TBA & Associates

Cook Islands Trusts

The concept & benefits

A Cook Islands Trust is the strongest form of asset protection worldwide.
An offshore trust in the properly selected jurisdiction is the strongest asset protection vehicle worldwide. The Cook Islands Trust, as an example, has been shown to offer the strongest asset protection case law history. When a local court demands payment, the trust company in the Cook Islands, located outside your local court’s jurisdiction, is not obligated to comply with the court order. Thus, the licensed, bonded, insured 30+ year old trust company keeps your assets out of harm’s way. For client peace-of-mind we establish an offshore limited liability company (LLC) that is 100% owned by the trust. The client is the manager of the LLC. The accounts are held in the LLC in a very safe international bank. The client is the signatory on all bank accounts. When the “bad thing” happens and the assets could be subject to seizure by the courts, the trustee can step in as manager of the LLC and do what you have paid the trust company to do – protect your assets. Once the legal threat passes, the client is restored as manager of the LLC with the assets still intact.
Our experience has shown that the properly structured Cook Islands trust has protected client assets from every legal challenge.
An offshore trust is very much like a traditional trust in that it comprises a relationship or arrangement among “Trustee(s),” “Settlor(s),” and “Beneficiaries.” Provisions are made in a binding, written legal document known as the “Trust Deed.” This legal tool can hold title to assets and property, manage said assets in accordance with the trust deed, in order to provide a series of benefits and distributions to a person or group of persons designated the beneficiaries. The trustee and/or the trust company charged with the management of the trust are bound by a fiduciary duty to uphold the agreement. By signing the document they agree to the rules and requirements set out by the trust deed. A trust is unlike a corporation or foundation. This type of trust is a written agreement for the trustee to provide for the beneficiaries and to protect assets from predators.
Once the decision to form the trust is reached, the settlor must then select the type of trust he wishes to form, its duration, and make important decisions on defining details. These details include deciding whether the trust is revocable or not, whether the trust will be discretionary or not, and to specify the rights, duties, obligations, and expectations of the trustee. With respect to the revocable or irrevocable trusts, much as their names imply, they can either be revoked at any time with the terms for this outlined by the settlor, or they can have a pre-determined lifespan with no provisions for revocability, and only concluding when the terms of its creation as specified in the trust deed are met. By contrast, a discretionary trust can fall under either category, and is defined as a trust with much built-in flexibility with respect to how the trustee handles distributions to beneficiaries, and even provides, in some instances, the trustee with rights to appoint or add beneficiaries. This relinquishes a lot of authority over the offshore trust to a trustee, however, and highlights the importance of the careful selection of a competent, well-reputed trustee or trust holding company with good references, a worthy reputation, and the experience necessary to successfully and faithfully fulfil and honour the terms of the trust. In terms of benefits of the offshore trust, the placing of assets and title to property in the trust is where the lion’s share of the confidentiality and protection from liability benefits of the offshore trust are garnered. While the legal title passes to the trustee, which must fulfil obligations set out in the trust. The intent of the trust is to provide for the beneficiaries, of which the settlor may be, and often is, a listed participant. These beneficiaries, hold very strong rights with respect to the interests in the trust and most jurisdictions recognize that the intent is to provide the defined benefits for the these beneficiaries and rule favourably in their direction when questions as to the management of the trust arise.
Because these offshore trusts are almost always found in tax haven or low-regulation jurisdictions with a reputation for the safeguarding of assets and superb confidentiality, the offshore trust also benefits from these features. Assets managed within offshore trusts are for the most part free from the sometimes suffocating legal burdens applicable in a settlor’s home country or jurisdiction. If the trust is formed to arrange for the benefit of the one who formed the trust and/or spouses, children or other heirs of the settlor, for example, the offshore trust may provide a haven from intense inheritance scrutiny and taxation. Further, based on their formation in low-regulation havens, offshore trusts offer unparalleled confidentiality, increased protection from the perils of civil litigation and liability, and even from such things as divorce or business dissolutions. They are also used by many for protection of assets in the event of home jurisdiction political or economic turmoil It is extremely difficult, save in situations of accusations of a severe criminal offense, for an outside entity to pierce the confidentiality shield inherent to an offshore trust in most jurisdictions.
Offshore trusts are often formed in low-taxation or low-regulation havens that have a proven reputation for the successful management and execution of trusts and trust funds. However, it is not absolutely necessary for a suitable location to be a tax haven or have lax regulations–many of the successful trust formation jurisdictions and countries simply offer renown, experienced trust companies coupled with superb confidentiality and with substantial asset shields. One common denominator is that these jurisdictions base their trust regulations and statutes on the English common law–this because the very idea of trust formation is an old English idea dating back to the time of the Crusades. Other European jurisdictions that offer successful trust administration, such as Luxembourg, Malta, Switzerland, etc., have adapted their statutes and regulations to conform with the proper trust administration models set forth by those based on the English common law.

Features of the Cook Islands legislation

Features of the Cook Islands legislation include:

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.

Generally foreign judgements cannot be entered against an international trust in the Cook Islands.

An international trust shall not be fraudulent against a creditor or the settlor 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) Such a transfer takes place within two years from the date of the cause of action accruing to that creditor and the creditor fails to bring that action 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 shall 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, the provisions outlined in 5) – 9) above 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.

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Disclaimer: While TBA & Associates strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact TBA Customer Services for advice on your specific cases.

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