¶ 1501
Overview
Scope of the chapter. Chapters 11 through 14 examined the protector as American law now knows it: an office that began in offshore practice, was taken up by the trust statutes of South Dakota, Nevada, Wyoming and other states, and was absorbed into the Uniform Directed Trust Act as one kind of trust director (see supra chs. 11–14). This chapter returns to three of the offshore statutes from which the office came. The Cook Islands, Nevis and Belize are the jurisdictions most often chosen by American settlors who want an international trust, and each of their trust statutes gives the protector a defined place. The chapter sets out what the three statutes have in common (¶ 1510) and then takes each in turn: the Cook Islands (¶ 1520), Nevis (¶ 1530) and Belize (¶ 1540). It compares them in a single table (¶ 1550), examines the relationship between the protector and the duress and flight provisions on which these trusts depend (¶ 1560), and reviews what American courts have done with protectors of offshore trusts (¶ 1570). It closes with the effect of the protector on the trust's status as a foreign trust for federal tax purposes (¶ 1580) and with the selection of the protector and the drafting of the office (¶ 1590).
Why the offshore protector differs. A domestic protector is usually a check on a trustee who lives in the same country as the family and answers to the same courts. The offshore protector serves a different structure. The trustee is a licensed trust company in a small jurisdiction, chosen because its courts will apply a protective statute and will not enforce an American judgment against the trust. The settlor and the beneficiaries usually live in the United States. The protector is the link between them: the person who can replace a trustee that fails, resigns or is acquired, who can move the trust if the jurisdiction's law or politics change, and who can consent to or refuse decisions that the family cares about. In the same structure, the protector is also the most obvious point of attack. A creditor who cannot sue the trustee in Rarotonga or Charlestown may still reach a protector who lives in Florida, and an American court that cannot order the trustee to do anything may order the protector to use every power the instrument confers. The design of the office therefore has two aims that pull against each other: the protector must hold enough power to keep the trust sound over decades, and must hold it in a form that a hostile court cannot turn into control over the trust.
Sources. The statutory texts used in this chapter are the International Trusts Act 1984 of the Cook Islands as amended through the International Trusts Amendment Act 2013, read in the sessional Acts published on the Pacific Islands Legal Information Institute; the Nevis International Exempt Trust Ordinance, Cap. 7.03(N), in the revised edition showing the law as at December 31, 2017, prepared by the Law Commission of St Christopher and Nevis; and the Trusts Act, Cap. 202, of Belize, in the revised edition showing the law as at December 31, 2020. The decisions of the courts of the three jurisdictions on protectors are few. Proceedings under the Cook Islands Act are heard in camera unless the court orders otherwise, and its decisions are published only in edited form. International Trusts Amendment Act 1999, § 10 (substituting International Trusts Act 1984, § 23(2)–(3)). Much of what is known about these trusts in litigation comes instead from American decisions that describe them (see infra ¶ 1570). The companion volume, Lighthouse on Asset Protection, examines the three jurisdictions as asset protection venues in full; this chapter is confined to the protector.
A note on terminology. Each statute uses "protector" as its term for the office. The Cook Islands and Nevis statutes also define the term functionally, so that a person who holds certain powers is a protector whatever the instrument calls the person. The Belize statute defines the term only for its provisions on international trusts, and defines it by purpose instead of by power. The differences matter when an instrument calls a power holder an "adviser," a "committee" or an "appointor" and the question is whether the statutory rules on protectors apply to that person (see infra ¶¶ 1520.02, 1530.03, 1540.02).