Cook Islands Trusts
Private trustee companies
A private trustee company can provide savings, control, and privacy for clients who prefer not to place their assets with a trustee company owned by a financial institution.
Most offshore jurisdictions require a grantor. To appoint a licensed trustee company to act as trustee of an offshore trust if the trust is to be domiciled in that jurisdiction. In some jurisdictions, however a client may form a separate offshore company (a private trustee company) for the special purpose of acting as trustee of his or her trust or trusts, instead of appointing a licensed offshore trustee company. There are many situations where it may be advisable for a client to form a private trustee company.
The Cook Islands has special provisions ensuring that private trustee companies are easy to establish and operate, as well as being effective. Most importantly, in the Cook Islands there is no need to form a separate purpose trust to hold the shares of a private trustee company, as the different forms of corporate ownership of a Cook Islands offshore company make this extra entity unnecessary.
Reasons for forming a private trustee company
A licensed trustee company may be unwilling to act as a trustee of a client’s trust, whether because of the litigation risk applicable to that client, or because of the nature of the asset to be held, or because of the investment activity planned by the client. The planned investment activity may involve the trustee in potential liability, or it may require on the spot decision making which is not practical with a trustee in another time zone.
Some trustee companies require complete control of the trust’s investment activity without client participation. Furthermore, it is common for licensed trustee companies owned by financial institutions to require the investment of client trust funds in financial products of entities related to that financial institution, whereas clients normally want to have the right to choose the funds and products the trust will invest in, as well as the fund manager.
Often the only licensed trustee companies giving the client the security of being owned by a financial institution are exposed in jurisdictions such as the United States because of their worldwide links.
The alternative of placing assets under control of an individually owned trustee company may not be comfortable for the client or his advisers, nor can this risk be negated by fidelity insurance. Some clients may not even want to disclose the affairs of their trust to the staff (often expatriate) of a licensed trustee company, particularly where the information is politically sensitive.
Finally, where a trust or a group of trusts has a substantial amount of activity, or where the trust assets themselves are substantial, a client can achieve savings by carrying out his own administration rather than have these activities carried out on a time cost basis or on a percentage fee basis by a licensed trustee company.
Before registering as a Cook Islands international trust, a trust must establish a nexus with the Cook Islands jurisdiction. Section 2 of the International Trusts Act 1984 (ITA) requires a trust to appoint either a licensed trustee company, or a Cook Islands international company, as its trustee.
When forming a trust, therefore, the client can first incorporate his own specially structured international company. That international company is eligible for appointment as trustee of the client’s trust, making the trust eligible for registration as a Cook Islands international trust.
Exit strategy for asset protection trusts
In the case of the default shares, the shares can be issued subject to terms that vest the shares of the private trustee company in a licensed trustee company in the event of any threat against the client.
In a similar situation with a purpose company, a cautious client can transfer the bearer debenture by simple delivery. If a change of jurisdiction is called for, then as an alternative to re-domiciling the trust by a change of trustee, the private trustee company itself may be re-domiciled.
The trust is then registered, with the licensed trustee company also being appointed as the registered office of the trust. The licensed trustee company will attend to the filing of the annual return for the international company and the annual renewal of registration of both the international company and the trust.
No local appointments are required
In other jurisdictions, a local person must be appointed as a trustee in addition to the private trustee company, or as a director of the private trustee company. These appointments add cost and give opportunity for disclosure. No such appointments are required in the Cook Islands.
Finally, no audit is required in the Cook Islands
Comparison with other jurisdictions
A Cook Islands private trustee company structure has several advantages over similar structures in other offshore jurisdictions.
First, no purpose trust required. In other jurisdictions the shares of a private trustee company must be held by a purpose trust to separate legal ownership by the client of the private trustee company. Although a purpose trust may be established in the Cook Islands, it is not necessary given the company structures available.
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