Cross-border estate planning: Looking at a Cook Islands Trust

Mr. X settles assets in an offshore trust. His ex-wife (or creditor) claims the settlement was done to avoid liabilities. The local court agrees and orders against Mr. X… but how will the jurisdiction of the offshore trust react to this foreign court order?

As I said in an earlier post, a good offshore trust jurisdictions offers some level of asset protection. Well…

This one is about Cook Islands. A small place near New Zealand (not in NZ… just nearby).

Why the Cook Islands

The Cook Islands’ International Trusts Act 1984 has created what is probably the most aggressive creditor-protection framework in the world.

Foreign court judgments are not enforceable against Cook Islands trust assets. A creditor who wins a case in (say) India, he cannot simply register that judgment in the Cook Islands and go after the trust money. They have to start afresh in the Cook Islands courts as per their law!

Three unfair things (😅) in Cook Islands law

1. The standard of proof a creditor must meet to set aside a transfer is beyond reasonable doubt.
2. The limitation period for challenging a transfer into the trust is two years from the date of the transfer. After that, the transfer is practically unassailable.
3. and as if this wasn’t enough… the settlor can retain meaningful powers over the trust including the power to revoke it without that being used against the settlor to argue the trust is a sham.

The limits

Is this a bullet proof jurisdiction? Of course not. There have been cases where the local court ordered Mr. X to bring the trust assets back from Cook Islands (since he retained power in the trust) and meet his liabilities… Mr. X did not comply, so he was held in contempt of (local) court - put in jail basically.

Nevertheless, for legitimate, pre-planned estate structuring, the Cook Islands remains the global benchmark for asset protection.