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Asset Protection Trust Protectors

A Cook Islands asset protection trusts has the option of having a protector. The office of the protector is not part of traditional trust law and many jurisdictions have not incorporated trust protectors into their legislation. The Cook Islands was one of the first jurisdictions to define the office of the protector, which basically says that the trust protector is a person who has the ability to appoint and remove trustees and/or has the ability to control certain trustee decisions. The role of the trust protector largely depends on the terms of the trust. A trust protector is essentially an overseer of trustee actions with a varying range of duties, functions and powers. The extent and range of powers given to your trust protector will depend on the terms of your trust. Typically the protector receives the power to appoint and remove trustees and the power to veto certain trustee decisions. In some cases the trust protector can be granted the power to amend the trust. The power to veto trustee decisions can be applied to making investments or making distributions from the trust. The power to compel a trustee to carry out a decision is different than the power to veto a trustee action. Veto powers are more commonly granted for different reasons, specifically so that the trust protector cannot be ordered by a court to compel a trustee to act if there is litigation against the trust.

There are many ways to implement a trust protector into the terms of your trust. For example, they may be additional signatories on your account, so that both the protector and the trustee must sign in order to make a distribution. The protector may be allowed to change the trustee, assign additional trustees, or change the trust to a different jurisdiction. In addition, it is important that the right people are chosen as successor protectors and the appropriate powers granted, in the event of the protector's passing. Under Cook Islands law, the trust protector can provide for extra security, peace of mind and flexibility.

Appointing a Trust Protector

It is important that the trust protector is not also a trust settlor, trustee or beneficiary. Sometimes, trust settlors wish to be the protector and exercise their powers. However case law has ruled unfavorably in this regard because it has been ruled that the protector/settlor has created his own impossibility to act on behalf of the trust.

On flexibility feature under Cook Islands law, is that you can define initial protector powers and you can define different powers for the successor (i.e. replacement) protector. This allows you to replace the first protector with a fiduciary trust protector that has different powers than the initial one.

Protector Powers

The powers of the trust protector can be either fiduciary or personal. Usually the protector must not perform any acts that could be interpreted as a conflict of interest and must act in the best interest of the beneficiary. In the case of personal powers, the protector can exercise them for his own benefit with no regard to the beneficiaries. With fiduciary powers the protector is duty bound to the beneficiaries and must act on the interests of the beneficiaries when exercising their powers. Under Cook Islands law if a trust protector is granted personal powers, he is not liable as is the trustee, unless the terms of the trust say otherwise.

Successor Protector Options

Choosing a successor protector is very important. Failing to do so can be problematic in the event of the initial protector's death. One option is to appoint a Corporate Protector, which brings fiduciary experience to the table, as well as conservative approach to trust administration. Another option is to appoint multiple successor protectors in which their powers are to be carried out by a majority, unless you specify otherwise in the terms of the trust. A committee of trust protectors is another form of implementing multiple trust protectors. A protector committee acts much like a board of directors for a corporation. This is a very rarely done and most international trusts do not require such a degree of management. It is important to carefully weigh the powers of your trust protector and be specific about his or her fiduciary responsibility.