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There are several reasons to set up a Cook Islands trust; as these factors have gained traction, the Cook Islands have emerged as one of the most popular jurisdictions for setting up offshore trusts. A Cook Islands offshore trust structure provides some of the best advantages for those who wish to safeguard their assets, pass wealth to future generations, and implement effective tax planning strategies. In addition, those in high-risk professions— such as doctors, lawyers, and business owners — should consider setting up a Cook Islands trust to protect their assets from judgments and seizure by creditors.
Setting up a Cook Islands trust is a strategic way to protect your assets and preserve your wealth. Here are the top five reasons to set up a Cook Islands trust:
Enforcement of a judgment obtained by a creditor outside of the Cook Islands is extremely restricted. This means that if a plaintiff receives a judgment from a U.S. court, it will not be enforced in the Cook Islands the same way it would be domestically. In order for creditors to reach assets held in a Cook Islands trust, they would have to commence legal action there. This can serve as a significant deterrent to creditors — not only can it be inconvenient to bring a lawsuit in another jurisdiction, but the costs associated with doing so can be substantial.
In the event a plaintiff wishes to proceed with filing a lawsuit in the Cook Islands, the plaintiff would be required to establish beyond a reasonable doubt that the trust was set up with the objective to defraud. Not only is this extremely difficult to prove, but any legal action for an allegedly fraudulent disposition must be brought within two years of the occurrence of the cause of action.
A Cook Islands trust can safeguard a broad scope of assets, both tangible and intangible. Investment portfolios, life insurance policies, intellectual property, stock options, real estate, and retirement accounts are just a few examples of assets that offshore trusts can be used to protect. Notably, the assets do not need to be located within the Cook Islands to be shielded by the structure of the trust.
Critically, developing an asset protection strategy is of the utmost importance to those in professions with high liability risks. Corporate officers, physicians, attorneys, developers, and anyone who could risk losing their acquired wealth by incurring personal liability in a lawsuit should strongly consider transferring their assets into a Cook Islands trust.
A Cook Islands trust can be used as part of a comprehensive estate plan to ensure your wishes are carried out and your wealth is preserved to pass on to your heirs. Not only do they offer protection, but these trusts also provide a high level of privacy and confidentiality. Another advantage in setting up a Cook Islands trust in connection with an estate plan is avoiding forced heirship laws — a trust is a tool that allows you to choose which beneficiaries will inherit your property, rather than allowing the intestacy laws in a specific jurisdiction to determine the outcome. Additionally, there is no perpetuity period for a Cook Islands trust, meaning the trust will not terminate on any set date. This allows you to design for the benefit of multiple generations.
The Cook Islands International Relationship Property Trust Act was passed by the Parliament of the Cook Islands in December 2021. This legislation helps ensure assets held in a Cook Islands trust are preserved for the benefit of beneficiaries in the event of divorce, rather than allow them to be divided in a matrimonial action. While property is generally split 50/50 in a California divorce — including assets held in a trust — the Act helps to keep trust assets intact even if spouses decide to part ways.
A Cook Islands trust is not meant to be used to conceal assets from the IRS or eliminate one’s tax responsibilities. Rather than being a tax-free structure, it is a tax-neutral structure and comes with many benefits. These trusts are not subject to any taxes in the Cook Islands (such as local, gift, excise, and capital gains taxes), allowing those who set up these trusts to pay the lowest amount of taxes possible. Importantly, the settlor and beneficiaries are also not subjected to any Cook Islands taxes for income earned by the trust.
Setting up a Cook Islands trust is a strategic way to protect your assets and preserve your wealth. While there are many reasons to set up a Cook Islands trust, it is essential to have knowledgeable legal counsel on your side when doing so. Our expert attorneys will utilize their extensive experience to advise you regarding your options and to guide you through the process of establishing an offshore trust. Call us to begin the process of safeguarding your assets for future generations.
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