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
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
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
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").
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.