Trust Matters in the Cook Islands

This article examines the growth of the Cook Islands' trust laws and financial services, highlighting innovation and adaptability in a regulated environment.


Picture of About the Author

About the Author

Alan Taylor is the Legal Technical Advisor for Cook Islands Financial Services Development Authority. He graduated from Auckland University in New Zealand with degrees in law and economics and is admitted to the bar in New Zealand. Alan is a member of STEP, the Institute of Leadership and Management and the New Zealand Institute of Directors.
Alan has worked in the international financial services industry in the Cook Islands, Jersey and Singapore. He has held legal, business development and senior management positions in both public and private organisations.


The Cook Islands is comprised of 15 islands situated at the heart of the South Pacific, northeast of New Zealand and south of Hawaii, covering approximately 2 million square kilometres of the Pacific Ocean. Seemingly remote, it is however very accessible by aeroplane from New Zealand, Australia, USA and other Pacific islands, and globally through modern technology. Whilst an obvious tourist attraction for its natural beauty, warm weather and relaxed lifestyle, it is perhaps, unsurprisingly, not so well known for its financial services industry, and in particular its development and progression of the trust concept through its trust laws and the use of those laws in modern day wealth management planning.   

This article will track the development of the Cook Islands financial services industry, and in particular its trust laws, since its beginnings in the early 1980s, through to current day and a business environment dominated by international demands for increased regulation and compliance to combat money laundering and tax evasion. Despite its relative lack of size and influence, whether physical, economic or political, the Cook Islands has created, developed and sustained an offshore industry by being innovative and adaptable and focusing on an aspect of trust and wealth management planning neglected by many.  


The Cook Islands is a self-governing nation with its own written constitution. It is a sovereign state in free association with New Zealand. It has had full legislative powers and law making authority since 1965. It has a Westminster styled parliamentary system with democratic elections every five years. The Prime Minister is the Head of Government with the Head of State, being His Majesty King Charles III, his appointed representative in the Cook Islands, the King’s Representative. 

Legislative power is with the Cook Islands Parliament whilst executive power is exercised by the Cook Islands government and the King’s Representative. The resident population, which is mainly Polynesian, is approximately 12,000, about three-quarters of whom live on the island of Rarotonga.

The Cook Islands has a legal system founded on English common law. There is a hierarchy of courts comprising a High Court and Court of Appeal with the ultimate appellate court being the Privy Council in London sitting in right of the Cook Islands.  The Cook Islands’ High Court and Court of Appeal judges are experienced New Zealand judges who apply Cook Islands law.

The Cook Islands maintains very strong social and economic ties with New Zealand. As part of its continuing relationship with New Zealand, each Cook Islander holds a New Zealand passport and therefore has automatic entry into and the right to live in New Zealand. The vast majority of goods imported into the Cook Islands are imported from New Zealand with two-thirds of all visitors to the Cook Islands being from New Zealand.  

Given its close relationship with New Zealand, it is not surprising that the Cook Islands’ entry into offshore financial services came about through a demand from New Zealand corporations looking to establish non New Zealand resident entities for strategic business and tax planning purposes. Motivated by this, in the early 1980s the Cook Islands’ government embarked on a legislative and infrastructural programme to create the pre-eminent offshore centre in the South Pacific for the long term benefit of the Cook Islands. Legislation was passed at that time establishing the offshore centre. 

The International Companies Act 1981-82, Offshore Banking Act 1981-82 and Offshore Insurance Act 1981-82 were soon followed by the International Trusts Act 1984 (“ITA”). The Trustee Companies Act 1981-82 (repealed by the Trustee Companies Act 2014) was passed at this time to facilitate the carrying on of offshore business by providing for the establishment, licensing and regulation of trustee companies authorised to carry on the activities governed by these statutes. Any vehicle established under the Cook Islands’ offshore legislation must be registered through a licensed Cook Islands trustee company to obtain the benefits and protections of that legislation.

The Cook Islands International Trust

Cook Islands trust law is derived from English common law as modified by the ITA and its subsequent amendments in 1989, 1991 and 1996.

In 1989 the ITA was amended, quite significantly, to incorporate provisions designed to enhance the asset protection features inherent in a common law trust. (1) These changes came about in response to demand from US attorneys seeking to strengthen the position of their US resident high net worth clients who were finding their wealth at risk due to certain socio-economic factors, namely:

  • Frivolous and vexatious litigation – the US has a reputation for being the most litigious society in the world. This is often caused by vexatious plaintiffs, over-zealous personal injury lawyers and permissive juries seeking an opportunity to re-distribute wealth.  Litigation is regarded as a commercial tool to be used to extract settlements irrespective of the merits of the case.
  • Unavailability of insurance – a litigious society and higher jury awards causing professional malpractice insurance to be either unavailable or too expensive for many businesses and professionals.
  • Deep pocket defendants – high net worth individuals, people with a high public profile and wealthy corporations are likely to be sued simply because they can afford to pay. Such litigation is promoted by contingency fee lawyers who understand that the cost and inconvenience of a trial together with the unpredictability of a jury will likely cause a defendant to settle because he/she can afford to.

The 1989, 1991 and 1996 amendments to the ITA were therefore the result of co-operation between US and Cook Islands lawyers seeking to develop trust law that would assist high net worth individuals, particularly those in the US, seeking increased protection for their wealth. This was to be achieved by statutorily simplifying some of the more difficult aspects of trust law whilst at the same time not losing the familiar fundamentals of the trust relationship and the trust concept.

A summary of the more significant technical features of the ITA illustrates the extent to which general principles of trust law have been modified. Amongst other things, the ITA abolishes the common law rule against perpetuities. A Cook Islands international trust can exist indefinitely or terminate upon the happening of a specified date or event. It abolishes the rules against double possibilities and accumulations of income and makes the application of the rule in Saunders v Vautier subject to the terms of the trust instrument. It also provides for purpose trusts to be established for purposes whether charitable or otherwise.

It is however the provisions designed to strengthen the protection available to assets in a trust that have created most interest and discussion raising the Cook Islands’ profile in the trust industry. Those provisions include:

  • Foreign Judgements: A Cook Islands court will not recognise any judgement that is based upon any law inconsistent with the ITA or which relates to a matter governed by the law of the Cook Islands. Any claim against assets in a Cook Islands international trust must therefore be commenced de novo in a Cook Islands court.
  • Forced Heirship: No Cook Islands international trust or any settlement on it shall be void or voidable, and nor shall the capacity of a settlor be questioned, in the event such trust or settlement may defeat the heirship rights of any person related to the settlor.
  • Bankruptcy: No Cook Islands international trust or any settlement on it, shall be void or voidable in the event of the settlor’s bankruptcy in his/her home jurisdiction.
  • Spendthrift Beneficiaries: Any interest in trust assets given to a beneficiary shall not, during his/her lifetime, be alienated or pass by bankruptcy, insolvency or liquidation or be seized or taken in execution by process of law.


Fraudulent Dispositions

Given the objective of strengthening the position of the high net worth individual in protecting his/her wealth, understandably special attention has been paid to the law as it relates to creditors’ actions against transfers to a Cook Islands international trust. In that regard the starting point was to abolish the Statute of Elizabeth (2). From an asset protection point of view it is extremely important that trust assets are not in a jurisdiction which remains subject to the Statute. In its place rules were enacted with statutory limitation periods providing certainty in determining whether a disposition to a Cook Islands international trust is fraudulent or not. 

Those rules are detailed in s 13B of the ITA and include provisions deeming settlements and dispositions of property not to be fraudulent against a creditor in specified circumstances.  These are as follows:

  • Settlements or transfers made prior to that creditor’s cause of action accruing will not be fraudulent (s 13B (4));
  • Settlements or transfers made later than two years after that creditor’s cause of action accrued will not be fraudulent (s 13B (3)(a));
  • Where settlements or transfers are made within two years of that creditor’s cause of action accruing, but that creditor fails to bring an action in a court of competent jurisdiction before the expiry of one year from the date of settlement or transfer, that settlement or transfer will not be fraudulent (s 13B (3)(b)).

Section 13B (8) of the ITA provides that the date of the cause of action “shall be, the date of that act or omission which shall be relied upon to partly or wholly establish the cause of action”. Where there is more than one act or a continuing omission, the date shall be the date of the very first act or when the omission commenced.

Where a creditor’s claim is not precluded by the above deeming provisions, then the creditor must make a claim in the High Court of the Cook Islands within two years of the date of settlement or transfer of the property in question to the trust.  (s 13K (2)).

In summary, a creditor must commence an action in a court of competent jurisdiction within one year of the date of the disposition he/she is claiming against and in the Cook Islands High Court within two years of that same disposition. These rules provide a great deal of certainty for advisors and clients alike as well as the existing and future creditors of those clients.

Where a disposition is not outside the relevant periods the creditor may be in a position to challenge that disposition as having been fraudulent.  However, in doing so he/she must prove beyond reasonable doubt that the disposition was made with the principal intent to defraud that creditor.  The standard of proof is therefore the criminal standard. 

Under the ITA, where a fraudulent disposition is deemed to have taken place, it will not void the trust completely.  The court will only allow the creditor access to the transfer or disposition the subject of the creditor’s claim. Accordingly, other transfers to the trust and the trust relationship itself will remain on foot.

International Response

Through the ITA and its amendments, and other offshore legislation, notably the International Companies Act 1981-82, the Limited Liability Companies Act 2008 and the Foundations Act 2012, the Cook Islands has developed a wealth protection framework by focussing on what is an essential element of wealth planning. This focus on protecting wealth, whilst initially responding to a need in the US, may benefit all high net worth individuals whose wealth is exposed to those who may attempt to take it by force, litigation or legislation whether through illegal, unethical or immoral means.

When the Cook Islands introduced provisions specific to asset protection into its trust law, it was described by many as innovative and ground breaking and by others as overly aggressive. Often the response was determined by where a commentator or jurisdiction was personally positioned. Some of the more traditional trust practitioners and academics saw the changes as moving too far from generally accepted trust principles and being open to abuse by fraudsters.

However, over the past 35 years global and regional economic and political uncertainties have seen Cook Islands’ asset protection become widely regarded as offering the most comprehensive protection. Practitioners may therefore need to consider Cook Islands asset protection or face difficult questions from clients if assets are lost to forceful political regimes or opportunistic litigants where such loss could have been prevented. The acceptance of Cook Islands’ asset protection can be seen by the number of jurisdictions that have, subsequent to the enactment of the 1989 amendments to the ITA, enacted the same or similar provisions in their trust laws. Those jurisdictions are typically recognised as offshore jurisdictions competing with the Cook Islands for trust business. None, it would be fair to say, have been as comprehensive as the Cook Islands but have nonetheless recognised the value of provisions providing increased protection to settlors and beneficiaries from foreign judgements and creditors.

Of real interest at this time however is that more than twenty states within the US have now introduced asset protection legislation.  Given the Cook Islands initial target market was, and still a significant source of business is, US high net worth individuals, it will be interesting to see how the domestic asset protection market in the US develops.  The question for US advisors and their clients using domestic asset protection is, regardless of which state’s laws might apply, how much will protection be compromised by having US resident settlors, beneficiaries and protectors? They will be subject to the state courts who themselves are subject to the Full Faith and Credit Clause of the US Constitution. (3) Under the Full Faith and Credit Clause, state courts are required to respect judgements made by courts in other states (including those without asset protection laws) as well as judgements made in foreign countries. However, the contrary argument might be that where once a state court could claim such asset protection laws were against public policy, it will be more difficult to do so where several states, including perhaps the court’s own, have enacted similar laws which appear to be becoming mainstream.

Case Law

There has been very little litigation over the years in the Cook Islands courts where Cook Islands international trust laws and in particular the s 13B fraudulent conveyance provisions have been examined and applied. The statutory limitation periods it would appear have proved the deterrent they were intended to be, with settlors, creditors and their advisors negotiating the settlement of disputes in their home jurisdictions. The cases that have been reported have however provided points of interest and generally shown the willingness of the Cook Islands courts to apply the law as it was intended.  Those cases include:

Anderson Case – The case commonly known as the Anderson case saw Mr and Mrs Anderson sued by the US Federal Trade Commission (“FTC”) in a Federal District Court in Nevada for their role in telemarketing a Ponzi scheme. The Andersons received commissions apparently in excess of USD6 million transferring the same to a Cook Islands international trust (the “Trust”) which they had established in July 1995. The District Court ordered the Andersons to repatriate the assets held in the Trust. (4)

At the time the District Court made its order, Mr and Mrs Anderson were co-trustees, protectors and beneficiaries of the Trust. Upon receiving the order, the Andersons instructed the Cook Islands trustee (a licensed trustee company) to repatriate the assets. This instruction invoked an “anti-duress” clause in the Trust instrument which saw the Andersons immediately removed as trustees of the Trust and the Cook Islands trustee refuse to repatriate the assets due to the duress the Andersons were under.

For not complying with the District Court’s order, the Andersons were sent to prison for contempt of court. They argued it was impossible for them to comply but the District Court considered the impossibility was self-created and therefore the impossibility defence did not apply. In a further attempt to access the Trust assets the FTC had the Andersons sign documents, exercising their power as protectors of the trust, to remove the existing Cook Islands trustee and appoint a Cook Islands international company owned by the FTC as trustee and protector of the Trust whilst removing themselves as protectors. The FTC also attempted to have the Trust instrument amended by removing itself from the definition of “Excluded Persons” and the settlors as persons empowered to appoint successor trustees. At this point the existing Cook Islands trustee took the matter to the Cook Islands High Court for directions.

The Cook Islands High Court decided quite rightly that, pursuant to the terms of the Trust instrument, the commencement of the action in the District Court by the FTC amounted to an event of duress and the documents seeking to appoint the FTC as trustee and protector of the Trust were invalid as having been made in breach of clause 43 of the Trust instrument and for the benefit of an Excluded Person. (5) Clause 43 (j) named inter alia “All court, administrative or judicial bodies…”, other than those of the Cook Islands, as Excluded Persons.

The FTC returned to the Cook Islands High Court a final time alleging that pursuant to s 13B (1) of the ITA transfers made to the Trust by the Andersons were fraudulent, and sought to have those transfers set aside. Despite it being arguable that some transfers to the Trust were within the limitation periods, the Cook Islands High Court refused to address the fraudulent transfer claim and held that due to the international conflicts of law principle that “no state will enforce the penal or public policy laws of another state”, the FTC’s claim could not be heard. The Court was of the view that the FTC was merely seeking enforcement of its US judgement against the Andersons in the Cook Islands court.

The FTC eventually settled with the Cook Islands trustee for USD1.2m releasing the trustee and the Trust from any further liability. Despite such egregious planning, the Andersons had been released from prison with most of their trust fund intact. Whilst the Anderson case shows the Cook Islands’ court applying Cook Islands law and not bowing to pressure from foreign authorities and foreign judgements, it still rankles with many that the Andersons who were clearly involved in a fraudulent scheme, and were willing to spend 6 months in prison, came out with a healthy trust fund waiting. It is however safe to say that under current anti money laundering laws (6) and disclosure rules in the Cook Islands, the Andersons may not be so lucky today.  

Weese Case – Mr and Mrs Weese were residents of Baltimore, Maryland in the US and ran 4 bookstores through a domestic company, P Inc. P Inc had obtained a USD17 million loan facility with Bank of America secured by personal guarantees from Mr and Mrs Weese. P Inc defaulted under the loan and on 5 June 2000 the Bank demanded payment from the Weeses but the demand was not met.  During June 2000 it is understood that the Weeses commenced efforts to sell the 4 stores with PwC providing a valuation of USD15 million. On 23 June 2000 the Bank served a notice of claim and demand for arbitration on the Weeses. Arbitration proceedings were initiated on 12 July 2000 the very same day the Weeses established a Cook Islands international trust. From August through October 2000 the Weeses apparently transferred assets to the value of USD20million to their trust. Those assets included private residences, artwork, furniture, interests in partnerships and cash. Almost everything they owned other than the shares in the bookstores was transferred. Upon discovering the existence of the trust the Bank had moved quickly to commence proceedings in the Cook Islands High Court where it was accepted by all parties that the litigation had been commenced within time for the purposes of the limitation periods under the ITA. So whilst on the facts it would appear to be a case where a fraudulent conveyance claim might succeed, that did not eventuate.

The Bank applied to the Cook Islands High Court for orders of discovery of documents relating to the establishment and affairs of the trust. (7) The defendants opposed the order for discovery on the grounds that to give discovery would constitute a criminal offence under s 23(1) of the ITA which provided that it was an offence to communicate to any other person any information relating to the establishment or affairs of an international trust. Not surprisingly the Court allowed discovery on the basis that s 23(1) did not prohibit orders for discovery of documents if those documents had reasonably to be revealed to ensure fair and proper determination of a cause of action under s 13B of the ITA. Such orders, it was noted, were required to make the provisions of s 13B work. (8) Section 23(1) is however subject to exception where the provisions of the ITA require. In determining what the provisions of the ITA required Williams J quoted from a New Zealand case (9) to confirm the Court would “work out a practical interpretation appearing to accord best with the general intention of Parliament as embodied in the Act”. Williams J held that there was no indication that the Cook Islands Parliament had intended illicit or illegal dealings to take place under the cover of the ITA and the fraud provisions of s 13B would be rendered useless if in s 13B cases there could not be full and proper discovery.

The Trustee appealed this decision (10) with the Court of Appeal upholding the lower court decision. The Trustee had also sought to claim legal privilege to prevent the Bank obtaining certain documents pertaining to advice sought or given in relation to the establishment of the Trust. (12) Again the Court dismissed the claim stating that “…the court is always most reluctant to interfere with the operation of legal privilege, and in this case must also bear in mind the special protection afforded by s 13B”. (12) That is, it would be unfair to refuse discovery given the plaintiff’s heavy burden of proof. The Court also held that in light of the circumstances surrounding the trust’s formation and funding it was satisfied that a strong prima facie case of fraud had been established and privilege should “not attach to communications made with intent on the client’s part to facilitate crime or fraud”. (13) Notwithstanding the Court’s view on the merits of the case and a claim pursuant to 13B (1) of the ITA, the Bank chose not to continue further in the Cook Islands courts but to settle with the trustee outside of court.   

Meeting International Regulatory Standards

Whilst the Cook Islands Courts have attempted to apply the provisions of the ITA as they were intended and, given the special nature of s 13B, be fair to creditors who comply with it and may be the victims of fraud, there still remains the possibility of fraudsters hiding behind the ITA and enjoying their ill-gotten gains.  It is hoped that such individuals would not succeed given the laws and disclosure rules in place in the Cook Islands, and  its commitment to comply with international obligations in relation to anti-money laundering, the countering of terrorist financing, transparency and the exchange of financial information to combat tax evasion.

The Cook Islands is a member of the OECD’s Global Forum on Transparency and Exchange of Information for Tax as well as its BEPS Inclusive Framework. In addition, the Cook Islands has avoided being placed on the EU’s AML/CFT list, by virtue of its 2018 Mutual Evaluation Report, and its non-cooperative tax jurisdiction list by virtue of the commitments it made to the EU and resulting legislative amendments in regards to preferential and harmful tax practices. 

The Cook Islands has entered into 21 bilateral Tax Information Exchange Agreements (14) and signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (“MCAA”) in October 2015. The MCAA sets out the common reporting standard (“CRS”) to be followed by participating jurisdictions in regards to the automatic exchange of information. The signing of the MCAA was a commitment by the Cook Islands to include the CRS in its local laws and to commence the automatic exchange of financial information by 2018. Those local laws have been passed. In addition, the Cook Islands signed the Multilateral Convention on Mutual Administrative Assistance on Tax Matters (the “Convention”) on 28 October 2016. The Convention is the most powerful and comprehensive multilateral instrument available for all forms of tax co-operation including automatic exchange of information.

 In accordance with the US Foreign Account Tax Compliance Act 2010 (”FATCA”) Cook Islands financial institutions provide information to the IRS in regards to US persons’ Cook Islands accounts. The Cook Islands government opted not to enter into an inter-governmental agreement with the IRS therefore leaving Cook Islands financial institutions to report directly.

In regards to money laundering, the Cook Islands received an outstanding Mutual Evaluation Report in 2018 from the Asia Pacific Group on Money Laundering (a regional body of the FATF) indicating its AML regime is one of the world’s best. Mutual Evaluations seek to determine a jurisdiction’s compliance with the FATF recommendations for combatting money laundering and the financing of terrorism and the effectiveness of the regimes put in place.

Tax Treatment

Domestic taxation in the Cook Islands consists of income tax (tax on wages, interest, dividends, rent and royalties) with a top personal rate of 30%, corporate tax of 20% and value added tax of 15% on goods and services provided in the Cook Islands. Cook Islands residents are taxed on their worldwide income. There is no estate tax, death duty, capital gains tax or tax on the transfer of property. Cook Islands international trusts and entities established under the offshore legislation are not subject to any Cook Islands taxes and are therefore tax neutral in that the settlors, beneficiaries and ultimate beneficial owners, being non Cook Islands resident, will only be subject to the tax laws in their home jurisdictions.

A large percentage of Cook Islands international trusts are established by US resident settlors as grantor trusts under US tax law. Those trusts are structured either as domestic or foreign for US tax purposes and are motivated by asset protection not tax mitigation. The domestic trust is reported to the IRS by the US settlor in domestic reporting forms. The foreign trustee has no obligation to report.  Where the trust is foreign for US tax purposes, the foreign trustee is required to file an annual reporting form, Form 3520A, providing information about the trust, its US beneficiaries and any US person who is treated as an owner of any portion of the trust fund. As mentioned previously, Cook Islands financial institutions comply with FATCA by reporting directly to the IRS on any US account holders.

By not charging Cook Islands international trusts and entities tax on their income or gains the Cook Islands exercises its sovereign right to make and apply its laws as it sees fit.  However, in complying with FATCA and CRS, the Cook Islands has clearly demonstrated its willingness to assist other jurisdictions in the taxation of their tax residents by agreeing to the automatic exchange of financial information.


The Cook Islands offshore financial services industry has existed for over 40 years and expects to continue despite the ever increasing burden of regulation and compliance on its financial service providers and their clients. The industry is small and the costs of compliance are very high, however the Cook Islands has accepted the need to meet international obligations if the industry is to continue to strengthen and develop. 

The ITA provides the cornerstone of the offshore financial services industry. The development of its trust laws and the application of them together with the professional service and support provided, has given confidence to practitioners and clients of the technical expertise available in the Cook Islands together with the ability to withstand external pressures and protect as the law requires. 


(1) Section 6 International Trusts Amendment Act 1989.

(2) 13 Elizabeth 1 Ch. 5 (1571).

(3) Constitution of the United States of America, Article IV, Section 1.

(4) 179 F.3d. __ (9th Cir. 1999); 1999 U.S. App. LEXIS 13130.

(5) In re XYZ Irrevocable Trust [1999] CKHC 5; OA 6.1999 11 August 1999.

(6) The Crimes Amendment Act 2003 criminalised money laundering in the Cook Islands. Any person using the proceeds of a “serious offence” will have committed the offence of money laundering. A “serious offence” is one punishable by a fine of more than NZD5000 or imprisonment of not less than 12 months whether committed in or outside the Cook Islands. Other notable statutes passed at this time to combat money laundering and financial crimes included the Proceeds of Crime Act 2003, the Mutual Legal Assistance in Criminal Matters Act 2003 and the Financial Transactions Reporting Act 2004.

(7) AVB [2002] CKHC 6.

(8) Ibid, at para [35].

(9) Per Cooke P in Northland Milk Vendors Assoc Inc. v Northern Milk Ltd [1988] 1 NZLR 530

(10) E and B v A [2003] CKCA 1

(11) E and Another v A [2003] CKCA 3.

(12) Ibid, at para [15].

(13) Ibid, at para [5].

(14) Details of the TIEAs entered into can be found at this link