Introduction
The Cook Islands is a very popular jurisdiction to form an asset protection trust, as foreign judgements are hardly enforced, and the trust structure allows the Settlor to maintain indirect control over the trust assets and management without invalidating the trust by appointing a person of the Settlor trust as the Protector, or through a Co-Trustree figure.
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The Cook Island Trust is governed by the INTERNATIONAL TRUSTS ACT 1984 (hereinafter the “Act”).
Foreign judgments not enforceable:
One of the main attractiveness of forming a Cook Islands trust, and why a Cook Islands Trust can be considered one of the best asset protection vehicles, if not the best, is that foreign judgments or rulings cannot be enforced or recognized in the Cook Islands, making it much harder for a creditor’s lawyer to bring a suit against it, and if brought, the chances of succeeding are on your favor.
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The Act, in section 13D States:
"13D. Foreign judgements not enforceable - Notwithstanding the provisions of any treaty or statute, or any rule of law, or equity, to the contrary, no proceedings for or in relation to the enforcement or recognition of a judgement obtained in a jurisdiction other than the Cook Islands against any interested party shall be in any way entertained, recognised or enforced by any Court in the Cook Islands to the extent that the judgement:
(a) is based upon the application of any law inconsistent with the provisions of this Act or of the Trustee Companies Act 1981-2; or
(b) relates to a matter or particular aspect that is governed by the law of the Cook Islands."
Taxation of a Cook Islands Trust
The Cook Islands does not impose tax on International Trusts formed in the Cook Islands, this includes exemption on Income, Sales, Capital Gains, heritage , estate tax, and/or others.
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However, the beneficiary jurisdiction of tax residency may impose taxes on the Trust Distribution or other type of income or assets received by or transferred to the beneficiary or any other receiving party. This will depend on the specific jurisdiction tax code.
Illegal Conveyance of Assets and/or Fraud
Illegal or Fraudulent Conveyance of Assets is when, with the purpose of defrauding or not paying creditors, the Settlor transfers assets to the Trust in order to hide those assets or put them out of the creditor’s reach.
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A Illegal Conveyance of Assets claim objective is to reverse or invalid such transfer so the Creditor can satisfy . Illegal Conveyance of Assets can also be considered a crime, depending on the Settlor or Assets location.
In the Cook Islands, it will not be considered as a fraudulent transfer if the claim is brought against 2 years after the transfer, or if the cause of action took place after 1 year before the 2 years expiration.
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In regards to the above, the Act in clause 13B (3) states
"13B(3) An international trust settled or established and a disposition to such trust shall for all purposes be deemed not to have been so settled or established, or the property disposed of with intent to defraud a creditor
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(a) if settled, established or the disposition takes place after the expiration of 2 years from the date that creditor’s cause of action accrued; or
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(b) where settled, established or the disposition takes place before the expiration of 2 years from the date that the creditor’s cause of action accrued, that creditor fails to commence in a court of competent jurisdiction proceedings in respect of that creditor’s cause of action before the expiration of 1 year from the date such settlement, establishment or disposition took place"
Parties in a Cook Islands Trust
Settlor
The Settlor is the Person or entity who creates the trust and/or transfers any property to the Trust as a Trust Asset.
The Settlor may retain the Powers to amend or revoke the trust, to dispose of the trust assets, remove or appoint the Trustee and the Protector, be a beneficiary, or to direct the Trustee or Protector, without this rendering the Trust invalid in the Cook Islands, but it is important to take into consideration the Settlor’s residency and assets location local laws as even though the Trust can be valid under Cook Islands laws, the Trust may be considered invalid under the third country laws.
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Trustee
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The Trustee is the entity that manages the trust and the assets in accordance to the Trust Deed in the benefit of the Beneficiaries.
It has to be a company registered in the Cook Islands.
Co-Trustee
The Co-Trustee an individual or a Private Trustee Company.
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Protector:
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A Protector an option figure in the Cook Islands Trust. The Protector is appointed by the Settlor in the Trust Deed and it a trusted individual by the Settlor.
The Purpose of appointing a protector is to provide an extra layer of protection to the Settlors and beneficiary interests, as well as oversee the management of the trust assets.
The Powers of the Protector are set in the Trust Deed, and this may include, but not limited to:
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Remove and/or appoint a Trustee.
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Veto or approve the Trustee decisions.
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Approve distributions.
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Modify the terms of the trust.
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A Protector of a Cook Islands trust can provide an additional layer of protection for the trust assets against potential legal claims or judgments from outside the jurisdiction by having the power to direct the Trustee to move the trust assets to another jurisdiction or to take other protective measures in response to a perceived threat. This can include transferring the trust assets to a different trust, entity or legal structure, or even changing the governing law of the trust.
It may be beneficial that during the timeframe period when an “illegal conveyance of assets” claim can be brought against the settlor, that the Protector does not reside in or is not from the jurisdiction where settlor’s assets were or are located.
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Beneficiary
The Beneficiary is the individual or individuals who can benefit from the Trust proceeds or assets, according to the rules set in the Trust Deed.
What Assets can held under a Trust
A Cook Islands Trust can hold any type of assets, these include, but are not limited to:
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Financial Assets (shares, bonds, )
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Companies.
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Bank Accounts
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Immovable Property and Real Estate
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Movable Property.
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Precious Metals
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Yachts, Cars.
LLC owned by a Cook Islands Trust
It is a common structure to form or hold a company under the trust for several reasons. One of them is that this way the Settlor can benefit, manage, or use the assets held under the company.
So we form the Trust, and the Trust holds the LLC or Corporation.
We appoint the Settlor as the Manager of the LLC and this way the Settlor (acting as the Company Manager) can act as the Signatory of the bank account held under this company, manage its business affairs, dispose of the company assets, and much more.
How to form a Cook Islands Trust:
To form a Trust in the Cook Islands, you can contact us and we will arrange the trust formation and correct structure, we also fill and complete the Trust Formation Forms, questionnaires, and documents.
After all the documents have been gathered, we provide these documents to the Trustee Company for approval. We then review the Trust Deed and make amendments if necessary, and then finally he Trust is formed.
Forms and documents required to be filled and provided:
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Attorney Referral Letter. (Provided by us)
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Trust Registration Form; (Filled and completed by us, signed by you)
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Due Diligence (DD) Questionnaires; (Filled and completed by us, signed by you)
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Affidavit of Solvency; (Filled and completed by us, signed by you before a notary public)
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W9 or W-8BEN Form (Filled and completed by us, signed by you)
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Notarized Copy of Passport and utility bill (not more than 3 months old). (Provided by you, certified by us)