The Jones Clause in Cook Islands Trusts

The Jones clause is a trust deed provision that authorizes the trustee to pay a specific creditor’s claim from trust assets under defined conditions.

The clause addresses a problem that arises when someone establishes a Cook Islands trust while a known creditor claim exists or is reasonably foreseeable. Without it, the transfer could be treated as fraudulent and the settlor could face contempt sanctions for making collection impossible. The Jones clause preserves a payment pathway for the identified creditor, which weakens both arguments while leaving the trust’s protections intact against every other claim.

How the Jones Clause Works

A Jones clause identifies a specific creditor or category of creditor that had an existing or reasonably anticipated claim against the settlor at the time assets were transferred to the trust. The clause authorizes the trustee to pay that creditor, but only if a defined set of conditions is met.

The typical conditions require a final, non-appealable judgment against the settlor. The settlor must lack sufficient assets outside the trust to satisfy the judgment. The creditor must also make a direct claim to the trustee following procedures specified in the trust deed. Some Jones clauses impose additional requirements: a time limit for presenting the claim after final judgment, a cap on the amount payable, or a requirement that the creditor first exhaust all remedies against the settlor’s non-trust assets.

The trustee retains discretion over whether to pay the claim. The Jones clause authorizes payment; it does not mandate it. If the conditions are not met, the trustee declines the request and the trust’s standard protective provisions remain in effect.

Why the Jones Clause Exists

The Jones clause addresses two distinct risks that arise when a settlor establishes a Cook Islands trust while a creditor claim is pending or foreseeable.

Fraudulent transfer exposure. Under both U.S. law and Cook Islands law, transferring assets to a trust with the intent to defraud a specific existing creditor can render the transfer voidable. The Cook Islands trust statute makes that creditor prove the intent beyond a reasonable doubt, and sets two short deadlines.

Two years after the claim arose, a transfer to the trust is deemed free of fraudulent intent. Where the transfer came sooner, the same protection applies unless the creditor sued on the claim within twelve months of the transfer. Neither deadline helps a settlor who funded the trust after suit was filed. The Jones clause mitigates this risk by preserving a pathway for the known creditor to collect from the trust. Because the creditor retains a mechanism to be paid, the argument that the transfer was designed to make collection impossible loses force.

Contempt of court. When a U.S. court orders a settlor to repatriate trust assets and the settlor claims inability to comply because the trustee will not follow instructions given under duress, the court evaluates whether the impossibility is genuine or self-created. If the settlor structured the trust to make compliance categorically impossible, the court may hold the settlor in contempt.

The Jones clause reduces this risk by showing that payment to the specific creditor remains possible under the trust deed’s terms. The settlor has not made it impossible for the creditor to be paid. No guarantee exists that a court will accept the defense. In In re Lawrence the Eleventh Circuit rejected an impossibility defense on the alternative ground that the settlor had created his own inability to comply. A deed that leaves the identified creditor a route to payment meets that ground directly.

How the Jones Clause Affects Settlement

A creditor who pursues the settlor discovers that the assets sit in an offshore trust governed by Cook Islands law. The creditor may obtain a U.S. judgment, but enforcing it requires relitigating in the Cook Islands. The creditor must retain local counsel, prove fraudulent transfer beyond a reasonable doubt, and do so within the statute of limitations.

A Jones clause offers that creditor a mechanism for payment, but the mechanism requires the creditor to satisfy strict conditions and the trustee retains discretion. Pursuing the clause to completion means engaging with a Cook Islands trustee under Cook Islands law, which most creditors and their attorneys are not equipped or willing to do.

Few creditors get that far. The clause gives the settlor a defensible position, with a contempt defense he can argue and a weaker fraudulent transfer case against him, while the offshore structure continues to make collection impractical. It does not remove contempt exposure. The creditor’s attorneys weigh what enforcement would cost against what a negotiated resolution would yield, and these cases tend to settle earlier and for less than the original demand.

When the Jones Clause Is Needed

Not every Cook Islands trust includes a Jones clause. The clause is relevant only when a known or reasonably foreseeable creditor claim exists at the time the trust is established or funded.

Tax obligations are a common trigger. Federal debt collection law reaches a transfer whether the tax debt arose before or after it. The government must still prove the settlor transferred with intent to hinder, delay, or defeat collection, or prove he gave the assets away while carrying debts beyond his ability to pay. A claim on the intent ground expires six years after the transfer, or two years after it could reasonably have been discovered if that is later. A Jones clause directing the trustee to pay a valid tax claim answers that exposure.

The Grant case (United States v. Grant) illustrates what happens without one. The Grant trusts predated every tax assessment by years, and the court still ordered the assets repatriated and later held the widow in civil contempt for violating that order.

Pending litigation is another common trigger. A lawsuit has been filed or a claim asserted, the outcome and amount are uncertain, and the settlor wants to establish the trust before the situation worsens. The Jones clause names the specific creditor or describes the specific claim and sets the conditions under which the trustee may pay.

Professional liability exposure where a specific claim has been asserted but not yet adjudicated follows the same pattern. In each case, the clause identifies the particular obligation it addresses.

When no existing or foreseeable creditor claim exists at the time of trust formation, a Jones clause is unnecessary. A trust established well before any litigation, with the settlor solvent after the transfer, does not face the risks the Jones clause addresses.

How the Jones Clause Interacts with Other Trust Provisions

The Jones clause works alongside the trust’s other protective provisions without weakening them.

The duress clause instructs the trustee to disregard directions given under court compulsion. The Jones clause creates a narrow exception. The trustee may pay the specified creditor even during a duress event, provided the clause’s conditions are met. The two clauses together let the trustee resist general repatriation orders while still permitting targeted payment to a specific pre-identified creditor.

The spendthrift clause prevents beneficiaries from assigning their interests and prevents creditors from attaching them. The Jones clause does not affect the spendthrift provision as to other creditors. It creates a limited exception for one identified claim, leaving all other creditor protections intact.

The choice of law provision directs that Cook Islands law governs the trust. The Jones clause operates within that system. Payment conditions are evaluated by the Cook Islands trustee under Cook Islands law, not by a U.S. court.

The sample provisions below show how a deed states the duress clause and the Jones clause.

Sample Duress Clause

The clause does one thing. It strips force from any direction the settlor, a protector, or a beneficiary gives while a foreign court is pressing that person. Paragraph (c) then moves the suspended powers to a successor the court cannot reach.

Paragraph (b) does the most work. A later statement of inability becomes a fact about the deed rather than a litigating position. Paragraph (d) lets the trustee act as soon as it learns of the proceeding. Deeds commonly call the trigger an event of duress, and the label carries no legal weight.

What the clause does not do is defeat contempt. The trustee’s refusal is not the settlor’s inability, and settlors have gone to jail with clauses like this one in the deed. In In re Lawrence the Eleventh Circuit held that impossibility is no defense where the contemnor is responsible for the inability to comply. That was an alternative ground. The court had already found that Lawrence kept the power to appoint a trustee who could revoke his own exclusion, and he spent more than six years in custody.

The same court described his duress provision harshly. Its sole purpose appeared to be helping him evade contempt while feigning compliance, and upholding it would contravene the public policy against a debtor shielding money he placed in trust for his own benefit.

Two limits follow. A duress clause written into a deed after a claim is already on the horizon invites the characterization Lawrence drew. And the burden on a settlor asserting inability is heavy in any event. The person charged must show categorically and in detail why compliance cannot occur. Courts hold that burden particularly high where the assets sit offshore.

The magistrate judge who recommended the 2005 repatriation order in United States v. Grant added a third limit. A settlor cannot furnish the court-ordered direction and then privately tell the trustee to disregard it without risking the sanctions available for that act. Conduct decides these cases more often than drafting does.

Sample Jones Clause

Each condition in paragraph (b) answers a way the clause could be turned against the trust. A final judgment keeps a claimant away from trust property while the claim is still contested. Exhaustion puts the settlor’s own assets first.

Written demand and delivery give the trustee a record it can act on. The outside date closes the clause once the creditor has had a fair chance to use it. Paragraph (b) says the trustee may pay rather than shall pay, so no holder acquires a right enforceable against the trustee in a Cook Islands proceeding.

The clause buys a narrower thing than it appears to. It answers the argument that the transfer put the assets past every route to collection, because the deed leaves one route open. It does not make the settlor judgment-proof, and it does not answer a court that orders the settlor to exercise a power he still holds.

A bankruptcy filing changes the picture. The estate under 11 U.S.C. § 541(a) takes the debtor’s interests in property wherever those interests sit, and a turnover order is enforced by contempt.

Practical Limitations

A Jones clause drafted too broadly can create unintended exposure. If the clause authorizes the trustee to pay “any creditor” rather than a named creditor or narrowly defined category, it converts the trust into one that is routinely accessible to claimants. The clause should be as narrow as possible, identifying the specific claim, creditor, or obligation it addresses.

A Jones clause does not prevent a U.S. court from ordering the settlor to direct the trustee to pay. If the trustee declines because the clause’s conditions are not satisfied, the U.S. court has limited ability to compel the Cook Islands trustee to act. The clause’s primary value is its effect on the fraudulent transfer analysis and the contempt defense.

A creditor may learn of the clause during discovery or post-judgment proceedings and attempt to invoke it. The clause is written for that demand, and the conditions attached to it determine whether payment actually occurs.

Drafting Considerations

The Jones clause is typically drafted during the setup and application process by U.S. counsel coordinating with the Cook Islands trustee.

Which creditor or claim the clause addresses. The clause should identify the creditor by name or describe the claim with enough specificity that the trustee can determine whether a particular demand falls within its scope. Vague descriptions create ambiguity that can be exploited by claimants the clause was never intended to cover.

What conditions must be satisfied before payment. At minimum, the clause should require a final, non-appealable judgment and exhaustion of non-trust assets. Additional conditions, such as time limits for presenting the claim or caps on the amount payable, further narrow the clause’s scope and protect the trust’s remaining assets.

Whether the clause operates as a directive or discretionary authorization. Drafted as a discretionary authorization, the clause leaves the trustee authorized but not required to pay. Discretionary drafting preserves the trustee’s independent judgment and avoids converting the clause into an enforceable obligation that a creditor could use to compel payment through Cook Islands proceedings.