Trusts

The Cook Islands international trust has proven itself over a number of years to be a useful tool for professional advisors and their clients whose objectives include succession, tax, estate and/or asset protection planning. The Cook Islands International Trusts Act 1984, as amended ("the ITA") has been designed to provide many benefits including:

• The avoidance of probate and forced heirship rules;
• Allow for dynastic trusts, purpose and charitable trusts;
• Enhance the Asset Protection inherent in standard discretionary trusts;
• Facilitate investments;
• Estate and tax planning
• Business Succession

Specific illustrations of certain trust provisions are as follows:

• Foreign judgments are not enforceable;
• Specific provisions ensure a trust is not defeated by rules relating to heirship or spendthrift beneficiaries in the jurisdiction of the settlor/grantor;
• A settlor/grantor of a trust is able to retain control over the trust and its property if desired. This provision specifically addresses ramifications associated with the Rahman decision. However, whether a settlor/grantor, in any particular case, retains any degree of control is a matter on which professional advice should be sought;
• Community property rules are preserved. Subject to any specific provisions of the trust, this enables U.S. grantors to transfer property to a trust without affecting matrimonial property rights that may exist between spouses;
• Rationalisation of liquidation procedures to provide for quick and simple liquidations in respect of dormant companies;
• Foreign bankruptcy rules are specifically excluded;
• Specific limitation periods exist for the bringing of proceedings by creditors seeking to access trust assets;
• The ITA provides statutory definitions of what does not constitute a fraudulent disposition. If a disposition to a trust occurs more than two years after the date a creditor's action accrued, it is not fraudulent. Furthermore, if the disposition took place within two years from the date the creditor's cause of action accrued, and the creditor fails to commence that action in a court of competent jurisdiction within one year, then it shall not be a fraudulent disposition;
  o Abolition of the Rule against Perpetuities.

Since 1989 Cook Islands trust law has received significant publicity and stimulated strong debate. The Cook Islands has certainly raised awareness of and pioneered a new dimension in asset protection. The fact that since 1989 nearly a dozen jurisdictions have amended their laws relating to trusts or dispositions to trusts so as to provide a greater measure of asset protection, certainly speaks volumes for the value of innovation. Indeed, further refinements were made to the ITA in 1996. A summary of those amendments can be found in our download section (Newsletter of November 1996).

The above is only intended as a general outline of some of the more significant features of the laws relating to Cook Islands international trusts. Should you require any further information, please contact Portcullis TrustNet (Cook Islands) Ltd.