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Misconceptions and Realities about Cook Islands Trusts

MISCONCEPTION:

REALITY:

You can hide assets from the IRS

Cook Island Trusts are tax neutral. That means that they neither increase nor decrease the tax liability of the person setting them up. Taxes must still be paid and they are not havens for tax evasion.

Offshore accounts are for criminals

The Cook Islands have a raft of legislation designed to combat money laundering and the movement of proceeds of crime.

For example, The Financial Transaction Reporting Act 2004 specifically places clear legal obligations on trustee companies and banks in the Cook Islands to vet their clients, including having in‐house due diligence processes before taking on a new client. Moreover, such legislation gives broad powers to regulatory authorities such as the Financial Supervisory Commission (FSC) and the Financial Intelligence Unit (FIU) to conduct audits on trustee companies and banks to ensure that due diligence has in fact been completed. Failure to comply can result in the revocation or suspension of a trustee company’s license. Any suggestion that the Cook Islands is an unregulated jurisdiction providing safe harbor for criminals is just not supported by reality. In fact, these types of clients are simply unwelcome and approaches from them would be rejected as a matter of good business practice.

The legal system is corrupt or inept

Recently retired New Zealand High Court or Court of Appeal Judges preside over The High Court of the Cook Islands.

Importantly, the Cook Islands prohibits local Cook Island barristers from being appointed to the bench. The caliber of New Zealand justices is simply first class, as are their legal judgments. This cannot be said of judges and judgments in other jurisdictions such as the Bahamas and Belize, where local barristers can vie for appointment to the bench with little experience.

The Island nation’s banks could go belly up and the government is unstable

Despite being granted independence from New Zealand in 1965, The Cook Islands retains an extremely close link with New Zealand. This results in a high degree of economic, political and social stability that cannot be claimed by many other competitor offshore jurisdictions.

Asset protection trusts will fail against American legal challenges

The ultimate appeal of the Cook Islands is its trust law. The International Trusts Act 1984 (ITA) is the cornerstone of the Cook Islands offshore industry. Highly regarded amongst attorneys, the ITA has been tested many times before the High Court of the Cook Islands in some very challenging cases.

The ITA’s strength lies in the balance it strikes between the rights of creditors to challenge the establishment of an international trust or the disposition to such a trust based on fraudulent transfer on one hand, against the asset protection qualities provided by the ITA on the other.

Some jurisdictions such as Belize have their own equivalent of the ITA, but are often criticized by attorneys and creditors for being imbalanced, stripping away claims based on fraudulent transfer, which attracts a type of clientele that brings discredit to that jurisdiction’s asset protection trusts.

The Cook Islands’ trust law is new

In fact, The Cook Islands was one of the first countries to create an entirely new offshore trust industry founded on a statutory platform of asset protection legislation.

Unlike many of its competitor jurisdictions, it has had in excess of 30 years to fine tune its laws, regulatory framework and trustee companies. Supported by the Cook Islands Government, its trust laws have a level of maturity that other “copy‐cat” jurisdictions sadly lack.

Article courtesy: Southpac Trust Limited (Cook Islands)

Photo by brizzle born and bred