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How It All Started

1989 the International Trust Amendment Act was approved, which altered the International Trusts Act from seven years prior. This was all part of several legislative maneuvers to create a financial haven for offshore investors. These laws were designed to offer protection from frivolous lawsuits where no other legal structure could. These laws were implemented to attract offshore investors, specifically from the United States. Thus, the Cook Islands government spurred its own economy by creating an offshore financial center.

The International Trust Amendment Act made changes to the trust laws for the types of trust that many individuals around the world utilize as asset protection structures. After the amendments, statute against perpetuities were done away. The Statute Against Perpetuities comes from English law that limits the timeframe in which a trust can remain active. It is still possible for the trust to have a vesting period, if desired. That one can establish the trust so that certain individuals become beneficiaries of the trust after a certain time period has elapsed. In addition, bankruptcy does not void a settlor's trust. Plus, the settlor's beneficiary rights are not subject to seizure due to insolvency.

One important piece of legislation is section 13b which is where fraudulent conveyance is defined in the Cook Islands. This is where the ironclad protection starts. This piece of legislation outlines fraudulent conveyance, the solvency test, and imposes strict timelines in which a creditor has time to act. The changes to Cook Islands laws also included raising the standard of proof for fraudulent transfer claims to that of criminal equivalent. beyond a reasonable doubt. The protective barrier is strengthened in that the non-recognition of foreign judgements is defined. Essentially, foreign judgements are not enforceable. The laws do not completely disregard foreign judgements, however they must be consistent with Cook Islands law and the case must be re-tried in the Cook Islands.

Cook Islands Trustee companies must satisfy basic due dilligence in order to verify that the settlor's assets are in fact the settlor's and were not obtained through any criminal action. The settlor's information must be accurate and it is preferred that there are no current legal proceedings. This comes with statements of solvency from the settlor along with a statement of the source of the assets being transferred. The Cook Islands has done a good job with their preliminary trust registration requirements to ensure that the trust is not being settled as an instrument to commit unsavory acts.

Proven Protection

The Cook Islands Trust laws have proven, in the courts, to provide what many experts agree to be the strongest asset protection tool in the world. Various jurisdictions, as well as some U.S. states, have adopted copies of such protective legislature. However U.S. state courts are still subject to Federal Bankruptcy laws, and newer offshore financial centers lack the case history proving that their laws will protect the settlor's assets. This has made the Cook Islands stand out as an asset protection haven. This has, henceforth, reduced the amount of litigation in the Cook Islands. Plus, Cook Islands known to be a reputable jurisdiction. Part of the is the due diligence requirements specified in the legislation. The other part is that the laws work and people know that they work. There is no indication of major changes to these laws or litigation methods. To be on the safe side, you will be able to work with your Trustee to keep your trust up to date. If your Cook Islands Trust that is more than two years old you may want to have it reviewed and updated accounting for any recent decisions.