How Cook Islands Trusts Protect Assets
Cook Islands trusts provide the world’s strongest asset protection. Thus, Cook Islands trusts should be considered by anyone seeking piece of mind in the event that their assets are attacked by a frivolous lawsuit. In an increasingly litigious society, it is essential to protect assets from predatory lawsuits. Hard-working individuals, particularly those in fields with high liability like doctors and business owners, risk losing everything they have earned. There is no shortage of unscrupulous plaintiffs who are looking to make a quick buck. A strong asset protection strategy is an essential tool for every professional’s arsenal. The following are key provisions of the Cook Islands trust that can be utilized for asset protection.
Ability of the Trust to Wholly-Own An LLC
The best way to utilize a Cook Islands trust for asset protection is through opening a Limited Liability Company (LLC) in the Cook Islands or Nevis. The trust owns the entire LLC membership interest. One then transfers assets into the LLC. Under Cook Islands law, the settlor of the trust may also serve as the manager of the LLC. Once this happens, the settlor of the trust has legally protected the assets. They still retain full control of those assets, however, as a result of their managerial role within the LLC. Conversely, the settlor has the ability to transfer the managerial role of the LLC to the trustee in times of legal duress.
During normal circumstances, the settlor is able to move funds to and from the LLC. They can do this to and from anywhere in the world. They may also collaborate with the trustee to amend the terms of the trust as necessary within legal boundaries. In this way, the trust can be customized to suit the settlor’s needs. In addition, Cook Islands law allows for the provision of purpose trusts. With this type of trust, the trust has a “purpose” rather than a human beneficiary.
Built-In Financial Privacy
In the Cook Islands, settlors of trusts do not appear in the public records. Only the name of the trust, the name of the trustees, and the date of the trust deed are registered. Additionally, the Cook Islands LLC is not listed in a public register. Information regarding a Cook Islands LLC is kept by the company principles, themselves. Only the Resident Agent’s name and address details are made available to the public. In addition, the owners have the ability to appoint nominee managers. There is no requirement for a Cook Islands LLC to make information about its founder or members public. The Cook Islands does not recognize foreign judgments. Moreover, the local courts do not uphold foreign court orders.
One of the best ways to protect assets from creditors is by moving ownership of the assets from the settlor and transferring it to the LLC that is held inside of the trust. This provides legal asset protection. Moreover, neither the trust nor the LLC require the registration of the settlor or founder. The combination of the two legal vehicles provides an added layer of protection for financial privacy. Plus, the LLC gives control to the LLC manger/trust settlor before times of legal duress.
Foreign Judgments Are Not Upheld
Furthermore, Cook Islands trusts are not subject to the claims of foreign judgments. Only claims that have been adjudicated in Cook Islands courts will be upheld against trusts established here. As a result, trustees are bound by law to ignore judgments originating from outside the Cook Islands.
Ability to Access Assets Under Legal Duress
If the worst happens and settlors find themselves under legal duress, they will want to have access to their assets while still protecting them from creditors. The provisions of Cook Islands trusts allow for the trustee to pay bills for the settlor. The trustee can also pass funds to trusted family members or friends. These intermediaries may then pass the funds to the settlor.
What the trustee is not required to do is follow the court orders of a foreign jurisdiction. This is true even if a settlor is bound by a court order. If the order is from a foreign jurisdiction and the settlor, not of his or her own free will, instructs a Cook Islands trustee to use the assets to fulfill a foreign judgment the trustee will not comply. Provided that it is stipulated in the trust deed, the trustee is legally bound to disregard the settlors orders because they were given under legal duress. Significant piece of mind can be derived from the fact that settlors can access their assets while under duress but their creditors can not. This is one of the strongest reasons why a Cook Islands trust is the number one asset protection tool on the planet.
Impossibility to Act
“Impossibility to Act” is a legal situation where the settlor is under pressure from a foreign judgment. The Cook Islands trustee, in turn, refuses to release the assets to the courts. In this situation, the settlor has fulfilled the court order imposed on them by the foreign jurisdiction. At the same time, the assets that the settlor transferred to the LLC are protected.
Again, the trust owns 100% of the LLC. The protection occurs because the trustee is legally obligated to refuse to release the assets on the basis of a foreign judgment. This is a perfectly legal means for the settlor to protect their assets. The situation described above eliminates the risk of being found liable for fraudulent transfer, also known as fraudulent conveyance. This is because it is the managerial role of the LLC that is transferred from the settlor of the trust to the trustee. The assets remain in the LLC. So, the manager of the LLC changes but no assets are transferred.
Preference for Liquidity
Cook Islands trusts are most effective in protecting liquid assets held in an offshore foreign bank account. This is particularly true for US Citizens. The US government has jurisdiction over US bank accounts and real estate. It is certainly possible to hold US real estate in the Cook Islands LLC. However, it is much more beneficial to hold liquid assets. Real estate may be subject to certain claims where liquid assets held offshore inside of the trust would not be. In situations of legal duress, it is preferable to sell the real estate or record a lien against it which is payable to the LLC. Then there is a third party company in the Cook Islands which will purchase the liens and place the proceeds in a “can’t touch it” account inside of your offshore trust. For the most secure asset protection provided under Cook Island Trust law, it is best to use Cook Islands trusts to hold liquid assets.
Bank accounts used by the LLC, which is owned by the Cook Islands trust, do not have to be located in the Cook Islands. The accounts may be held in any financial institution in the world which refuses to recognize foreign court orders.
Benefits for Estate Planning
Cook Islands trust law also allows for the provision of so-called “Dynasty” trusts. “Dynasty” trusts are trusts that exist in perpetuity. These types of trusts can be very beneficial for estate planning. Because Cook Islands trusts are not subject to foreign judgments, they are also not subject to foreign inheritance law. This can be very beneficial if a foreign jurisdiction’s inheritance law contradicts the interests of the settlor of the trust. Cook Islands trust law provides settlors with a tremendous amount of freedom to structure the inheritance of their assets for generations to come.
Protection from Claims of Fraudulent Transfer
There is only one way that a creditor could have a valid claim against the assets held by the LLC within the trust. That way is if the settlor is found to have engaged in a fraudulent transfer of assets in a Cook Islands court of law. In the Cook Islands judicial system, the burden of proof that the settlor has committed a fraudulent transfer of assets lies heavily on the side of the creditor. The creditor is required to prove that making the transfer made the settlor insolvent. They must prove that the settlor’s intent in making the transfer was to evade that particular creditor. The creditor must prove their claim of fraudulent transfer beyond all reasonable doubt.
It already sounds like it will be difficult for a creditor to make a valid claim against the settlor of the Cook Islands trust. However, those difficulties are compounded by further stipulations that the creditor travel to the Cook Islands to bring their case in a Cook Islands court. Favor lies firmly in the hands of the settlor in that the creditor also only has one year to bring action against the settlor after the supposed fraudulent transfer occurred. After the statute of limitations has run out on the fraudulent transfer claim, the assets in question are virtually untouchable by the creditor. This combination of factors provide a huge deterrent for creditors looking to enforce foreign judgments to come after assets held in a Cook Islands trust. Incidentally, that is why it is one of the few legal tools effective for divorce asset protection.
Asset protection trusts were not designed to help billionaires escape from paying taxes. They were designed to help honest, hard-working professionals from losing everything they have worked so hard to earn. It is an unfortunate truth that there are many unscrupulous people in the world who use lawsuits as a get rich quick scheme. Cook Islands trusts are 100% legal vehicles that can be used to help wealthy individuals and their families protect their assets from these types of lawsuits. The unique abilities of the Cook Islands trust make it the most well regarded tool around the world for providing asset protection.
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I learned a lot about how exposed I was to lawsuits and judgements, I protected my wealth with several instruments.
- J.P. Dumini
I’ve learned that nobody wins in a lawsuit, the only way to ensure that you don’t lose, is to have something in place when you need it.
- J.M. Ansen, Los Angeles