¶ 601
Overview
Scope of the chapter. This chapter examines how a Cook Islands international trust comes into existence and what makes it valid. It addresses five questions that arise, in some form, in every engagement and in every contested case: who is the settlor; whether the settlor had capacity to make the settlement; what formalities the settlement and each transfer to the trust must satisfy; which law governs the trust; and whether the trust, once made, is valid. The International Trusts Act 1984 answers each question in part, and the general law of trusts in force in the Cook Islands answers the rest. The chapter also considers how courts outside the Cook Islands, and particularly American courts, approach the same questions when a creditor or a spouse attacks a Cook Islands trust in the settlor's home forum. The registration of the trust is examined in chapter 5 (see supra ch. 5); the trustee's office, the beneficiaries' interests and the protector are examined in chapters 7 to 9 (see infra chs. 7–9); and the fraudulent-disposition rules are examined in chapter 21 (see infra ch. 21).
Two layers of law. An international trust is a trust first and an international trust second. The Act preserves the general law of trusts in force in the Cook Islands and applies it to international trusts "except in so far as they are inconsistent with or have been modified by the provisions of this Act." International Trusts Act 1984, § 3 (Cook Is.) (as amended 1995–96). That general law is the English law of trusts received in 1840 and the New Zealand statutes applied in the Cook Islands, as described in chapter 2 (see supra ch. 2). The Act then modifies that law at the points that matter to a settlor seeking protection: it abolishes the rule against perpetuities and the rule against accumulations, deems the trust irrevocable, validates retained settlor powers and benefits, excludes heirship and personal-relationship claims, selects Cook Islands law to govern validity, capacity and administration, and excludes foreign law that would undo the trust. Each modification applies only to an international trust, which is a trust registered under the Act with a qualifying trustee and non-resident beneficiaries (see infra ¶ 610). A Cook Islands trust that is not registered remains a trust under the general law alone.
Why creation matters. The protective provisions of the Act are often described as if they operated on the assets. They operate on a trust, and only on a trust that was validly created and duly registered. A creditor who cannot prove a fraudulent disposition beyond reasonable doubt under section 13B (see infra ch. 21) will look for a defect in the creation of the trust: a settlor who never parted with the beneficial interest, a nominee who was not the true settlor, a deed that was never executed in the form claimed, an asset that was never transferred, a governing law clause that a foreign court will not respect, or a registration that lapsed. The Privy Council's decision in Webb v. Webb, which concerned two trusts governed by Cook Islands law, turned on exactly such a defect: the trusts failed because the settlor had reserved powers that left him with rights "indistinguishable from ownership." Webb v. Webb [2020] UKPC 22, [89] (appeal taken from Cook Is.) (see infra ¶ 670). A planner who attends to the creation of the trust removes the arguments that remain to a creditor after the Act has done its work.
Organization. Paragraph 610 describes the international trust and its relationship to the general law of trusts. Paragraph 620 examines the settlor, including the statutory definition, nominee and multiple settlors, the settlor who is also a trustee, protector or beneficiary, and the due diligence the trustee company must complete on the settlor. Paragraph 630 examines capacity. Paragraph 640 examines formalities, including the trust instrument, its execution and the transfer of assets to the trustee. Paragraph 650 describes registration as the step that brings the Act into force for the trust. Paragraph 660 examines the governing law. Paragraph 670 examines validity under Cook Islands law, including the settlor's retained powers and the decision in Webb. Paragraph 680 examines how foreign courts approach the validity of a Cook Islands trust. Paragraph 690 sets out model provisions and a checklist for the creation of an international trust.