Cook Islands Trusts
A Cook Islands trust is a special type of trust that shields assets by putting them in the hands of a trustee in the Cook Islands, where U.S. court orders carry no weight. The trust is irrevocable and governed by the country’s International Trusts Act 1984. The trustee, not the settlor, holds legal title.
To collect on a judgment, a U.S. judgment creditor would have to begin again in the Cook Islands. It must sue in the High Court there within two years of a transfer. It must also prove beyond a reasonable doubt that defrauding that creditor was the settlor’s principal intent. Since the late 1990s, creditors have challenged these trusts in contested litigation, and none is known to have recovered the assets of a properly structured one. Instead, creditors must apply pressure on debtors in U.S. courts.
How Does a Cook Islands Trust Work?
In a Cook Islands trust, the settlor transfers assets to a Cook Islands trustee, which holds legal title and manages them for the beneficiaries under the trust deed. Here are the roles:
- Settlor. The person who funds the trust and can also be a beneficiary. An asset protection deed gives the settlor no power to revoke the trust or direct the trustee, since a U.S. court can make a settlor use any control the settlor keeps.
- Trustee. A company in the Cook Islands, such as a licensed trustee company.
- Protector. An optional office with power over the trustee, such as the power to replace it. Most Cook Islands trusts do not need one.
- Beneficiaries. The settlor and the family members the deed names. The deed can bar creditors from seizing their interests. If the deed provides for it, the trust can last indefinitely.
Most Cook Islands trusts also own an offshore LLC, formed in the Cook Islands or Nevis, that holds the accounts. The settlor manages the LLC in normal times. When an event of duress listed in the trust deed occurs, such as litigation against the settlor, the trustee takes over as manager.
How Does a Cook Islands Trust Protect Assets?
A Cook Islands trust protects assets because Cook Islands law refuses to enforce U.S. judgments or court orders. A creditor has to bring a new case in the Cook Islands and prove fraud there to the criminal standard.
Cook Islands law bars Cook Islands courts from enforcing a foreign judgment against the settlor or trustee. A challenge to a transfer must be brought in the High Court. That court can make no order, not even a freezing order, until the creditor shows beyond reasonable doubt that the claim is in time and provable. In my experience, this almost never happens.
The creditor has to prove two things beyond a reasonable doubt (section 13B(1)). First, that the settlor’s principal intent in the transfer was to defraud that creditor. Second, that immediately afterward, the settlor was insolvent or lacked property to pay the claim.
Under the trust deed’s duress clause, the trustee ignores any instruction the settlor gives under a court’s compulsion, including an instruction to bring the assets home.
Of all the offshore trust jurisdictions, the Cook Islands is the strongest. It has the longest record in contested litigation and the most developed case law. It also has an established trustee market built around asset protection. Nevis has a shorter track record, with less litigation behind its statute.
What Is the Statute of Limitations on a Cook Islands Trust?
A creditor has two years after a transfer to a Cook Islands trust to challenge it in the Cook Islands High Court. Each transfer starts its own two-year period (section 13K(1)). The statute also deems some transfers not made to defraud the creditor. Whether a transfer qualifies depends on when the creditor’s cause of action accrued, which is the date of the act or omission behind the claim:
| When the transfer was made | Result under the statute |
|---|---|
| Before the creditor’s cause of action accrued | Deemed not made to defraud that creditor (section 13B(4)) |
| More than two years after it accrued | Deemed not made to defraud that creditor (section 13B(3)(a)) |
| Within two years after it accrued | The same, unless the creditor files suit on its claim, in any court with jurisdiction, within one year after the transfer (section 13B(3)(b)) |
| After the creditor’s lawsuit on the claim had begun | Neither rule applies; the creditor must prove intent, and the timing alone does not prove it (section 13B(3), (5)(d)) |
Can a Cook Islands Trust Be Breached?
A properly structured Cook Islands trust cannot readily be breached. No decision of a Cook Islands court on record has ordered a trustee to hand trust property to a creditor. The main risk falls on the settlor personally. A U.S. court without power over the trustee can still order the settlor to return the assets and treat a refusal as civil contempt. This is rare when the trust is set up properly.
The most famous case about Cook Islands trusts is FTC v. Affordable Media, a 1999 Ninth Circuit case (179 F.3d 1228), also called the Anderson case. A federal court ordered Michael and Denyse Anderson to repatriate their Cook Islands trust’s assets. When they told their Cook Islands co-trustee to do so, it treated the order as an event of duress and refused. The Andersons were held in contempt and ordered into custody. The Ninth Circuit affirmed, pointing to the powers they kept as the trust’s protectors.
The United States then sued in the Cook Islands, for the FTC, in September 1999. That suit ended in December 2002 with a negotiated settlement that sent $1.2 million from the Andersons’ trust to the FTC.
Most articles about this case never mention that $1.2 million, though the FTC itself announced it in December 2002. Because the Cook Islands trustee refused, the FTC spent more than three years going after the money there. As protectors, the Andersons could decide whether an event of duress had occurred at all. The Ninth Circuit upheld the contempt finding, saying they could have had the money sent home just by certifying that none had.
The main lesson here that I tell my clients is not that a creditor can get into a Cook Islands trust. It took a federal agency, years of litigation, and a huge amount of expense. Plus the settlors messed up by serving as trust protectors. A private civil creditor isn’t going to go to the same lengths as the FTC.
Assets that stay in the United States get much less protection, because a U.S. court controls real estate within its jurisdiction directly.
In my view, the trustee matters more than the statute. A strong statute does not help if the trustee will not defend the trust when a creditor comes after it. Creditors rarely come after these trusts, but the trust is built for the time one does.
Is a Cook Islands Trust Private?
A Cook Islands trust is private inside the Cook Islands and fully reported in the United States. The trust deed does not have to be filed with the Registrar. Nothing in the statute lets the public inspect the register of international trusts. Disclosing a trust’s affairs is an offense unless a court, a statute or a search warrant requires it, or the trustee discloses it to run the trust. The settlor reports the trust to the IRS every year. In a judgment creditor’s post-judgment discovery, the settlor must also disclose it under oath.
How Is a Cook Islands Trust Taxed?
The IRS treats a Cook Islands trust with a U.S. settlor as a grantor trust, so the settlor pays income tax on the trust’s earnings as if the settlor held the assets directly. The trust also requires annual federal filings, which the settlor’s CPA prepares. Filing them late or not at all draws penalties.
Setting Up a Cook Islands Trust
The whole setup, from hiring a U.S. attorney to a signed and registered Cook Islands trust, takes about three to four weeks. Opening the offshore account takes several weeks more.
A settlor who has already been sued can still set up a Cook Islands trust, and many do. The statute bars a court from inferring intent to defraud from that timing alone. But the settlor can no longer rely on the time limits in section 13B(3) and faces a higher risk of contempt and a weaker negotiating position. The deed can also include a Jones clause letting the trustee pay that existing creditor on terms the deed sets, which reduces the settlor’s fraudulent transfer exposure.
What Does a Cook Islands Trust Cost?
The setup cost of a Cook Islands trust is $15,000 to $30,000. It includes the U.S. attorney’s legal fee plus the trustee’s first-year charges, which run about $6,000. Starting in the second year, the trustee’s fee averages about $5,000 a year, and an offshore LLC raises it to about $6,000. A CPA’s fee for the tax filings is $2,000 to $3,000 a year.
Who Is a Cook Islands Trust For?
A Cook Islands trust suits someone who faces meaningful lawsuit exposure and has total assets of at least $1 million or liquid assets of $500,000 or more. Below those figures, the costs are usually out of proportion to what the trust would protect. Domestic asset protection trusts (DAPTs) are no substitute, because they protect reliably only settlors who live in states with a DAPT statute.