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Overview
Scope of the chapter. This chapter examines the beneficiaries of a Cook Islands international trust and the interests they hold. It asks who may be a beneficiary, what kinds of interest a beneficiary may be given, and the means by which those interests are protected against the beneficiary's own creditors and against claims by spouses, heirs and others. It examines the three forms of beneficial provision that dominate Cook Islands practice: the discretionary trust, the spendthrift restriction authorised by section 13F of the International Trusts Act 1984, and the protective trust in the form codified by section 42 of the Trustee Act 1956 (N.Z.), which continues to apply to international trusts. It then turns to the rights that beneficiaries hold against the trustee (to information, to accounts and to the court's supervision) and closes with model provisions and a planning checklist.
Relation to other chapters. The creation of the trust and the formal requirements for a valid disposition are examined in chapter 6 (see supra ch. 6). The trustee's powers and duties, including the duty of care in section 19A and the rule in section 19B that the dispositive discretion may not be delegated outside the body of trustees, are examined in chapter 7 (see supra ch. 7). The settlor's reserved powers, the settlor as beneficiary, the protector and the duress provisions are examined in chapter 9 (see infra ch. 9). Variation and termination, including the court's power to vary under section 64 of the Trustee Act 1956, are examined in chapter 11 (see infra ch. 11). The creditor-protection sections that protect the settlement itself (sections 13A, 13B, 13D and 13K) are examined in Part V (see infra chs. 21–23). This chapter is concerned with the beneficiary's side of the trust: the interest that the beneficiary holds once the trust has been validly constituted.
Why the beneficial provisions matter. The Cook Islands statute is known for its protection of the settlement against the settlor's creditors. That protection is of limited value if the interest given to a beneficiary can be reached by the beneficiary's own creditors, by a beneficiary's spouse in a divorce, or by a foreign court that treats the beneficiary's interest as property. The beneficial provisions are where most of that exposure is controlled. A discretionary object who has no right to any distribution has nothing that a creditor can seize. A beneficiary whose fixed interest is subject to a spendthrift restriction under section 13F has an interest that the statute protects from alienation and execution. A protective trust turns a fixed interest into a discretionary one on the first attempt to reach it. Each technique works differently, and each has limits that a planner must understand before choosing among them.
Sources. The chapter is based on the text of the International Trusts Act 1984 (No. 14) as enacted and on each of the eight amending Acts, read in the official printed texts published by the Financial Supervisory Commission (see supra ch. 5); on the Trustee Act 1956 (N.Z.) in the form published for the Cook Islands on the Pacific Islands Legal Information Institute (PacLII), which reproduces the Act with the Trustee Amendment Act 1957; and on the decision of the Privy Council in Webb v. Webb, [2020] UKPC 22, an appeal from the Court of Appeal of the Cook Islands that is the most important recent authority on the beneficial structure of Cook Islands trusts. No reported Cook Islands decision construing section 13F has been located. Where the chapter states the general law of trusts, it relies on English and Privy Council authority, which is applied in the Cook Islands as part of the common law and equity received under the Cook Islands Act 1915 (see supra ch. 2).
Terminology. The Act uses "beneficiary" without defining it. Since 1996 it has used "interested party" to mean, in relation to any trust, "any settlor, donor, trustee, protector, beneficiary, and any person claiming through any one of such persons." International Trusts Act 1984, § 2 (as amended by International Trusts Amendment Act 1995–96, § 2(b)) (Cook Is.). This chapter uses "beneficiary" for any person who holds a beneficial interest or is an object of a dispositive power, "discretionary object" for a person who may benefit only if the trustee exercises a discretion in that person's favour, and "fixed interest" for an interest that entitles the holder to income or capital without any further decision of the trustee. A "spendthrift restriction" is a term of the trust that prevents alienation of a beneficiary's interest and its seizure by process of law. A "protective trust" is a trust under which a fixed interest determines on an attempted alienation or similar event and is replaced by a discretionary trust.