Relationship Property Trust

On the 1st December 2021 the Cook Islands became the first country to enact a set of laws that addresses a serious weakness in estate planning for high-net-worth families. Most jurisdictions have developed law,
allowing parties to agree on how their assets are to be treated in the event of separation or divorce.

Most jurisdictions have developed law, allowing parties to agree on how their assets are to be treated in the event of separation or divorce.

However, all proceed on the basis that the assets will be divided and distributed, and all are subject to review by the courts. Trusts are one of very few structures which enable assets to be retained intact and managed for the benefit of the family if the settlors separate or divorce.

The problem is that over the last decade matrimonial courts have continued to extend their jurisdiction to bring assets held by family trusts into matrimonial property disputes. 

Even where a trust has been meticulously managed during the duration of the trust, courts prefer to divide the trust assets up and distribute them in lump sums to the settlors. It is as if the trust had never existed! All the careful planning and foresight of the settlors, and decades of careful management by trustees, go out the window. 

Trustees & Fiduciaries developed the Relationship Property Act (RPA) in direct response to this problem.

The RPA creates a statutory foundation whereby couples can choose to keep designated trust assets intact, in defined shares and under common management, in the event of their separation or divorce. The RPA also restricts the recognition of judgments of foreign courts from interfering with this principle.  Family businesses are also particularly susceptible to the separation or divorce of the shareholders.

Co-trustees

It is necessary for a Cook Is RPT to have a Cook Islands licenced trustee company as either a sole or co-trustee. A US trustee company may also be appointed as a co-trustee together with the Cook Islands trustee. The main advantages of this structure are;

a) the client has easy access to the US co-trustee,
b) the Cook Islands co-trustee is likely to delegate active management of
the trust assets to the US co-trustee, and
c) the US co-trustee will have easier access to US financial services.

If the trust assets are located within the US, then in the event of a challenge to the terms of the RPT, it is expected that the US co-trustee will submit to the jurisdiction of a US court. In this case the US co-trustee will argue for the US court to recognise Cook Islands law, and in particular the requirement that the trust assets be kept intact and not distributed between the parties in the event of their divorce or separation. If you would like to learn more about how T&F can help you with your estate planning needs using Cook Islands law, contact us online via our contacts page.

For more information on the Relationship Property Act book a FREE 30 MINUTE SEMINAR with our team using the link below.