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").