Cook Islands Trust Protectors and Their Role in Asset Protection Trusts
A Cook Islands asset protection trust is designed to help preserve and manage assets in accordance with the settlor’s wishes. An important feature of many trusts is the appointment of a Trust Protector.
What is a Trust Protector?
A Trust Protector is an individual or entity appointed under the trust deed to provide an additional layer of oversight. The Protector does not manage the day-to-day administration of the trust, which remains the responsibility of the trustee. Instead, the Protector is given specific powers to help ensure that the trust continues to operate in accordance with the settlor’s intentions.
When a trust is established with a licensed trustee such as Trustee & Fiduciaries (Cook Islands) Ltd, the Protector’s powers and responsibilities will be set out in the trust deed.
Common Powers of a Trust Protector
The powers granted to a Protector vary from trust to trust, but commonly include:
- The power to appoint and remove trustees.
- The power to approve or veto certain distributions to beneficiaries.
- The power to change the governing law or jurisdiction of the trust if circumstances require.
- The power to amend administrative provisions of the trust deed.
- The power to add or remove beneficiaries where appropriate.
These powers allow the Protector to assist in the ongoing administration and adaptability of the trust structure.
The Anderson Case
One of the most widely discussed cases involving a Cook Islands trust is FTC v. Affordable Media, LLC, commonly known as the Anderson case.
The Andersons established a Cook Islands trust and appointed themselves as both beneficiaries and trust protectors. Following legal proceedings in the United States, a court ordered them, in their capacity as Protectors, to direct the Cook Islands trustee to return trust assets to the United States.
The Andersons issued the direction. However, the Cook Islands trustee determined that the instruction had been given under legal compulsion and declined to act on it in accordance with the trust deed.
The U.S. Federal Trade Commission subsequently applied to the Cook Islands High Court for an order requiring the trustee to repatriate the trust assets. The Court declined to make such an order, finding that repatriation was not in the interests of the beneficiaries.
Although the trust assets remained protected, the Andersons were found in contempt of court in the United States and were imprisoned for a period of time.
The case demonstrated both the effectiveness of the trust structure and the risks that can arise when a settlor retains significant control over the trust. It is often cited as an example of why an independent Protector may be preferable.
Appointing a Protector
While a settlor may initially act as Protector, many practitioners recommend appointing an independent person as Protector as soon as practicable.
The Protector should be someone trusted by the settlor and, where appropriate, resident outside the settlor’s home jurisdiction. This may assist in maintaining the independence of the role.
Where a suitable individual is not available, a professional trustee company may be willing to act as Protector.
Anti-Duress Clauses
Many Cook Islands trust deeds include an anti-duress clause.
An anti-duress clause provides that a trustee is not required to comply with instructions or powers exercised by a person who is acting under coercion, compulsion or the order of a foreign court.
These provisions are intended to assist trustees when assessing whether an instruction has been given freely and in the interests of the trust and its beneficiaries.
Conclusion
A Trust Protector can play an important role in the governance and oversight of a Cook Islands trust. Careful consideration should be given to who is appointed, what powers are granted, and how the trust deed is drafted. Independent advice should always be obtained to ensure that the trust structure is appropriate for the settlor’s objectives and circumstances.
