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Why a Cook Islands Asset Protection Trust is #1

There are deadbolts. Then there is Fort Knox. The Cook Islands Offshore Asset Protection Trust is the Fort Knox of the asset protection world. Why? It simply works. Every time a properly structured Cook Islands Trust has been tested in the courts it has protected the client's assets from lawsuits.

The Cook Islands is located due south of and is in the same timezone as Hawaii. The offshore trust in the Cook Islands, can be established wherein it owns 100% of a limited liability company. You can hold the position of manager of the LLC and you have the signatory authority over LLC bank accounts.

When the "bad thing" happens and the funds are at risk, your licensed, bonded, insured trustee can step in and assume the additional role of manager of the LLC and keep your funds out of harm's way. So, the only time the trustee needs to step in is when your funds would be taken by your legal enemies.

Would you rather have a 100% chance or your funds being taken by court order? Or would you rather have a licensed, bonded, reputable 30+ year old trust company that has never taken a client's funds do what you have paid them to do: protect your money from creditors?

The reputation of trust companies in the Cook Islands is beyond reproach. The country depends on tourism and financial services. As such, the regulatory authorities keep the trust companies on a tight leash. Time has consistently displayed the strong integrity of the licensed trustees in the jurisdiction.

The asset protection provisions were added to the trust laws in 1989. An important feature is that a settlor (the one who has the trust created) can have it established as a spendthrift trust (so that the trustee can step in and prevent the flow of money going to legal opponents) and the settlor of the spendthrift trust can also be the beneficiary. The Cook Islands was the first country to include this provision.

Thus, you have control of your money in cooperation with your trustee but the creditors do not. When the bad thing happens your trustee can step in to protect your funds. If you need money, the trustee can pay your bills and/or wire funds to a trusted friend or relative who can, in turn give money to you. Thus, you still have access to your cash even during times of legal duress.

Thus, even though you have some control over your money, your creditors do not. The aggressive plaintiff's attorney who tried to corner you with trick questions in deposition now has his hands tied behind his back by your trust and is unable to reach into your pocket to take your hard-earned wealth. There are simply no readily available legal means available to the plaintiff to get to your funds.

The reason for this is that Cook Islands asset protection trust law has been drafted in your favor, so that your creditors cannot ever touch your funds. Thus, when a US court orders you to pay the plaintiff, turned creditor, the $2 million they say you owe them, the trustee will refuse to pay them.

Showing cooperation to the court order, you can demand that trustee pay the money to your legal enemy, so you will not be held in contempt. However, even if you do, the trustee will not comply if you are doing so against your will or under legal duress. Thus, the trustee, who resides outside of the US, is not required to comply with US court orders.

That is why the Cook Islands asset protection trust has worked over and over again. It's a virtual bomb shelter for your assets. Every time our client's assets have been threatened and the funds have been in the recommended institutions (e.g. strong banks without corresponding US branches) the trust has worked.

The Cooks also provided for a shorter statute of limitations on fraudulent transfer. Fraudulent Transfer (aka Fraudulent Conveyance) is a civil matter and not a criminal matter. It typically comes up when a debtor who does not have enough to cover his financial obligations. This is a fairly common action brought forth by creditors in bankruptcy.

Cook Islands Statute of Limitations

The Cook Islands has a one-year statute of limitations on fraudulent transfer (or two years from the cause-of-action, which is the reason why the lawsuit was filed). In the US, the statute of limitations is generally four years.

Here is what this means:

  1. When the statute of limitations clock runs out, the Cook Islands will refuse to hear any cases accusing you of fraudulent transfer of your assets.
  2. Because court cases usually take so long, once the lawsuit goes through all of the steps back home and the defendant goes through the bankruptcy process, the statute of limitations will have expired which will prevent the suit from being accepted in the Cook Islands.
  3. It gets better yet. It protects assets even if the lawsuit is transferred to the Cook Islands before statute of limitations has not run out. The reason is that the plaintiff (the one suing you) would have to prove beyond a reasonable doubt (a very high legal hurdle) that the only reason you set up the trust was to fraudulently transfer assets away from that particular creditor. Not just any creditor. But the one bringing the lawsuit. The typical burden of proof in civil lawsuits is by a preponderance of the evidence (51% to 49%). However, beyond a reasonable doubt requires the evidence to show a 95-97% support of the issues. This is close to impossible when it comes to asset protection trusts. Perhaps the trust was set up to diversify assets in an uncertain economy, to put funds into a more secure location for estate planning purposes, or for a nearly limitless number of other reasons.
  4. Additionally, for those who have existing living trusts that are funded with assets, the living trust can usually be amended and converted into a Cook Islands trust. Thus, it will be the same trust with different words. What that means is that the assets that had already been in the living trust for over two years will have already been protected by the Cook Islands statute of limitations clock. They are protected from a fraudulent transfer lawsuit in the Cook Islands.

If this isn't enough, after the plaintiff has become fatigued by boxing with the wind, the trust jurisdiction can be changed to another country such as Nevis and then to Belize. Let them fight an additional battle in one or more of these jurisdictions for a year or two and by the time the trust is re-domiciled to the Cook Islands, the clock will have struck midnight for your creditor. Cook Islands Trusts and Offshore Asset Protection

Though there are other jurisdictions that offer offshore asset protection trusts, there are only a handful that have laws that are sufficient to keep creditors at bay. In the Bahamas, for example, there are not provisions giving the settlor (you) control of trust assets. They also lack provisions allowing you to eliminate certain parties (such as your creditor) from access to your funds by a foreign judgement. In Belize, there are not specific statutes to protect trust assets from bankruptcy. In Bermuda and the Cayman Islands, the statute of limitations for fraudulent transfer is a staggering six years.

The Cook Islands has all of these benefits and more. This remote island nation has been transformed from a mere tourist destination to financial safe-house. The officials have recognized the substantial demand from those who need to protect assets from lawsuits. So, the Cook Islands legislature enacted the International Trusts Act 1984. In 1989, the trust law was amended to add asset protection provisions.

The trust law enacted in the Cook Islands was originally drafted by US attorneys with specific intent to provide asset protection to people in the US, Canada, UK, Australia, New Zealand and other jurisdictions where lawsuits commonly take assets. It allowed the settlor to manage assets from afar. The resulting legislation resulted in a large influx of trusts in the Cook Islands and significantly increased the revenue to the financial services arena there. Some other countries saw the rush to the Cook Islands and enacted their own versions of the law.

There are a number of reasons to form an asset protection trust in the Cook Islands. First, the Cook Islands do not recognize foreign judgments. In order for someone to attempt to get to Cook Islands trust assets, they would actually have to file a lawsuit in the Cook Islands itself. Even if they do take that extraordinary and expensive step, they would find the task extremely painful, difficult and challenging. Because of the way in which the laws are drafted and, one would suppose because their economy depends on the strength of the asset protection trusts, the courts are swayed to lean far to the side of the one defending his or her assets. As mentioned, the burden of proof for the plaintiff is beyond a reasonable doubt that the assets were put into the trust only to defraud that creditor. The short statute of limitations on fraudulent transfer means that when the plaintiff comes around to bringing suit in the Cook Islands, the time will have already run out for them.

This does not suggest that a Cook Islands Asset Protection trust is right for everyone. The value of the assets are taken into consideration. Are your assets liquid? can they be quickly liquidized? or can they be tied up with a mortgage or UCC-1 filing? It is responsible for you and your asset protection consultant to discuss these matters.