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The Anatomy of a Cook Islands Trust

The Cook Islands - the world's strongest asset protection trust jurisdiction.

The Cook Islands spearheaded the most favorable, flexible and tightest protective trust legislation in the world. This was done because there was such a need in the asset protection industry. Consequently, they enhance their own economy by offering offshore investors safe harbor. This was accomplished by enacting the first robust asset protection trust laws in 1984 with unique trust features. In these trust laws the settlor (you) can be the spendthrift beneficiary of the trust, whereas the United States and English most laws were designed to prevent a trust settlor from avoiding debts and benefiting from trust assets.

The Achilles Heel of any asset protection plan is Fraudulent Transfer and this is where Cook Islands trust features weigh in on your side of the scale. Your creditors may try to argue that the transfer of your assets into a protective trust to be deemed fraudulent, therefore invalid. This is how an asset protection trust is breached in other jurisdictions, when a court deems the transfer of the assets is fraudulent and subsequently voided. The Cook Islands has placed features in their statutes to prevent the fraudulent transfer argument from pilfering your assets. First, when a year has passed (or two years from the cause of action) since placing assets in the trust, the case is prevented from being filed in the Cook Islands. Even if the case is brought within those timeframes the plaintiff still has nearly insurmountable barriers. They must prove that the assets were transferred specifically to defraud that particular creditor. Not any creditor. But that particular one. Plus, they must prove it beyond the shadow of a reasonable doubt. The Cook Islands is still the only jurisdiction with the strongest asset protection trust provisions and the strong case law history showing that the trust works when tested in the courts.

These trust features, or laws, are called provisions, and the key protective features are:

  • A time limit of action; regardless of the circumstances, your creditors only have a set amount of time to take action on the transfer of your assets due to a very brief statute of limitations on fraudulent transfer.
  • Proof of fraud (by your creditor) that your asset transfer was specifically to defraud that particular creditor. This is a high legal hurdle, your creditor must prove beyond a reasonable doubt (to a criminal standard) that your asset transfer rendered you insolvent and was performed solely to defraud them.
  • Foreign judgments not recognized; a court ruling based on any foreign jurisdiction's law will not be recognized in the Cook Islands with anti-duress provisions incorporated.
  • Bankruptcy laws: Even if you file for bankruptcy, the asets are still protected within a Cook Islands trust
  • Protection against "future fraud"; meaning that you are protected if you transfer your assets well before a creditor's cause of action. In other words, if you transfer your assets into a Cook Islands Trust well before you had the creditor, or well before the creditor had reason to file suit, you are protected by Cook Islands Trust Provisions. This plays hand-in-hand with the proof of intent to fraud a particular creditor. How can you intend to defraud a creditor that you didn't have when you transferred your assets?

Cook Island Law

Strict confidentiality laws prohibit disclosure of trust and financial information to anyone other than the customer. This prevents access by any creditor or even a foreign government - with the exception of acts of international money laundering or terrorism. Fraudulent transfer laws reduce the statute of limitations down to one year and two years from the cause of action. If you settle a trust while solvent, your trust cannot be challenged and there is no time limit according to Cook Islands law.

Due to these favorable protective laws, the Cook Islands have more asset protection trusts registered than anywhere else in the world. This is all supported by case law and history of court cases where assets were protected by these laws.

Trust Mechanics

Along with these protective trust provisions, Cook Islands trust mechanics do not require the settlor (you) to give up arm's reach control over the trust assets. You are the Settlor of the trust and you place all of your assets into the hands of a Trustee who manages them. Beneficiaries, generally you and your family, (could be anyone or anything) are the ones who benefit from the assets. Oversight of the Trustee can be provided by a trust Protector, who is appointed by you.

What this means is that your assets are managed by an individual who is not subject to your jurisdiction's court rulings and laws. A trust Protector, which is an optional provision, is generally someone you know and trust, but can be an attorney or family member, who can veto trustee actions as well as appoint and remove the trustees. Your investment decisions can be handled by an advisor (such as a financial planner) who the trustee appoints and the protector approves.

There are a number of variations to setting up an asset protection trust in the Cook Islands. Through the use of the Trust Protector instrument, you (the settlor) can remain in relatively close contact to the trustee and the trustee actions. Meanwhile your investments can be managed by the same individual before the trust or a new one of your choosing. A custodian bank, often times in Switzerland, is also part of the asset protection plan.

Flexibility and Management of a Cook Islands Trust

Multiple Trustees
When a client has no immediate concerns but wants to setup an asset protection plan, one can be created where multiple trustees are appointed. One or more domestic trustees can run the day-to-day trust administration, and in the event of a lawsuit, the trust structure allows the foreign trustee to change to that of a single trustee in the Cook Islands. Using this arrangement allows clients to utilize Cook Islands asset protection only when it's needed.

Private Trustee Company
You have the option of forming a foreign LLC, which will be owned by your trust. You serve as manager and maintain bank account signatories. Provisions can be created so that in the case of litigation against you, a professional trustee company can be appointed as a manager of the LLC to manage and protect trust assets.

Single Cook Islands Trustee
There are various ways to utilize a single foreign trustee. In any variation you are able to maintain a close watch over the administration of your Cook Islands trust and assets held within through the Protector instrument.

This is why the Cook Islands is the world's premier asset protection jurisdiction and with recent additions of LLC laws with similar asset protection features, the Cook Islands will likely remain the safest place in the world to settle your trust.

Taxation in your home jurisdiction
Everything that we have discussed involves asset protection through the use of Cook Islands Trust laws and legal provisions. Asset protection vehicles should not be confused with tax vehicles. All of the structures and variations are pass through tax entities where the settlor is personally liable for trust income. All forms of the foreign asset protection trust have tax reporting requirements and it is each individual's responsibility to adhere to his home jurisdiction's tax laws.