Cayman Islands Trusts and Cook Islands Trusts: A Comparison

The Cayman Islands and Cook Islands stand as premier jurisdictions for trust creation and management, drawing individuals and businesses worldwide due to their financial acumen, robust legal frameworks, and well-regulated environments.

Considering establishing a trust in one of these offshore jurisdictions? This article examines the similarities and differences between trust structures in the Cayman Islands and the Cook Islands, aiding your decision-making for the jurisdiction that aligns with your specific needs.

CAYMAN ISLANDS

Situated in the Caribbean Sea, the Cayman Islands, a self-governing British Overseas Territory, boasts a legal system rooted in English common law. Known for political stability, professionalism, and ethical standards, the Cayman Islands offer a tax-friendly environment with no personal income, corporate, capital gains, wealth, or corporate profits taxes. The territory’s well-developed legal system and political stability contribute to its status as a global financial center.

COOK ISLANDS

Nestled in the South Pacific, the Cook Islands, a self-governing territory in free association with New Zealand, presents a robust legal system mirroring English common law. Governed by the International Trust Act, the Cook Islands excel in offshore trust management, offering favorable conditions for asset protection globally. While personal income and corporate taxes exist, exemptions for assets and income originating outside the Cook Islands apply along with no capital gains, gifts, wealth, inheritance, or estate taxes.

CAYMAN ISLANDS VS. COOK ISLANDS: WHICH JURISDICTION TO CHOOSE FOR AN OFFSHORE TRUST?

Choosing the right jurisdiction for an offshore trust involves considering crucial factors like settlor control, non-recognition of foreign judgments, fraudulent transfer standards, and statutory limitation periods. The comparison chart below provides a comprehensive overview:

SIMILARITIES BETWEEN CAYMAN ISLANDS TRUSTS AND COOK ISLANDS TRUSTS

Despite differences, both jurisdictions share key asset protection features:

• Trust validity assurance despite fraudulent transfers
  There is statutory certainty that the trust remains valid even if it is determined a fraudulent transfer has taken place.
• Override of the Statute of Elizabeth
  The Statute of Elizabeth – which has influenced many common law jurisdictions – is overridden. Also known as the Fraudulent Conveyances Act of 1571, the Statute of Elizabeth was passed by the Parliament in England and provided an avenue for fraudulent transfers to be undone. Expressly overriding the Statute of Elizabeth provides greater certainty in terms of asset protection.
• Settlor control retention
  There is statutory certainty that a settlor can retain a degree of control over the trust.
• Immunity from forced heirship laws
  The trust is protected from forced heirship laws. This allows the settlor to distribute the protected assets in line with his or her wishes without being constricted by inheritance provisions related to forced heirship.
• Freedom to choose governing trust law
  Settlors may choose the law governing the trust and this will have a binding effect. This allows settlers to benefit from the asset protection measures of the Cayman Islands and Cook Islands while retaining the flexibility to choose the law governing the trust. Such a law can govern, for example, the management and distribution of trust assets.
• Creditor burden of proof for fraudulent transfers
  If a creditor claims there has been a fraudulent transfer, the burden of proof is on the creditor. This creates an additional hurdle for creditors and adds to the jurisdictions’ asset protective features.
• Clear definitions of fraudulent transfer
  There are clear definitions as to what constitutes a ‘fraudulent transfer.’ This allows settlors to know in advance which behavior will trigger legal liability, and in turn, subject a transfer to the risk of being undone. By planning their affairs and avoiding the risk of liability, settlers can increase the asset-protective properties of their trust.

These factors reveal why individuals and businesses opt for safeguarding their assets through offshore trusts in either the Cayman Islands or the Cook Islands. The robust protective attributes in both jurisdictions are further strengthened by the absence of exemptions for specific creditors, like those pertaining to child support or alimony payments.

DIFFERENCES BETWEEN CAYMAN ISLANDS TRUSTS AND COOK ISLANDS TRUSTS

• Non-recognition of Foreign Judgments
  • Cayman Islands: Limited protection
  • Cook Islands: Statutory certainty
    Unlike the Cayman Islands, which lack statutory certainty in recognizing foreign judgments, the Cook Islands have clear provisions ensuring non-recognition and enforcement. Claims against a Cook Islands Trust must navigate the local courts, often a costly deterrent for foreign creditors and lawyers. This deterrent is reinforced by the stringent standard of proof required for a successful challenge.
• Settlor as Beneficiary
  • Cayman Islands: Not allowed
  • Cook Islands: Statutory certainty
    In the Cayman Islands, self-settled trusts are not permitted by law, prohibiting the settlor from being a beneficiary. Despite this, many still create trusts where the settlor benefits directly. Conversely, the Cook Islands provide statutory assurance that a settlor can also be a beneficiary, allowing direct benefit from trust assets while ensuring protection. Additionally, a Cook Islands trust remains valid even if the settlor retains control over asset disposition or the right to revoke the trust.
• Trust Duration
  • Cayman Islands: Generally 150 years, exceptions for STAR trusts
  • Cook Islands: Unlimited
    In the Cayman Islands, typical trusts have a 150-year limit but exceptions, like STAR trusts, exist without duration restrictions. On the other hand, the Cook Islands offshore trusts have no time constraints, offering settlers assurance that trust assets can be safeguarded and managed for generations.
• Retroactive Protection for ‘Immigrant Trusts’
  • Cayman Islands: No retroactive protection
  • Cook Islands: Immigrant trusts enjoy robust protection
    When a trust moves to the Cayman Islands from another jurisdiction, it lacks retroactive protection under Cayman law. Conversely, the Cook Islands legal system is more favorable, allowing “immigrant trusts” to benefit from its strong asset protection attributes.
• Conditions for Freezing Assets in APT
  • Cayman Islands: No statutory certainty
  • Cook Islands: Clear conditions for freezing assets
    Unlike the Cayman Islands, the Cook Islands provide clear legal guidelines for freezing assets in an Asset Protection Trust (APT). This clarity offers advantages, as it reduces ambiguity, ensuring that settlors, trustees, and beneficiaries understand their rights and obligations, minimizing the risk of disputes and asset freezes. Additionally, well-defined provisions discourage prospective creditors and litigants from pursuing legal action based on ambiguities and loopholes, enhancing the overall protection provided by the trust.
• Standard of Proof for Fraudulent Intent
  • Cayman Islands: Lower civil standard
  • Cook Islands: Higher criminal standard
    The Cook Islands employ a unique standard of proof, usually reserved for criminal law. Even if a potential creditor challenges an offshore trust in the local courts, they must meet the demanding ‘beyond a reasonable doubt’ standard, demonstrating that assets were transferred with the intent to defraud. This standard surpasses the ‘preponderance of the evidence’ used in U.S. civil cases.
• Presumption Against Fraudulent Intent
  • Cayman Islands: Absent
  • Cook Islands: Present
    Unlike the Cayman Islands, in the Cook Islands, if a transferor stays solvent after transferring assets, it is presumed non-fraudulent. Creditors bear the burden of refuting this presumption, strengthening the Cook Islands’ attractiveness for asset protection trusts.
• Statutory Limitation Period for Fraudulent Transfer
  • Cayman Islands: 6 years
  • Cook Islands: 1 year (fraudulent transfers), 2 years from the cause of action
    In the Cayman Islands, a fraudulent transfer has a 6-year statute of limitations, while in the Cook Islands, it’s limited to 1 year, with an overall 2-year period from the cause of action. The shorter timeframe in the Cook Islands is advantageous for asset protection, as it provides quicker determination of potential claims, offering settlers and beneficiaries greater certainty.

CONCLUSION

While both the Cayman Islands and the Cook Islands offer robust legal systems, the Cook Islands present distinctive advantages in asset protection. Deciding on the best strategy requires careful consideration of individual needs. Seek guidance from a specialized lawyer in offshore asset protection before making any decisions. For further assistance on trusts or offshore asset protection, contact Blake Harris Law.