interest, obligation or liability conferred by that foreign law.
Wealth preservation advantages
Certainty as to the time limitation periods in which creditors must commence actions in relation to “fraudulent transfers” against Founders of CIFs. In summary, a creditor must commence an action against a Founder within 12 months of the date of transfer of assets to the CIF and against the CIF itself within 24 months of the date of transfer of assets to the CIF, in order to have legal standing to argue a fraudulent transfer by the Founder.
The creditor bears the onus of proof to show that a transfer by a Founder was done with intent to defraud that creditor. The creditor must satisfy this onus of proof to a standard of “beyond reasonable doubt”.
A CIF will continue to exist notwithstanding that the Founder of the trust may be declared bankrupt.
In the event that a creditor is successful in arguing that a transfer to a CIF was done with intent to defraud creditors, the only remedy available to the creditor is an award of damages from the assets of the CIF.
Punitive damages cannot be recovered from a CIF.
The avoidance of forced heirship rights in the home jurisdiction of the Founder will not render a CIF void or voidable.
Special purpose domestic or offshore entities can be placed underneath the CIF and take advantage of the wealth preservation features offered by Foundations Act 2012.
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