Pros and Cons of Cook Islands Trusts

What Is a Cook Islands Trust?

A Cook Islands trust is a legal structure that allows a person to shield their assets from judgment creditors. A Cook Islands trust works by moving assets to an international trustee company beyond the reach of U.S. courts. A Cook Islands trust can hold any type of asset, including cash, cryptocurrency, securities, and businesses. However, it works best for liquid assets that can be held at an international bank or brokerage.

Once transferred to a Cook Islands trust, assets are largely protected from collection actions by U.S. judgment creditors and court orders.

Cook Island trusts are most often used to protect assets from liability stemming from divorce, professional services, business debt, and personal loans.

How a Cook Islands Trust Works

A Cook Islands trust protects a U.S. debtor’s assets from collection because the trust assets are located beyond the jurisdiction of U.S. courts. U.S. judges cannot order the trustee to act on or access the trust’s assets. As a result, creditors cannot use legal methods to seize or interfere with the assets held in a Cook Islands trust.

While a court may order the trustmaker to bring the assets back to the United States, in most cases, the trustmaker would not have the means to do so to satisfy the judgment.

The Cook Islands has a 2-year statute of limitations for fraudulent transfers in most situations. However, the Cook Islands does not recognize U.S. judges or court orders. To assert a claim, the creditor would need to re-litigate the original U.S. case in the Cook Islands courts. This process is challenging, costly, and rarely pursued by creditors.

A Cook Islands trust must have a trustee based in the Cook Islands. These trustees are licensed and regulated by the Cook Islands government under strict legal standards. The trustee is responsible for administering the trust and managing its assets, but it has no personal claim to the trust property.

What Are the Advantages of Cook Islands Trusts?

A Cook Islands trust has several advantages. First, the Cook Islands have a short statute of limitations for fraudulent transfers. Transfers into a Cook Islands trust made more than two years after a creditor’s cause of action has accrued are fully protected. A creditor must file a lawsuit within one year from the time the cause of action accrues if the assets are transferred into the trust within two years from the date the cause of action accrues.

The fraudulent transfer lawsuit cannot be brought in the U.S. The creditor must file the action in the Cook Islands, which is very expensive and burdensome for a U.S. creditor.

Secondly, even if a creditor can bring a fraudulent transfer claim, it is difficult to succeed. They must prove beyond a reasonable doubt that the transfer was made with the intent to defraud that particular creditor and that the transfer left the debtor insolvent.

Finally, the Cook Islands are considered the best place to set up an offshore trust. As one of the original countries with favorable offshore trust laws, the Cook Islands have a long history of court decisions upholding the protection afforded by its trusts.

Overall, here are the most important advantages of a Cook Islands trust:

• Most reputable jurisdiction for offshore asset protection.
• Can transfer your assets away from jurisdiction of U.S. courts.
• Makes it difficult for a creditor to unwind a fraudulent transfer.

How Cook Islands Trusts Are Used

A Cook Islands trust is a common tool in offshore asset protection. The trust is established under Cook Islands law and managed by a professional trustee company based in the Cook Islands. Legal title to selected assets is transferred to that trustee.

The key effect is jurisdictional. If a creditor wants to reach trust assets, they must bring claims in the Cook Islands and under Cook Islands law rather than relying on a U.S. judgment. That shift in forum and law is what makes the asset protection work.

Cook Islands trusts work best for movable, intangible assets, including bank accounts, brokerage portfolios, interests in closely held businesses, limited partnerships, and LLCs. Real estate can be owned by an offshore trust, but the protection is not as strong as the land will still be located in the jurisdiction of U.S. courts.

Disadvantages of Cook Islands Trusts

• Limited legal protections against trustees. Cook Islands trusts are governed by Cook Islands law, which differs from U.S. law in both procedure and remedies. If a dispute arises, beneficiaries may need to enforce their rights in Cook Islands courts, hire local counsel, and navigate unfamiliar rules.
• High costs. Establishing a Cook Islands trust costs more than a U.S. trust. In addition to legal fees, there are annual trustee fees, banking or custodial costs, and ongoing administration. The costs make it impractical for people with less than $300,000 to protect.
• Regulations and compliance. Trust beneficiaries must handle reporting such as Forms 3520/3520-A and FBAR filings.

2025 Update for Cook Islands Trusts

As of 2025, the Cook Islands remains the premier jurisdiction to form an offshore trust for U.S. residents. Unlike other countries, such as Belize and the Cayman Islands, the Cook Islands have the longest history of protection and the broadest case law in favor of trust protection. There has not been any new legislation in the Cook Islands that would diminish its offshore trust protection.

More people are using Cook Islands trusts to protect cryptocurrency as that asset type becomes more popular.

How to Set Up a Cook Islands Trust

To set up a Cook Islands trust, you must (1) choose a trust company licensed in the Cook Islands, (2) complete a due diligence background check, (3) sign the trust agreement, and (4) fund the trust. You can open financial accounts in the name of the trust once the trust is established.

Choosing the trustee is the most important step. The Cook Islands have laws that require trust companies to be licensed and insured by reputable insurers.

How Much Does a Cook Islands Trust Cost?

A Cook Islands trust costs about $20,000.The cost includes legal fees of $15,000 and a trustee fee of $3,700. The cost of the trust is higher when adding complex features to the trust. Annual maintenance fees range from $3,000 to $4,000.

The most important factors that influence the cost of setting up a Cook Islands trust are:

• Trust Setup Fees. The initial costs charged by the trustee company to establish the trust structure.
• Trustee Annual Fees. Ongoing fees paid to the trustee company to serve as trustee.
• Legal and Fees. The initial cost for the U.S. attorney to help set up the trust and draft the trust document.
• Asset Transfers. Expenses related to transferring assets into the trust, including LLCs, financial accounts, and real estate.
• Compliance and Reporting: Fees for meeting regulatory and reporting requirements in the U.S.

History of Cook Islands Trusts

The Cook Islands were the first jurisdiction to enact favorable trust laws enabling U.S. residents to protect assets. When the Cook Islands enacted the International Trusts Amendment Act of 1989, it became the premier offshore trust jurisdiction.

Since then, other jurisdictions, such as Nevis, Belize, and the Bahamas, have enacted similar statutes.

The law affords the utmost asset protection while maintaining flexibility and privacy for U.S. trust-makers. Cook Islands trust companies are reputable, experienced, and thoroughly competent.

Structure of a Cook Islands Trust

The basic structure of a Cook Islands trust involves three parties:

1. The Settlor. The settlor of an offshore trust establishes the trust by transferring assets to it.
2. The Trustee. The trustee of a Cook Islands trust is is a person or corporation located in the Cook Islands that holds and manages the trust assets according to the terms of the trust deed. They have a legal duty to act in the best interests of the beneficiaries.
3. The Beneficiaries. The beneficiary of a Cook Islands trust is the individual or entities that benefit from the trust, as determined by the settlor. Most often, the settlor is the primary or only beneficiary.

Should the settlor find themselves under legal duress from a domestic creditor, the trustee of the Cook Islands trust would withhold distributions until the trustee is satisfied that any distribution made would not benefit the creditor.

How Are Cook Islands Trusts Taxed?

The Cook Islands themselves do not impose a tax on offshore trusts. No income tax, capital gains tax, or estate duty is applicable to an offshore trust, provided that neither the settlor nor the beneficiaries are residents of the Cook Islands.

In the U.S., a Cook Islands trust is tax-neutral. It is taxed as a grantor trust and should flow through to the grantor’s personal U.S. tax return.

Cook Islands Trust Bank Accounts

Typically, you will set up an offshore bank account immediately after forming a Cook Islands trust. This bank account is the primary mechanism through which the trust’s assets are managed. Once the trust is established, the assets transferred into it, including the money in the associated bank account, are legally owned and managed by the trustee of the Cook Islands trust.

The bank account is often opened in the same jurisdiction as the trust, but it is also possible to establish a bank account in another jurisdiction. The choice depends on your specific needs.

Setting up a bank account for an offshore trust is not as straightforward as opening a personal bank account. Banks are subject to stringent international regulations regarding money laundering and financial crimes. They must perform rigorous due diligence before accepting business from offshore entities, including Cook Islands trusts.

No matter where they are located, international banks will require detailed information about the trust, source of funds, and the settlor and beneficiaries.

Cook Islands Trusts vs. Domestic Asset Protection Trusts

A domestic asset protection trust (DAPT) is created under the laws of certain U.S. states to shield assets from creditors. While these trusts can offer some protection, they remain subject to U.S. court orders. That means a judgment creditor can potentially convince a local judge to disregard the trust and allow collection. Courts have been inconsistent in upholding DAPTs, especially when the trust creator resides in a state that doesn’t authorize them.

In contrast, a Cook Islands trust is governed entirely by the laws of a foreign country. U.S. court orders have no effect in the Cook Islands, and any creditor would need to start a new lawsuit in a legal system designed to favor asset protection. For clients with significant risk, the offshore trust is the more secure option. A Cook Islands trust provides stronger barriers, faster expiration of claims, and a jurisdiction that is set up to thwart creditor actions.

Do Cook Islands Trusts Have IRS Reporting Requirements?

Yes. While Cook Islands trusts are legal for U.S. citizens, they come with strict IRS reporting obligations. The IRS requires U.S. taxpayers to file Form 3520 and Form 3520-A each year if they create or are a beneficiary of a foreign trust. These forms disclose the trust’s existence, structure, income, and distributions.

Failure to comply can result in steep penalties. Offshore trusts also require careful coordination with income tax reporting and may require disclosures of foreign bank accounts through FBAR or FATCA regulations.

Can a Cook Islands Trust Be Broken?

Very few creditors have ever succeeded in collecting from a Cook Islands trust. The trust’s greatest strength is that the Cook Islands legal system does not recognize U.S. court judgments. That forces any creditor to start a new lawsuit in a foreign country with strict asset protection laws and short statutes of limitations.

To succeed, the creditor must prove the trust was funded with intent to defraud a specific creditor and that the claim falls within a narrow legal window. Even then, the trust law requires proof “beyond a reasonable doubt”—a much higher standard than typical civil lawsuits. In practice, the cost, time, and legal difficulty involved make it nearly impossible for creditors to break through a properly structured Cook Islands trust.

Fraudulent Transfers

The Cook Islands has a debtor-friendly fraudulent transfer law. They makes it very difficult for a creditor to successfully prosecute a fraudulent transfer claim.

Cook Islands law puts the burden of proof on the creditor to demonstrate beyond a reasonable doubt (the highest standard of proof) that the settlor transferred assets into the trust with the explicit intent to defraud that specific creditor.

Moreover, the claim must be brought within a specified time frame, typically within two years of the alleged fraudulent transfer. This is a far more protective stance than many other jurisdictions, which may use a lower standard of proof and allow claims to be brought for a longer period after the transfer.

FAQs About Cook Islands Trusts

What is a Cook Islands trust?

A Cook Islands trust is a specialized asset protection trust established under the Cook Islands’ favorable legal framework. It protects assets from creditors, lawsuits, and foreign judgments. These trusts offer privacy, a short statute of limitations for claims, and stringent requirements for proving fraudulent transfers.

Are Cook Islands trusts legal for U.S. citizens?
Cook Islands trusts are legal for U.S. citizens and commonly used for asset protection and estate planning. U.S. citizens must comply with domestic tax laws, including reporting requirements to the IRS.

How effective is a Cook Islands trust in protecting assets from lawsuits?
Cook Islands trusts are considered one of the most effective asset protection tools for U.S. residents, as they remove assets from U.S. jurisdiction and the control of the trustmaker.

How long does it take to establish a Cook Islands trust?
It generally takes 2-4 weeks to establish a Cook Islands trust.