- Succession - the desire to have one’s assets pass to the next generation in accordance with specific wishes;
- Wealth protection - to protect assets from those who by force, legislation or litigation may try to take them away;
- Avoidance of probate – remove the need for probate on death by removing assets from the estate now;
- Tax - the effective legitimate minimization of tax charges on the transfer or sale of assets and the income they may generate;
- Pre-migration – to structure assets and affairs in a fiscally efficient manner before becoming resident in another country;
- Confidentiality – to allow the HNWI and his/her family to benefit from their assets and conduct their business without unnecessary disclosure of personal information.
Chinese HNWIs will have a number of options when selecting the right trustee and jurisdiction in which to have their trusts established, managed and administered. As the trust is derived from English common law it may not be a familiar concept to those in China, but that unfamiliarity should not be a deterrent to using a trust given the benefits it can provide and the professional advice and management available.
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When judged against the criteria set out above for choosing a trust jurisdiction and trustee, the Cook Islands would appear to be an excellent option.
The Cook Islands, located in the South Pacific northeast of New Zealand and south of Hawaii, is a mature international finance centre having been in existence for over 30 years. The cornerstone of the Cook Islands international financial services industry is the International Trust established pursuant to the International Trusts Act 1984, as amended (“ITA”). It has made the Cook Islands an industry leader in the preservation of wealth and the trust jurisdiction of choice for foreign HNWIs and their families by providing law better suited to the needs of people in today’s society. Features of the ITA include:
- Trustees must act in accordance with a statutory duty of care being that of a prudent person engaged as a professional trustee managing the affairs of others;
- A trustee has the power to make any lawful investment;
- A trustee may delegate the exercise of all powers and discretions excluding dispositive powers;
- The settlor can retain elements of control over the trust and its assets;
- Certainty is given to the rights of those who might claim against trust assets by reference to specific dates and events;
- Trusts can be dynastic with no fixed termination date;
- Forced heirship rules in foreign jurisdictions shall not affect the validity of a trust or transfers on to trusts.
- Foreign judgements will not be recognised or enforced if inconsistent with Cook Islands law.
In addition to the ITA, Cook Islands legislation provides other structures for holding, investment and protection of assets that may be integrated with an International Trust to produce or form part of an international wealth management plan. Those structures include international companies (International Companies Act 1981-82, as amended), limited liability companies (Limited Liability Companies Act 2008, as amended) and foundations (Foundations Act 2012, as amended).
Effective tax planning may be possible through the use of a Cook Islands International Trust and will be dependent on where the settlor and beneficiaries are tax resident and assets are located. It is important that a Chinese HNWI obtains Chinese tax advice before establishing a trust and, if he/she or members of his/her family intend to emigrate, in such jurisdictions to where they intend to move prior to arriving. The Cook Islands’ tax laws are designed so that it is possible to incur no tax charges in addition to what the Chinese HNWI would otherwise be charged.
Cook Islands courts are experienced in hearing and deciding upon cases involving trust law and trust issues and have a reputation for respecting the rule of law. The Cook Islands’ High Court judges are experienced New Zealand judges who apply Cook Islands law.
Professional Service Providers
The trustee companies licenced to provide trustee and corporate services in the Cook Islands contain a depth of relevant knowledge, experience and expertise to rival any jurisdiction in the world. Most of these companies have existed since, and contain professionals who were involved in, the formative years of the Cook Islands as an international finance centre. They have experience in dealing with Asian and particularly Chinese clients and some are part of organisations with an Asian presence.
Trust Companies in the Cook Islands are licensed to carry on “trust company business”, as that term is defined in the Trust Companies Act 2014 (“TCA”). They are regulated by the Financial Supervisory Commission (“FSC”) in accordance with the provisions of the TCA, which give the FSC the power to vary, revoke or add conditions to a licence as it sees fit. The Cook Islands is committed to the implementation of and compliance with international regulatory best practice.
When these factors are combined with its modern communication facilities, sovereignty of its government, supportive political environment, banking options and convenient time zone for transacting business, the Cook Islands does stand out as the ideal option for the Chinese HNWI.
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The international wealth management plan should in all respects be just that – international. It will hold the HNWI’s non-domestic assets in vehicles established in jurisdictions and under laws which provide the maximum protection, flexibility and ease of administration. Financial assets will be custodied and managed in those financial centres with the professionals and institutions best suited to the HNWI’s needs. Depending on the HNWIs personal and family circumstances, the plan may be relatively simple or it may be more sophisticated requiring detail and focus on particular aspects.
Given that no two individuals are the same it follows that no two wealth management plans will be the same, however the Chinese HNWIs’ wealth management structure may look something like this:
- A Cook Islands International Trust administered by a Cook Islands resident trustee. The HNWI names a class of persons (which will include his/her spouse and children) to benefit from the trust;
- Powers to direct investment of trust assets is reserved to the HNWI or someone nominated by him/her;
- A bank account is opened in the trust’s name operated by the trustee to receive and hold cash to be distributed to beneficiaries;
- A letter from the HNWI to the trustee details his/her wishes as to the investment, management and distribution of assets both during his/her lifetime and beyond;
- The HNWI directs the trustee to invest in a Cook Islands LLC. The trustee is the 100% owner (member) of the LLC and the HNWI, or his/her nominee, can be the manager of the LLC and its assets.
- One or more offshore holding companies, depending on the type and number of assets to be held, can be transferred to the LLC. The holding companies may already exist or will need to be incorporated and assets transferred in;
- For example, one holding company holds financial assets, investment portfolios, security trading accounts, another holds real estate, commercial or residential, and a third holds shares in any trading company owned by the HNWI or his/her family;
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It is imperative that Chinese HNWIs consult their domestic advisors now to discuss the wealth management possibilities available. Past and current local, regional and global economic and political events highlight the need for them to understand how such issues may impact their present and future wealth and how they might best protect it. A Cook Islands International Trust and Cook Islands resident trustee gives the Chinese HNWI a platform to secure existing and future wealth whilst having it invested, managed and distributed in accordance with his/her wishes both during his/her lifetime and indefinitely after his/her death. The Cook Islands would appear to provide a perfect solution.
best over the counter sleep aid that works By Alan Taylor
Alan commenced his career practicing law in New Zealand before moving overseas where he worked in the international financial services industry in the Cook Islands, Jersey and Singapore. He has held legal, business development and senior management positions in both public and private organisations. Before joining the FSDA, Alan was based in Singapore heading the asset management and fiduciary services businesses for a Swiss listed financial services organisation.
Alan has travelled extensively through Europe, North America and Asia representing the organisations he works for and speaking on wealth management and financial services.
Alan has degrees in law and economics from Auckland University in New Zealand. He has been admitted to the New Zealand bar and is a member of STEP and the New Zealand Institute of Management.
Alan has now returned to the Cook Islands with his family and is looking forward to contributing to the development and growth of the Cook Islands financial services industry.