Cook Islands Trust: How It Works and What It Costs

A Cook Islands trust is an offshore asset protection trust governed by the Cook Islands International Trusts Act 1984. It transfers legal ownership of assets to a licensed trustee in the Cook Islands, placing those assets beyond the direct enforcement reach of U.S. courts while allowing the person who created the trust to remain a beneficiary. The Cook Islands was the first jurisdiction in the world to enact legislation specifically designed for asset protection trusts, and its statutory framework has been tested in litigation for more than three decades.

The structure exists for a specific purpose: to make it substantially more difficult for a creditor holding a U.S. judgment to collect against the trust’s assets. It does this by requiring creditors to abandon their U.S. judgment and start over in the Cook Islands, where they face a higher burden of proof, shorter filing deadlines, and a legal system that does not recognize foreign court orders against trust property. The trust does not make assets untouchable. It changes the legal terrain a creditor must cross to reach them, and that change is often sufficient to alter settlement dynamics or end enforcement efforts entirely.

Cook Islands trusts are not general-purpose estate planning tools. They are expensive to establish, require ongoing compliance with U.S. tax reporting rules, and involve ceding a degree of direct control over assets to a foreign trustee. They are appropriate when litigation exposure is substantial, non-exempt assets are significant, and domestic planning alternatives have been evaluated and found insufficient. Our article on who needs a Cook Islands trust addresses how to evaluate whether the structure fits a particular situation. The article on common misconceptions addresses the claims and assumptions that most frequently lead people astray.

How a Cook Islands Trust Works

The basic mechanics are straightforward. The settlor (the person creating the trust) transfers assets to a licensed Cook Islands trustee company, which holds legal title to those assets and administers them according to the trust deed. The settlor typically remains a discretionary beneficiary, meaning the trustee may make distributions to the settlor but is not required to do so.

In most structures, the trust does not hold assets directly. Instead, the trust owns an offshore LLC, and the LLC holds bank or brokerage accounts where the actual assets are kept. The settlor is typically appointed as the initial manager of the LLC, which means the settlor retains practical day-to-day control over the assets during normal circumstances. If litigation arises, the trust deed and LLC operating agreement contain provisions that shift management authority from the settlor to the trustee, removing the settlor’s ability to direct the assets and creating a separation that is both legally meaningful and practically consequential.

This structure serves two functions. First, it creates a layer of legal ownership that a creditor must penetrate before reaching the underlying assets. Second, it ensures that if a U.S. court orders the settlor to repatriate trust assets, the settlor can truthfully represent that they do not have the legal authority to comply — the trustee does, and the trustee is governed by Cook Islands law, not U.S. court orders.

The trust agreement article explains the specific provisions that make this structure work, including the duress clause, flight clause, and spendthrift protections that the trust deed should contain.

Legal Framework

The Cook Islands International Trusts Act 1984, as amended in 1989, 1991, 1995, and 1999, provides the statutory foundation for Cook Islands trust law. The 1989 amendments were the most significant, introducing the asset protection provisions that distinguish Cook Islands trusts from trusts in virtually every other jurisdiction.

Non-Recognition of Foreign Judgments

Section 13D of the ITA provides that no foreign judgment is enforceable in the Cook Islands if it is based on the application of any law inconsistent with the ITA. In practice, this means that a U.S. judgment ordering the trust to pay a creditor, or ordering the trustee to turn over assets, has no legal effect in the Cook Islands. The creditor must file a new proceeding in the Cook Islands High Court and litigate the claim from scratch under Cook Islands law.

Fraudulent Transfer Standard

Section 13B establishes the framework for challenging transfers to a Cook Islands trust. A creditor must prove beyond a reasonable doubt that the settlor transferred assets with the intent to defraud that specific creditor and that the transfer rendered the settlor insolvent or unable to satisfy that creditor’s claim. The “beyond a reasonable doubt” standard is the highest evidentiary standard available in civil proceedings and is dramatically more difficult to meet than the preponderance-of-evidence standard applied in U.S. fraudulent transfer cases. The fraudulent transfers article explains how these provisions work in practice.

Statute of Limitations

Section 13K imposes strict time limits on creditor challenges. A claim must be filed in the Cook Islands within one year of the trust being funded or within two years of the creditor’s cause of action accruing, whichever is shorter. After these periods expire, the Cook Islands courts will not hear the claim. Each transfer to the trust starts its own clock. The statute of limitations and burden of proof article provides a detailed analysis of how these timelines interact.

Trustee Regulation

Cook Islands trustees are licensed by the Financial Supervisory Commission under the Trustee Companies Act 2014. They must maintain minimum capital requirements, carry professional indemnity insurance, and comply with AML/CFT regulations under the Financial Transactions Reporting Act 2017. The FSC conducts regular audits and has the authority to sanction or revoke licenses for non-compliance. This regulatory framework is covered in the licensing requirements article and the regulation comparison article.

Structure

A Cook Islands trust involves several parties, each with defined roles.

The settlor creates the trust and transfers assets to it. Under Section 13C of the ITA, the settlor may retain significant powers (including the power to revoke the trust, direct investments, add or remove beneficiaries, and remove or appoint the trustee) without invalidating the trust or its asset protection features. This is a critical distinction from U.S. law, where retained powers can compromise a trust’s protective value.

The trustee is a licensed Cook Islands trust company that holds legal title to trust assets and administers the trust according to the trust deed and Cook Islands law. The trustee is the party that interacts with creditors and courts, and its independence from the settlor is essential to the structure’s integrity. Our guide to Cook Islands trustee companies provides an overview of the trustee landscape, and the how to choose a trustee article discusses selection criteria.

The protector is an optional role, typically filled by someone the settlor trusts, who has the power to remove and replace the trustee. The protector adds a layer of oversight without controlling trust assets directly. The distinction between the protector and trustee roles, and why it matters, is explained in the protector vs. trustee article. A broader discussion of the protector’s function appears in trust protectors explained.

The beneficiaries are the individuals or entities entitled to benefit from the trust. In most asset protection structures, the settlor is a discretionary beneficiary, which means the trustee has the authority — but not the obligation — to make distributions. This discretionary structure is intentional: it means no beneficiary has a fixed entitlement that a creditor can attach. The discretionary distributions article explains how this works in practice, and the how withdrawals work article covers the mechanics of accessing trust assets.

The Trust Deed

The trust deed is the governing document that defines the trust’s terms, the parties’ roles, and the protective provisions that activate under litigation pressure. It is the single most important document in the structure.

A well-drafted Cook Islands trust deed includes a duress clause (which automatically restricts trustee actions when the settlor is under legal compulsion), a flight clause (which allows the trust to be re-domiciled to another jurisdiction if Cook Islands law becomes unfavorable), spendthrift provisions (which prevent beneficiaries from assigning their interests to creditors), and choice of law and forum selection clauses (which direct disputes to Cook Islands courts under Cook Islands law).

It may also include a Jones clause, which authorizes the trustee to pay a specific existing creditor under defined conditions. This provision serves strategic functions in the fraudulent transfer and contempt analysis.

The trust agreement article provides a detailed walkthrough of these provisions, what they do under litigation pressure, and how drafting quality affects the trust’s protective value. The duress clause article examines how duress provisions function in practice, including lessons from the Anderson case.

What a Cook Islands Trust Protects Against

The structure is designed to address specific threats.

Civil judgments from lawsuits. This is the primary use case. A creditor who wins a judgment in a U.S. court cannot enforce that judgment directly against trust assets. The creditor must pursue the assets in the Cook Islands, where the statutory protections described above apply. The litigation section covers the full enforcement landscape, including how U.S. courts interact with Cook Islands trusts, what happens after a U.S. judgment is entered, how turnover orders work, post-judgment disclosure obligations, and the contempt risks a settlor may face.

Professional liability claims. Physicians, real estate developers, business owners, and executives in litigious industries face recurring exposure that may exceed insurance coverage. A Cook Islands trust provides a second layer of protection behind insurance and state exemptions.

Divorce. The Cook Islands enacted the International Relationship Property Trust Act specifically to address the risk that a divorce court will order trust assets divided. A trust established with proper spousal involvement and independent legal advice can preserve assets for the family unit rather than having them consumed by divorce litigation. The setting up while married article explains the community property issues, spousal consent requirements, and the IRPT framework.

Post-sale liability. Business owners who sell a company and give vendor warranties face a defined window of exposure during which warranty claims could consume the sale proceeds. A Cook Islands trust established before the sale can protect those proceeds during the warranty period.

What a Cook Islands Trust Does Not Do

It does not reduce taxes. A Cook Islands trust is tax-neutral for U.S. persons. The IRS treats it as a foreign grantor trust, and all income, gains, and deductions flow through to the settlor’s personal return. The settlor pays the same taxes as if the assets were held directly. Anyone suggesting otherwise is either mistaken or selling something illegal. The IRS tax reporting article explains the U.S. tax treatment in detail.

It does not eliminate reporting obligations. U.S. persons with a Cook Islands trust must file Form 3520 and Form 3520-A annually, report foreign financial accounts on the FBAR (FinCEN Form 114), and disclose specified foreign financial assets on Form 8938. Penalties for non-compliance are severe. The compliance section covers each filing requirement, with dedicated articles on Forms 3520 and 3520-A and FBAR requirements.

It does not make assets disappear. The trust must be disclosed on tax returns, in discovery proceedings, and in response to lawful court inquiries. Attempting to conceal a Cook Islands trust is illegal and counterproductive.

It does not guarantee immunity from contempt. A U.S. court can hold the settlor in contempt for failing to comply with a repatriation order, even if the trustee independently refuses to release the assets. The contempt risks article addresses how courts evaluate these situations, including the self-created impossibility doctrine.

Costs

A Cook Islands trust costs more to establish and maintain than any domestic planning alternative. For most clients, first-year costs include $15,000 to $20,000 in U.S. legal fees, $3,500 to $5,000 in trustee formation fees, and $500 to $2,000 for entity formation. Ongoing annual costs include $3,300 to $5,000 in trustee administration fees, $1,500 to $3,000 in U.S. tax preparation for the required foreign trust returns, and custodial fees charged by the offshore bank or brokerage.

The costs article provides a comprehensive breakdown of setup, ongoing, and situational expenses. The annual fees article explains how trustee fee structures work and what they cover.

How to Set Up a Cook Islands Trust

The trust formation process involves six sequential stages: initial consultation and planning with U.S. counsel, trustee application and due diligence, trust deed drafting and execution, trust registration with the Cook Islands High Court, entity formation (if the structure includes an LLC), and account opening and funding. The process typically takes four to eight weeks for straightforward cases and eight to twelve weeks for more complex structures.

The most common source of delay is the trustee’s KYC and AML compliance review, which requires identity verification, proof of address, source of funds documentation, and tax residency certification for every controlling person associated with the trust. The setup guide walks through each stage in detail, and the KYC and AML requirements article explains what the trustee collects and what causes delays.

Establishing a Cook Islands trust during active litigation is possible but involves materially higher risk. The during a lawsuit article provides an honest assessment of what changes — and what does not — when the trust is formed after a claim has arisen.

Funding

A Cook Islands trust can hold a wide range of assets, but the mechanics of transferring different asset types into the structure vary significantly.

Cash and securities are the most straightforward to transfer. The trust or its LLC opens an offshore bank or brokerage account, and assets are moved by wire transfer or account transfer. The bank accounts article and stocks and investments article cover the process.

Real estate cannot be moved offshore in the same way. If the trust holds U.S. real property, the land remains within the jurisdiction of U.S. courts, which limits the protection. The real estate article explains how practitioners structure real estate holdings for maximum protection.

LLC and business interests can be transferred by assigning membership interests to the trust. The LLC interests article addresses the mechanics and planning considerations.

Cryptocurrency presents unique custody, valuation, and compliance challenges. The cryptocurrency article covers how digital assets are held within a Cook Islands trust structure.

The funding guide provides an overview, the funding checklist offers a practical summary of what is required for each asset type, and the common funding errors article identifies the mistakes that most frequently compromise a trust’s protective value during the funding stage.

Cook Islands Trusts vs. Other Jurisdictions

The Cook Islands is not the only offshore trust jurisdiction, but it has the longest track record and the most developed body of case law. Other jurisdictions commonly compared to the Cook Islands include Nevis, Belize, the Bahamas, Cayman Islands, and Panama, as well as domestic asset protection trust states like Nevada, Delaware, and South Dakota.

The key advantage of the Cook Islands over other offshore jurisdictions is not any single statutory provision. Several jurisdictions have modeled their laws on the Cook Islands framework. The advantage is the combination of a tested legal framework, a robust trustee market with multiple licensed trust companies, a judiciary that has consistently upheld the ITA’s protective provisions, and more than three decades of real-world litigation outcomes that demonstrate how the system actually functions under pressure.

The comparison with domestic asset protection trusts is more fundamental. DAPTs operate within the U.S. legal system and remain subject to the Full Faith and Credit Clause, federal bankruptcy jurisdiction, and the enforcement powers of U.S. courts. A Cook Islands trust operates outside that system entirely. The comparisons section provides detailed side-by-side analyses, including Cook Islands vs. domestic asset protection trusts and comparisons with Nevis, Belize, Bahamas, Cayman Islands, and Panama.

Administration and Ongoing Management

A Cook Islands trust requires active administration throughout its life. The trustee monitors trust activity, maintains compliance files, files annual FATCA and CRS reports, and exercises its fiduciary duties under Cook Islands law. The settlor must coordinate with U.S. tax advisors to meet annual filing obligations and with the trustee to execute any transactions involving trust assets.

Common administrative issues — and the mistakes that undermine trust protection — are covered in the administration section, including articles on how the trustee company operates and common administration mistakes.

Frequently Asked Questions

Is a Cook Islands trust legal? Yes. Cook Islands trusts are legal for U.S. citizens when they are established for lawful purposes, administered by an independent trustee, and fully disclosed on required IRS filings.

Can a Cook Islands trust be broken? A Cook Islands trust can be challenged, but the statutory framework makes successful challenges extremely difficult. A creditor must litigate in the Cook Islands, meet the beyond-reasonable-doubt standard, and file within the statute of limitations. No creditor has successfully broken a Cook Islands trust through Cook Islands court proceedings. U.S. courts can, however, hold settlors in contempt for failing to comply with repatriation orders. The litigation section and case library analyze the case law in detail.

How much does a Cook Islands trust cost? First-year costs typically range from $20,000 to $30,000, including legal fees, trustee fees, and entity formation. Annual maintenance costs are $5,000 to $10,000. A complete breakdown is in the costs article.

Do Cook Islands trusts reduce taxes? No. For U.S. persons, Cook Islands trusts are tax-neutral. All income is reported on the settlor’s personal tax return.

How long does it take to set up a Cook Islands trust? Four to eight weeks for straightforward cases, eight to twelve weeks for complex structures. Banking onboarding is typically the longest stage. The setup process covers the full timeline.

Can I still access my money? In normal circumstances, the settlor can request distributions from the trustee or manage assets through the LLC. When litigation arises, the trust’s protective provisions may limit access, which is by design — the inability to direct assets is what protects them from creditor enforcement.

Who should consider a Cook Islands trust? Individuals with substantial non-exempt assets, elevated litigation exposure, and circumstances where domestic planning tools are insufficient. The who needs a Cook Islands trust article provides a detailed evaluation framework.