Cook Islands

The Cook Islands comprises 15 islands in the South Pacific located approximately half-way between New Zealand and the West Coast of the United States. It is in the same time zone as Hawaii.

The Cook Islands are tax-free. There is no income tax, capital gains tax, gift tax, estate tax, corporation tax, or property tax.

There are only a few banks on the Islands, and the financial infrastructure is not yet well developed. It is suggested that if the Client incorporates or forms a trust in the Cook Islands that the corporation or trust maintain its bank accounts elsewhere.

The Cook Islands are one of the most commonly-used jurisdictions for offshore trusts, but actually should be avoided. According to an article in Forbes, 15 June 1998, "Cook Islands plaintiff lawyer Anthony Manarangi, who makes a practice of trying to crack trusts on the island, says he has handled ten successful such cases in three years. He claims he typically collects 60% to 70% of the judgment." Forbes also reported that in a recent case involving Victor and Evangeline Illig, who were sued over some construction projects, that "New Zealand judge was flown in to hear the case, since the tiny Cook Islands (pop. 19,000) don't have their own judges. He ruled that the clock didn't start ticking until the homeowners won the California judgment. So the Orange Grove judgment could be enforced in the Cook Islands. * * * After years of fighting, the Illigs had no choice but to clean out the trust and pay off the homeowners."

But some U.S. practitioners claim that these cases are aberrations. Whether or not Cook Islands trusts can be breached in the Cook Islands, the hard truth is that the Cook Islands have developed a bad reputation in the U.S. courts as being a debtor haven, because of such cases as the FTC v. Affordable Media LLC (Anderson) and Weese. If a U.S. judge smells the presence of a Cook Islands trust, jail time for the settlor is not far behind.

 Because of this "bad boy" reputation, a U.S. debtor may have a much harder time trying to convince a U.S. court that asset protection was not a reason that he formed the trust than with other jurisdictions. Thus, if a planner suggests that you use the Cook Islands as the situs for your offshore trust, then you should seriously re-evaluate your choice of planners. A least get a second opinion.

For offshore trusts, this is probably the one jurisdiction you should absolutely avoid (no matter how much somebody tells you that their laws are better -- that will not help you with U.S. judges). Other jurisdictions have trust laws that are just as good. Why deal with a tainted jurisdiction?

See also Cook Islands Asset Protection Trust Statute

 

Cook Islands Trustee Suffers $3 Million US Judgment Verified First Amended Complaint $3 Million Judgment Entered Against Southpac Trust Limited, Southpac Trust International Inc., Corporate Securities, Ltd., and Corporate Securities, Limited Forbes Article on the Harrison/Southpac Case Common sense dictates that one should think twice before using a trust company that has a large judgment pending against it.

 

TAX WARNING FOR U.S. CITIZENS

U.S. citizens are taxed on their taxable income from wherever it is derived, anywhere in the world. U.S. citizens are also taxed on investments indirectly made through foreign trusts and foreign corporations, including offshore trusts and IBCs. Thus, the fact that an offshore jurisdiction may have low or no taxes does not mean that if a U.S. citizen does business there that he or she will enjoy only low or no taxes on the personal income made. There are simply NO personal income tax advantages, at all, for U.S. citizens to use offshore structures, and anyone who tells you differently is probably telling you a falsehood. Any discussion we make of an offshore jurisdiction's tax laws should be construed only according to the foregoing warning.

BEWARE OF OFFSHORE SERVICE PROVIDERS: There are some offshore service providers who will make wild claims about saving you personal income taxes, so as to convince you to set up an offshore structure. Most of these people don't know the first thing about U.S. tax law, and their representations to you will not help you, at all, if you are caught with an unreported trust, corporation, or bank account. All they really want is your money, and even if you commit tax evasion they are not subject to U.S. law, and so couldn't care less. See Hiding Money Offshore