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Offshore Trusts Report: Cook Islands

Legal Framework and Formation Rules and Fees

Cook Island trusts are known locally as International Trusts and are governed by the provisions of the International Trusts Act 1984 (The Act), which has been substantially amended in 1989, 1991 1994, 1996 and 2004.

The Act provides for the licensing of trustee and trust management companies. All International Trusts must have a resident licensed trustee with management powers (unless they come within the custodian trustee exception cited below). Normally this means that the International Trust is required to use one of the several registered trust companies which operate out of the Islands.

Trusts are exempt from Cook Islands taxation, except that they pay Stamp Duty.

To obtain the protection of the Islands' laws the trust must be registered by the licensed trustee company within 45 days of its creation and they must certify that the trust is an International Trust under the Act. The non-resident settlor may appoint a licensed and resident Cook Islands trustee as a custodian trustee and is then free to appoint managing trustees within his own jurisdiction.

The Act imposes strict confidentiality rules on trustees and the staff of licensed trustee companies.

A Cook Islands International Trust has a number of distinct advantageous features:

  • The International Trusts Act 1984 (as amended) has abolished the perpetuity period rule in the Cook Islands and so enabled the "dynasty" trust to be established and administered in perpetuity;

  • The details of the beneficiaries and settlor of the trust are not registered; the only information that must be filed with the Registrar of International Trusts is the name of the International Trust, the names of the trustees and the date of the trust deed. Offshore public registries in the Cook Islands are not open to the general public and may be searched only by persons showing to the Registrar a good and cogent reason for doing so. Fraud constitutes one such reason;

  • The legislation specifically excludes the applicability of foreign inheritance laws. Thus if a foreign party from a civil law jurisdiction raised a legal challenge in the Islands courts against a disposition made by a settlor and cited foreign inheritance laws as the basis of a claim alleging that the disposition was invalid as it offended against the forced heirship rules that applied in his country, the action would fail since the Cook Island courts do not recognize foreign inheritance laws;

  • Only the judgments of New Zealand courts can be enforced in the Cook Islands. Thus a foreign creditor wishing to set aside a disposition would have to commence an action in the courts of the Cook Islands and so put himself within the ambit of laws and procedures which are generally favourable to the settlors, trustees and beneficiaries of an International Trust. The foreign judgment could only be used in the Cook Islands courts as evidence (if any) of the strength of the litigants claim. Furthermore exemplary and punitive damages are rarely if ever available in the Cook Islands with the consequence that such categories of damages would be denied to a litigant who successfully obtained judgment in the local courts and would be excluded from any judgment obtained in the courts of New Zealand.

  • The rule against accumulations has been abolished in the Cook Islands. In the Cook Islands the trustee of an International Trust can accumulate the income indefinitely.

  • The common law rule against purpose trusts has been abolished in the Cook Islands which has provided a mechanism under which a purpose trust can be enforced by the court.

  • The definition of what does and what does not constitute a charitable trust has been extended in the Cook Islands.

  • Under Cook Islands law a disposition can only be set aside if: a)The disposition occurred within 2 years of the date of the act or omission which gave rise to the creditors cause of action and the creditor can prove fraud on the part of the settlor; or b) if the action to set aside the disposition is commenced within 3 years of the date of the act or omission which gave rise to the creditors cause of action . If an action has already commenced in a foreign court the time limit is frozen pending its conclusion.

  • Under the International Trusts Act 1984 the rule requiring unanimity among trustees now only applies to an International Trust if the trust deed does not specify otherwise. The trust deed can now set out procedures for making of majority decisions by the trustees.Some doubt whether this is permitted under the rules of equity and it remains to be seen whether such changes bring any advantage to the jurisdiction given that these rules essentially exist for the protection of the beneficiaries.

  • In the Cook Islands so long as the trust deed so provides a trustee can delegate all powers except dispositive powers. Dispositive powers are powers enabling the trustees to dispose of assets whether by way of sale or by way of distribution of income or capital in favour of the beneficiaries. Thus a Cook Islands trustee could now place all trust fund investment decisions in the hands of an investment company.

  • A trust deed may now impose a different standard of care on a trustee making investments and can provide that he is to have the same powers of investment as a natural person.This might prove useful where the trustee is expected to manage a family business. Unless the trust deed otherwise specifies the standard of care expected of a trustee is that stated in the common law namely that which a prudent person would exercise in managing the affairs of another. Moreover under the common law if the trustee is a professional the standard of care expected is even higher.

  • The law allows for trusts created in the Islands before these amendments came into being to have their trust deeds re-drafted so that they can take advantage of the new legal provisions. Thus a trust which under the previous law had to prescribe a perpetuity period of no longer than 100 years can now have its trust deed redrafted so as to take advantage of the abolition of the perpetuities rule.

  • So long as the settlor appoints a licensed and resident Cook Islands trustee as a custodian trustee he is free to appoint managing trustees within his own jurisdiction. (This is the only exception to the rule that requires the trustees of a Cook Islands trust to be licensed and resident there).

  • A new mechanism and procedure has been created whereby the trust deed can appoint a "nominated person" who has the power to obtain the consent of and represent all the beneficiaries including non sui juris and future beneficiaries, beneficiaries who cannot be found and beneficiaries who have yet to be ascertained.

  • There are provisions allowing trusts to be redomiciled in and out of the Cook Islands. It was felt that the legislative changes (e.g. the abolition of the rule against perpetuitites) will make the Islands a particularly attractive jurisdiction in which to locate a trust and that accordingly there will be considerable interest in re-domiciliation. A trust re-domiciled in the Cook Islands is by the Islands' law deemed to be an International Trust formed under the International Trusts Act 1984 from the date of its inception and not just from the date of its re-domiciliation.

  • Under Cook Islands law the trust deed can deem that different aspects of the trust can be governed by the laws of different jurisdictions. Furthermore the trust deed will also be able to provide for a change in the governing law on the happening of a specified event (otherwise known as a "flee clause").

   

The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

New Zealand

New Zealand: Legal Framework and Formation Rules and Fees
New Zealand: Review of the Law of Trusts
New Zealand: Taxation of Trusts

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees

 


Cook Islands News

ATO Unveils Compliance In Focus Program Friday 19/7/2013 The Australian Taxation Office has said that it will spend the next year focusing on profit shifting, tax crime, and the misuse of trusts.

US, UK, Australia To Provide Tax Information To Others Tuesday 14/5/2013 It has been announced that the tax administrations from the United States, Australia and the United Kingdom have developed a plan to share tax information involving trusts and companies holding assets on behalf of residents in jurisdictions worldwide.

European Parliament ACP Report Targets Tax Havens Monday 25/1/2010 The European Parliament has called on the European Commission and the governments of the African, Caribbean and Pacific states to 'include the fight against abuse of tax havens, tax evasion and illicit capital flight as a matter of priority' in the revised Cotonou Agreement, which governs relations between the European Union and the ACP states.

Denmark Signs TIEAs With St Lucia, Samoa, And The Cook Islands Monday 21/12/2009 Denmark has concluded agreements on information exchange in tax matters with St Lucia, Samoa, and the Cook Islands, bringing its total for such agreements to 17.

Cook Islands At Risk Of Downgrade Wednesday 9/9/2009 Standard and Poor’s has revised its outlook from stable to negative, while confirming its 'BB’ long-term and 'B' short-term sovereign credit ratings for the Cook Islands.

Pacific Islands To Negotiate New Trade Deal Tuesday 11/8/2009 The 40th South Pacific Islands Forum, held recently in Australia, agreed that Forum Trade Ministers should meet, no later than November this year, to discuss a framework for a new regional trade and economic integration agreement.

New Zealand And Cook Islands Agree To Exchange Tax Information Friday 24/7/2009 New Zealand and the Cook Islands have signed a Tax Information Exchange Agreement between their two countries as part of international efforts to strengthen cooperation in this area. It was also agreed to establish an annual Joint Ministerial Forum that will further strengthen the special relationship between the Cook Islands and New Zealand.

Australia's Crean Attends Informal Trade Minister Meeting Tuesday 12/5/2009 An informal meeting of Pacific Trade Ministers was convened by New Zealand in Auckland on May 9, 2009. Australia was represented by Trade Minister Simon Crean (pictured) and Parliamentary Secretary for International Development Assistance, Bob McMullan.

World Bank Study Provides Overview Of Caribbean Global Trade Integration Tuesday 14/4/2009 The acceleration of trade integration in the Caribbean is essential to boost the region’s growth, create jobs, and reduce poverty, says a new World Bank study. The report argues that despite their small size, economies in the Caribbean must strive to become more competitive to fully reap the benefits of global trade integration.

EPA Between EU And Caribbean To Be Signed In July Thursday 15/5/2008 The Economic Partnership Agreement (EPA) between the European Commission (EC) and the Caribbean Forum of African, Caribbean and Pacific States (CARIFORUM) is to be signed in July 2008, according to an announcement by the Caribbean Community (CARICOM) Secretariat.