Private Trustee Companies
A private trustee company can provide savings, control, and privacy for clients who prefer not to place their assets with a trustee company owned by a financial institution.
There is a high degree of flexibility in structuring control over the international company. Control over the business of the company, and thereby the day to day business of the trust, rests with the directors of the company.
While the client is in control of the offshore company, he must be careful to maintain its separate identity as a trustee to avoid any accusation that the structure is a sham
Most offshore jurisdictions require a grantor. To appoint a licensed trustee company to act as trustee of an offshore trust if the trust is to be domiciled in that jurisdiction.
In some jurisdictions, however a client may form a separate offshore company (a private trustee company) for the special purpose of acting as trustee of his or her trust or trusts, instead of appointing a licensed offshore trustee company.
There are many situations where it may be advisable for a client to form a private trustee company.
The Cook Islands has special provisions ensuring that private trustee companies are easy to establish and operate, as well as being effective. Most importantly, in the Cook Islands there is no need to form a separate purpose trust to hold the shares of a private trustee company, as the different forms of corporate ownership of a Cook Islands offshore company make this extra entity unnecessary.
Reasons for Forming a Private Trustee Company
A licensed trustee company may be unwilling to act as a trustee of a client’s trust, whether because of the litigation risk applicable to that client, or because of the nature of the asset to be held, or because of the investment activity planned by the client. The planned investment activity may involve the trustee in potential liability, or it may require on the spot decision making which is not practical with a trustee in another time zone.
Some trustee companies require complete control of the trust’s investment activity without client participation. Furthermore, it is common for licensed trustee companies owned by financial institutions to require the investment of client trust funds in financial products of entities related to that financial institution, whereas clients normally want to have the right to choose the funds and products the trust will invest in, as well as the fund manager.
Often the only licensed trustee companies giving the client the security of being owned by a financial institution are exposed in jurisdictions such as the United States because of their worldwide links.
The alternative of placing assets under control of an individually owned trustee company may not be comfortable for the client or his advisers, nor can this risk
be negated by fidelity insurance. Some clients may not even want to disclose the affairs of their trust to the staff (often expatriate) of a licensed trustee company, particularly where the information is politically sensitive.
Finally, where a trust or a group of trusts has a substantial amount of activity, or where the trust assets themselves are substantial, a client can achieve savings by carrying out his own administration rather than have these activities carried
out on a time cost basis or on a percentage fee basis by a licensed trustee company.
Private Trustee Companies in the Cook Islands
The Cook Islands International Companies Act (1981-82) (ICA) contains special provisions for a client to form an international company (a private trustee company) for the purpose of acting as a trustee of an international trust, without being independently licensed in the Cook Islands as a trustee company.
Before registering as a Cook Islands international trust, a trust must establish a nexus with the Cook Islands jurisdiction. Section 2 of the International Trusts Act 1984 (ITA) requires a trust to appoint either a licensed trustee company, or a Cook Islands international company, as its trustee.
The international company is permitted to act as trustee for no more than three trusts, but otherwise must not carry on business as a trustee company.
When forming a trust, therefore, the client can first incorporate his own specially structured international company. That international company is eligible for appointment as trustee of the client’s trust, making the trust eligible for registration as a Cook Islands international trust.
Exit Strategy for Asset Protection Trusts
If a threat develops against the client, the client must be in a position where he cannot be forced to repatriate the assets of the trust. Cautious clients will not allow themselves to be in this position at any time, but the two shareholding structures described above are particularly suited to immediate transfer of any residual control without formality.
In the case of the default shares, the shares can be issued subject to terms that vest the shares of the private trustee company in a licensed trustee company in the event of any threat against the client.
In a similar situation with a purpose company, a cautious client can transfer the bearer debenture by simple delivery. If a change of jurisdiction is called for, then as an alternative to re-domiciling the trust by a change of trustee, the private trustee company itself may be re-domiciled.
The client must first form the international company in collaboration with a licensed trustee company, which appoints a resident secretary, provides the registered office for the international company, and often provides a director to attend to initial transactions.
The international company can then be appointed as the trustee of the client’s trust.
The trust is then registered, with the licensed trustee company also being appointed as the registered office of the trust. The licensed trustee company will attend to the filing of the annual return for the international company and the annual renewal of registration of both the international company and the trust.
No Local Appointments are Required
In other jurisdictions a local person must be appointed as a trustee in addition to the private trustee company, or as a director of the private trustee company.
These appointments add cost and give opportunity for disclosure. No such appointments are required in the Cook Islands.
Finally no Audit is Required in the Cook Islands
In other jurisdictions the accounts of the private trustee company must be audited annually. In the Cook Islands the need for an audit can be dispensed with by a shareholders’ special resolution.
No taxes are payable by either the private trustee company or the international trust of which it is appointed trustee.
Comparison with Other Jurisdictions
A Cook Islands private trustee company structure has several advantages over similar structures in other offshore jurisdictions.
First, no Purpose Trust Required. In other jurisdictions the shares of a private trustee company must be held by a purpose trust to separate legal ownership by the client of the private trustee company. Although a purpose trust may be established in the Cook Islands, it is not necessary given the company structures available.
- 1 Cook Islands
Private Trustee Companies
- 1.1 Reasons for Forming a Private Trustee Company
- 1.2 Private Trustee Companies in the Cook Islands Establishing Nexus
- 1.3 Exit Strategy for Asset Protection Trusts
- 1.4 Establishment
- 1.5 No Local Appointments are Required
- 1.6 Finally no Audit is Required in the Cook Islands
- 1.7 Taxation Consequences
- 1.8 Comparison with Other Jurisdictions
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