Private Foundations

The Foundations Act 2012 (“the Act”) provides for the establishment of foundations in the Cook Islands. The foundation is similar to asset protection trust; however there are also important differences between a foundation and a trust. Foundations can be used as an effective alternative to trusts in certain circumstances, including where the foundation is to have charitable purposes.

The features of a foundation include;

  1. The foundation is a distinct legal entity, unlike a trust;
  2. The foundation is managed by a council of members;
  3. The foundation can hold assets, enter into agreements with third parties (subject to this being consistent with the foundation’s objects); and
  4. The foundation can sue or be sued in its own name.

The above features make a foundation similar to a company, however unlike a company, a foundation does not have any shareholders.

Sections 34 and 35 of the Act provide that a foundation is a legal person and, through its council, may exercise the rights, powers and privileges of an individual.

The Application of Laws and Judgments to a Foundation

Sections 36 to 40 of the Act deal with the application of laws and judgments to a foundation and its founder(s).  Generally, the laws of a jurisdiction outside the Cook Islands are to be excluded when determining whether a foundation has been established or assets have been dedicated to it.

Asset Protection

Most importantly, the Act imports the asset protection provisions of the International Trusts Act 1984 and applies these to the foundation, and to its founder. For example, notwithstanding any law of the founders domicile or place of incorporation, a foundation (and a disposition to a foundation) shall generally not be void or voidable in the event of the founder’s bankruptcy, insolvency or liquidation, or in any action or proceeding at the suit of the founder’s creditors.

Fraud

A creditor of a foundation who believes that a foundation was established or property was disposed to the foundation to defraud the creditor can apply to the High Court of the Cook Islands to have the foundation, or dedication to the foundation, declared void or voidable.

However, fraud must be proven by the creditor to the higher criminal standard of proof being “beyond reasonable doubt”, and the relevant cause of action must have accrued not more than 2 years before the establishment of, or dedication of property to, the foundation (and not after the establishment of, or disposition of property to, the foundation). Further, an action to set aside the establishment of a foundation, or disposition of property to a foundation, must be commenced in the High Court of the Cook Islands, and before the expiration of 2 years from the date of the establishment of the foundation or disposition of the property (as the case may be).

Conclusion:

The Cook Islands is a recognised asset protection jurisdiction. Foundations offer yet another tool for high net worth individuals looking to keep their hard earned wealth in an ever changing world of private wealth and estate planning. For more information email info@oratrust.com

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