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Overview
Scope of the chapter. This chapter examines the uses of the Cook Islands foundation in planning. It asks four questions. The first is whether a foundation can carry family wealth across the death of the person who created it without a grant of probate, and on what terms. The second is how far the Foundations Act 2012 (No. 11) protects a foundation and its assets against claims made under foreign law by heirs, spouses and other persons who claim through a personal relationship. The third is how far the Act protects a foundation against the creditors of its founder, of its beneficiaries and of the foundation itself. The fourth is how a foundation fits beside the two other Cook Islands vehicles used for the same ends, the international trust and the limited liability company, and when it should be used in place of them or together with them. Foundations Act 2012, §§ 28–30, 34, 36–40 (Cook Is.).
Plan of the chapter. Paragraph 2010 examines the foundation as a succession vehicle: the founder's rights and what becomes of them on death, the position of beneficiaries, the default beneficiary and the absence of any procedure for establishing a foundation by will. Paragraph 2020 examines the rule that Cook Islands law governs a foundation and the exclusion of foreign law in section 37, with its protection against forced heirship and personal-relationship claims. Paragraph 2030 examines the protection against the founder's creditors in sections 38 and 39 and compares it with section 13B of the International Trusts Act 1984. Paragraph 2040 examines the procedural bars in section 40 and the treatment of foreign judgments. Paragraph 2050 examines the creditors of beneficiaries and of the foundation itself. Paragraph 2060 examines the control a founder may keep and the risks it creates. Paragraph 2070 examines the foundation used with an international trust and with a limited liability company. Paragraph 2080 examines revocation, migration and winding up as means of exit. Paragraph 2090 gives worked structures, model provisions and a checklist.
Relation to other chapters. The nature of the foundation, its formation and its registration are examined in chapter 18, and its governance (the council, the enforcer, the registered agent, beneficiaries and records) in chapter 19 (see supra chs. 18–19). The international trust's protections against creditors, heirs and foreign judgments are examined in chapters 21 to 23, and the procedure of the High Court in chapter 24 (see infra chs. 21–24). Spendthrift and protective provisions for the beneficiaries of an international trust are examined in chapter 8, the purpose trust in chapter 10, and the limited liability company and the charging order in chapters 12 to 17 (see supra chs. 8, 10, 12–17). Cook Islands taxation is examined in chapter 26 and United States tax and reporting in chapter 29 (see infra chs. 26, 29).
Sources. The text of the Foundations Act 2012 used in this chapter is the Government Printer's copy published by the Financial Supervisory Commission, converted to text and checked against the page images. The Act was assented to on 3 July 2012 and came into force on the day after assent. Foundations Act 2012, §§ 1–2 (Cook Is.). It has been amended once, by the Foundations Amendment Act 2013 (No. 13), which added a definition of "financial records" and required them to be kept at the registered office. Foundations Amendment Act 2013, §§ 4–5 (Cook Is.). The Trustee Companies Act 2014 substituted a new definition of "trustee company" in section 3 and amended section 87. Trustee Companies Act 2014, § 121, sch. 1 (Cook Is.) (see supra ch. 4). No reported decision of the High Court or the Court of Appeal of the Cook Islands interpreting sections 36 to 40 has been identified, and the analysis in this chapter rests on the words of the Act. The Financial Supervisory Commission reported 55 foundations on the register at 31 December 2018, against 2,141 international trusts and 359 limited liability companies (see supra ch. 4).
The lineage of the protective provisions. Sections 38 to 40 of the Foundations Act are drawn, almost word for word, from sections 13A, 13B and 13K of the International Trusts Act 1984 as those sections stood after the amending Acts of 1989, 1991, 1995–96 and 1999. The drafter substituted "founder" for "settlor" and "foundation" for "international trust" and dropped references to trustees and protectors. Section 37, the exclusion of foreign law, follows a different model: it is drafted in the style of the foundations statutes of other jurisdictions, with three numbered "reasons" a foreign rule may not be used to attack a foundation. The result is a statute whose creditor provisions can be read with the decisions and commentary on the International Trusts Act, and whose foreign-law provision must be read on its own terms. International Trusts Act 1984, §§ 13A, 13B, 13K (Cook Is.) (as amended 1989, 1991, 1995–96, 1999); Foundations Act 2012, §§ 37–40 (Cook Is.).