Cook Islands Trust: The Best Asset Protection From Creditors & Lawsuits

The Cook Islands has become a popular destination for individuals and companies seeking a secure environment to establish trusts for asset protection and financial management. Cook Islands trusts are governed by the Cook Islands International Trusts Act, which is a world leading asset protection legislation designed to provide a range of benefits to beneficiaries. This Act has set the standard for all other jurisdictions that have sought to compete in this niche.

One of the primary reasons why Cook Islands trusts are so attractive is their strong resistance to foreign judgments. This means that assets held within the trust are well-protected from seizure or other legal actions taken by foreign courts and creditors. 

This level of protection, combined with the flexibility and confidentiality provided by the Cook Islands trust structure, makes it an appealing option for those looking to safeguard their assets from unforeseen risks and liabilities.

Offshore Protection and its partners at Offshore Law Center has been forming Trusts in the Cook Islands for 25 years. Get a Free Legal Consultation to see if Offshore Protection is right for you.

What Is a Cook Island Trust?

A Cook Island Trust is a legal arrangement established under the jurisdiction of the Cook Islands, a self-governing territory in the South Pacific Ocean in close association with New Zealand. 

In this arrangement, a person or entity known as the settlor transfers assets to a trustee, who holds and manages those assets for the benefit of the trust beneficiaries. The trustee is often a licensed trust company based in the Cook Islands, ensuring compliance with local legislation and regulations.

Some key features of Cook Islands Trusts include the ability to establish a trust for various purposes, including charitable, family, business, or investment purposes. The jurisdiction offers a high degree of confidentiality for trust settlors, trustees, and beneficiaries, with limited public disclosure requirements. 

Additionally, Cook Island Trusts provide strong asset protection from potential claims by creditors, as the jurisdiction uses several preventative measures making assets held in trust nearly unreachable.

Cook Islands International Trust Act

The Cook Islands International Trusts Act is a foundational piece of legislation governing the establishment and operation of international trusts in the Cook Islands. This Act has been amended several times, with the most recent Amendment Act in 1999 as part of an ongoing effort to maintain and improve the country's offshore financial industry.

The Cook Islands jurisdiction is highly regarded for its trust law, which is grounded in English common law but has undergone significant modifications through the International Trusts Act and its subsequent amendments reducing the complexities in trust formation.

How Does the Cook Islands Asset Protection Trust Protect Me?

A Cook Islands Asset Protection Trust (APT) offers a high level of financial security for individuals seeking to safeguard their wealth. 

One of the primary benefits of a Cook Islands asset protection trust its ability to shield assets from potential litigation and creditor claims. The Cook Islands has trust laws, which protect assets from undue litigation.

The country is resistant to foreign judgments. The Cook Islands do not recognize judgments from other jurisdictions, which can provide a substantial layer of defense for the trust's assets. In cases where a claim is made against the trust, there is a statute of limitations to prove fraudulent conveyance of 2 years. Similarly, all legal claims must be filed within the country itself and can not be filed in a foreign judicial system.

The Cook Islands ensures that trust information remains confidential, which can help deter potential lawsuits and prevent unwanted attention. Trusts are established with the assistance of local trustees who are bound by local Cook Island law, to protect the identity and assets of the beneficiary.

As a result, creditors face significant challenges in attempting to access the funds even if settlors and beneficiaries are residing in the US or UK and this is borne out in the case law precedents, which have all been 100% successful in favor of the trust. While in most countries the burden of proof lies with the creditor rather than the settlor, the Cook Islands makes it much more difficult for creditors to stake a claim on the trust's assets.

Offshore Asset Protection Against Creditors & Lawsuits

The Cook Islands Trust is especially useful for individuals who may be susceptible to lawsuits, are going through a divorce or work in a high risk environment.

When a settlor sets up an offshore trust in the Cook Islands, their assets are transferred to a trustee, who is a resident of the Cook Islands, and are governed by its laws. The primary goal of this scheme is to protect assets from creditor claims that may arise from litigation of the settlor.

It is important to note that asset protection trusts must be set up before any lawsuits are initiated. Once a lawsuit is filed, it becomes much more difficult to protect the individual's assets, as transferring them to an offshore trust post-litigation may be seen as fraudulent.

In the Cook Islands, a creditor has only two years to challenge the transfer of a debtor's assets to a trust. After that period, it becomes extremely difficult for foreign courts to obtain jurisdiction and get these assets back. The Cook Islands law also stipulates that the creditor must prove the debtor had the intention of defrauding them when transferring assets to the trust. This makes it particularly challenging for creditors to retrieve the assets.

Benefits Of Setting Up A Cook Island Trust

The legal system in the Cook Islands provides several advantages for individuals looking to safeguard their assets from lawsuits:

• Asset Protection Case Law - Cook Islands laws prioritize the protection of assets from creditors, even in the case of bankrupt individuals

• Statute of Limitations - There's a short two year statute of limitations for creditors to challenge the transfer of assets to a trust

• Foreign judgments not recognized - Foreign court systems are not automatically enforceable in the Cook Islands, making it difficult for creditors to access assets

• Privacy and confidentiality - Cook Island law has strong privacy and confidentiality laws in place that make it a crime for a trustee to divulge information

• Tax Advantages - The Cook Islands does not tax any assets held in a trust

Legal Requirements For Setting Up A Cook Island Trust

The Role Of The Settlor And The Beneficiary

In the Cook Islands, the settlor is the person who establishes the trust and transfers assets to it. The settlor must meet the regulations and requirements set forth by the Cook Islands Trust law, which include being of sound mind and over 18 years of age. The beneficiaries, on the other hand, are the individuals or entities designated to receive the benefits from the trust, which may include income distribution and asset protection.

Roles And Responsibilities Of The Parties Involved

• Settlor: The settlor establishes the trust, transfers assets into it, and determines the trust's purpose and beneficiaries. The settlor must follow the regulations and requirements under Cook Islands Trust law when creating the trust.
   

• Beneficiary: Beneficiaries are individuals or entities designated to receive the benefits from the trust. They have specific rights, such as receiving trust income or obtaining information about the trust.
   

• Trustee: As the trust’s manager, the trustee must always act in the best interests of the beneficiaries. They are responsible for administering the trust and managing its assets in accordance with the trust agreement and Cook Islands law.
   

• Trust Protector: If appointed, the Trust Protector oversees the trustee’s activities, ensuring that they comply with the trust deed and act in the beneficiaries’ best interests. The Trust Protector may have the power to remove and appoint a new trustee if deemed necessary.
   

Appointing A Trustee Company

The Trustee plays a critical role in a Cook Islands Trust, as they manage the trust assets and act in the best interests of the beneficiaries. Trustee Companies must be licensed, functioning under strict regulations set by the Cook Islands Financial Supervisory Commission. There are only a very few of these trustee companies in this well regulated jurisdiction.

Establishing a Cook Islands Trust: A Step-by-Step Process

Forming a Cook Islands trust requires meticulous attention to detail and compliance with all legal requirements. Here is an in-depth look at the key steps involved:

1. Consult Experts on Structure and Terms

The first step is consulting with professionals to determine the optimal trust structure and terms for your specific objectives. A qualified attorney who specializes in asset protection should review your situation and make recommendations regarding:

• The length of the trust

• Distribution schedules and conditions

• The powers and limitations of trustees and protectors

• Governing law provisions

• Any special purpose language needed

An advisor can ensure your trust is crafted in a way that maximizes protection and flexibility.

2. Select a Licensed Trustee and Registered Agent

A Cook Islands licensed trustee is legally required under the country's trust laws. If you engage a law firm that specializes in asset protection, this will be all included as part of their turn key service.

3. Draft the Trust Deed and Supporting Documents

The trust deed is the central document that establishes the trust and sets out all terms and provisions. Supporting documentation will include:

• A letter of wishes from the settlor outlining distribution desires

• Affidavit of solvency to prove this is not a fraudulent transfer

• Memorandum of wishes to guide the trustee

• Deed of indemnity to protect the trustee

Work closely with your attorney to ensure these documents are thoroughly drafted.

4. Transfer Assets into the Trust

The settlor must formally transfer ownership and title of all trust property and assets to the trustee. All supporting documentation should prove the settlor no longer retains any control or beneficial interest.

5. Open Trust Bank Accounts

The trustee will need to establish appropriate bank accounts to manage, administer, and disburse funds from the trust. This is often done through banks with an established Cook Islands presence.

6. Register Documents with High Court

Original executed copies of the deed, affidavit, and other instruments must be filed with the High Court Registry to make the trust legally effective.

7. Obtain Certificate of Formation

Once registered, the High Court will issue a certificate of formation verifying the validity and existence of the trust. This certificate proves the trust was properly constituted.

8. Trust Administration

The trustee is now responsible for ongoing administration of the trust in accordance with the trust deed and for the benefit of designated beneficiaries. This can involve tasks like record keeping, asset management, distributions, and filings.

Types Of Assets Allowed In The Trust

A Cook Islands trust allows a diverse range of assets to be held for protection and growth. The primary focus of these trusts is to safeguard the wealth of the settlor while providing financial advantages through various investment opportunities. Nearly any type of valuable property can be transferred into the trust for protection and optimized management.

• Liquid Assets - Liquid assets like cash, bank accounts, money market funds, and other cash equivalents can be titled in the name of the trust.

• Equities - Various equities like publicly traded stocks, bonds, mutual funds, ETFs, and other securities can be owned by the trust.

• Investments - Hedge funds, private equity, venture capital funds, notes, options, warrants, and exotic instruments may be permissible.

• Real Estate - Commercial and residential real property like single-family homes, rental properties, apartment buildings, and vacant land can be deeded over to the trust.

• Life Insurance - Life insurance contracts providing a death benefit, along with annuities and endowments, can be titled to the trust as owner and beneficiary.

• Operating Businesses - Privately held businesses, partnerships, limited liability companies, and other closely held firms can have their ownership shares transferred into the trust.

• Digital Assets - Cryptocurrencies like Bitcoin and Ethereum as well as non-fungible tokens and other digital assets can be secured within the trust.

• Intellectual Property - Patents, trademarks, copyrights, royalties, licensing agreements, and other IP rights can be assigned to the trust.

• Other Property - Collectibles like art, antiques, jewelry, rare coins, wine collections, and other valuables may also find shelter within a Cook Islands trust.

Cook Islands Trust Cost

Forming and administering a Cook Islands trust involves certain costs and fees, which can vary based on individual circumstances. Generally, the main expenses fall into two categories - initial setup and ongoing annual maintenance.The starting costs primarily stem from professional services related to properly structuring and forming the trust:

• Legal guidance on optimal trust terms and provisions

• Drafting the trust deed, affidavits, and other documents

• Working with trustees and other parties to execute the paperwork

• Registering the trust with the High Court

• Any ancillary administrative, banking, or structural costs

Depending on complexity the initial establishment costs typically range from $15,000 to $50,000. Most US based lawyers will charge anywhere from $25,000 to $50,000. Offshore Protection / Offshore Law Center has over 25 years of experience establishing Cook Islands trusts,offers fixed-fee formation services starting at $15,000 with annual fixed maintenance fees starting at around $5,000.

Factors Impacting Costs

Some factors that may influence both formation and maintenance costs include:

• Complexity of the trust structure and customized terms

• Types of assets being transferred into the trust

• Whether ancillary entities like an LLC are being used

• Number of beneficiaries and distribution provisions

• The trustee chosen and extent of services required

With customized planning and guidance from experienced advisors, Cook Islands trusts can provide invaluable protection at reasonable costs for high-net-worth individuals.

Get a Free Legal Consultation to see if Offshore Protection in the Cook Islands is right for you.