FBAR Requirements for Cook Islands Trusts

U.S. persons who establish or fund Cook Islands trusts must file FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, whenever the aggregate value of their foreign financial accounts exceeds $10,000 at any time during the calendar year. This obligation exists under the Bank Secrecy Act and is administered by the Financial Crimes Enforcement Network (FinCEN), not the IRS. It operates on a separate filing system, follows a separate deadline structure, and carries penalties that are among the most severe in federal law.

FBAR is not a tax form. It does not appear on a tax return and is not filed through the IRS e-file system. It is filed electronically through FinCEN’s BSA E-Filing System, a portal maintained by the U.S. Treasury Department. This distinction matters because many Cook Islands trust grantors who correctly file Forms 3520, 3520-A, and 8938 with their income tax returns still fail to file FBAR separately. That omission triggers penalties regardless of whether every other compliance obligation has been met.

The FBAR requirement applies to Cook Islands trust arrangements because the trust structure typically involves one or more foreign bank accounts, brokerage accounts, or investment accounts held by the Cook Islands trustee. These accounts are maintained at financial institutions located outside the United States, and the U.S. grantor is treated as having a financial interest in them under FinCEN’s regulations. A broader discussion of how FBAR fits within the full suite of Cook Islands trust compliance requirements is available in the compliance hub.

Who Must File

A “U.S. person” must file FBAR if they have a financial interest in or signature authority over foreign financial accounts with an aggregate maximum value exceeding $10,000 at any point during the calendar year. The term “U.S. person” includes U.S. citizens regardless of residence, U.S. resident aliens, and domestic legal entities such as partnerships, corporations, LLCs, trusts, and estates.

For Cook Islands trust purposes, the relevant filer is almost always the U.S. grantor. Cook Islands asset protection trusts are structured as foreign grantor trusts under IRC sections 671 through 679, which means the IRS treats the grantor as the owner of trust assets for federal tax purposes. That ownership interest creates a “financial interest” in the trust’s foreign accounts under FinCEN’s FBAR regulations, triggering the filing obligation.

The financial interest analysis under the FBAR rules is specific. A U.S. person has a financial interest in a foreign account when the owner of record or holder of legal title is a trust in which the U.S. person is the grantor and has an ownership interest for federal tax purposes. Because Cook Islands trusts are grantor trusts by design, this condition is satisfied in virtually every case. The grantor must file FBAR even though the Cook Islands trustee holds legal title to the accounts and the grantor has no direct ability to withdraw funds or instruct the bank.

Beneficiaries of Cook Islands trusts may also have FBAR obligations in limited circumstances. A beneficiary has a financial interest in trust accounts if the beneficiary has a greater than 50 percent present beneficial interest in the trust’s assets or income for the calendar year. Most Cook Islands trusts are fully discretionary, meaning distributions are at the trustee’s sole discretion and no beneficiary has a guaranteed present interest. In that structure, beneficiaries generally do not have an FBAR obligation unless they actually receive more than 50 percent of trust income or assets during the year.

What Triggers the $10,000 Threshold

The FBAR threshold is based on the aggregate maximum value of all foreign financial accounts in which the filer has a financial interest or signature authority during the calendar year. The word “aggregate” is important. The test is not whether any single account exceeds $10,000 but whether the combined peak values of all foreign accounts exceed $10,000.

Each account’s maximum value is determined independently. If one account peaks at $6,000 in March and another peaks at $5,000 in September, the aggregate is $11,000 and FBAR is required, even though neither account individually exceeded $10,000 and the combined balance at any single point in time may never have reached $10,000.

For Cook Islands trusts, the threshold is almost always met. The typical trust holds several hundred thousand dollars or more in foreign accounts, and the $10,000 threshold is triggered immediately upon funding. The threshold analysis is largely academic for most Cook Islands trust grantors, but understanding the mechanics matters because the same grantor may have other foreign accounts (a personal foreign bank account, for example) that must be included in the aggregate calculation.

Foreign financial accounts include bank accounts, securities accounts, brokerage accounts, mutual funds, and certain insurance policies or annuities with cash value. Accounts at financial institutions located anywhere outside the United States qualify, including accounts in the Cook Islands, New Zealand, Singapore, Hong Kong, and any other jurisdiction where the trustee or an affiliated custodian may hold assets.

What Must Be Reported on the Form

FinCEN Form 114 requires detailed information about each foreign financial account. The filer must report the name and address of the financial institution maintaining the account, the account number, the type of account (bank, securities, or other), and the maximum value of the account during the calendar year.

For accounts denominated in foreign currency, the filer must convert the maximum value to U.S. dollars. FinCEN requires use of the Treasury’s Bureau of the Fiscal Service year-end exchange rate for the reporting year. This rate applies even if the account peaked at a different time during the year when the exchange rate was different. If the Treasury’s rate is unavailable for a particular currency, the filer may use another verifiable exchange rate and identify the source.

Maximum value is determined from periodic account statements. The filer reviews each statement issued during the year and reports the highest balance shown on any statement. If statements are issued monthly, the filer reviews all twelve and selects the highest figure. If the account peaked between statement dates, a reasonable good-faith estimate based on available information is acceptable.

Each account is reported separately. A Cook Islands trust that owns a bank account and a brokerage account at different institutions requires two separate account entries. If the trustee holds accounts at multiple banks or custodians across several jurisdictions, each account appears as its own line item on the form. The filer must also indicate the basis for reporting, specifically whether they hold a financial interest, signature authority, or both.

Filing Mechanics

FBAR is filed electronically through FinCEN’s BSA E-Filing System. There is no paper filing option. Individuals may file directly through the system without registering for an account. Tax professionals filing on behalf of clients must register as institutions with the BSA E-Filing System, which requires a separate registration process.

If a third party files FBAR on the filer’s behalf, the filer must complete FinCEN Report 114a, the Record of Authorization to Electronically File FBARs. This authorization form is not submitted to FinCEN. The filer retains it in their records and makes it available upon request.

FBAR is not filed with the IRS. It is not attached to a tax return. It does not go to the same address or through the same electronic system as any IRS form. This separation is the single most common source of compliance failure for Cook Islands trust grantors, because CPAs preparing tax returns sometimes assume that filing Forms 3520, 3520-A, and 8938 covers all foreign account reporting. It does not. FBAR is a separate obligation to a separate agency through a separate system, and both the grantor and the CPA should confirm each year that it has been filed.

Deadline and Extension

FBAR is due April 15 following the calendar year being reported. An automatic extension to October 15 is available to all filers without any request or application. No form needs to be filed to obtain this extension. If the filer misses April 15, they have until October 15 to file without penalty. No extension beyond October 15 is available under any circumstances.

The FBAR deadline operates independently from income tax return deadlines. Obtaining a six-month tax return extension has no effect on the FBAR deadline, and the automatic FBAR extension to October 15 has no connection to any tax filing extension. In practice, many CPAs file FBAR concurrently with the tax return, which is a reasonable approach as long as the CPA has confirmed that the BSA E-Filing submission was actually completed.

Penalties

FBAR penalties are structured in two tiers based on willfulness, and the Supreme Court’s 2023 decision in Bittner v. United States clarified how penalties are calculated for non-willful violations.

For non-willful violations, civil penalties reach up to $10,000 per violation, adjusted annually for inflation (approximately $16,500 as of 2025). Prior to Bittner, the IRS sometimes calculated non-willful penalties on a per-account basis, which could produce enormous liability for filers with multiple accounts. The Supreme Court held in Bittner that non-willful penalties apply per report (per unfiled FBAR), not per account. A person who fails to file a single FBAR that should have reported ten accounts faces one penalty, not ten. This ruling substantially reduced exposure for non-willful violators with multiple accounts.

For willful violations, the calculus is far harsher. Civil penalties for willful violations reach the greater of $100,000 or 50 percent of the account balance at the time of the violation, and courts have held that willfulness includes not only knowing violations but also reckless disregard of the filing obligation. Willful penalties are calculated per account, not per report, and can be applied for each year of non-compliance. A person with $500,000 in unreported foreign accounts who willfully fails to file for three years faces potential penalties of $750,000 (50 percent of $500,000 for each year), which exceeds the account balance itself.

Criminal penalties are also available for willful FBAR violations. Conviction can result in fines up to $250,000 and imprisonment up to five years, or up to $500,000 and ten years if the violation is combined with other offenses.

The IRS retains discretion to reduce or waive penalties based on the circumstances, and reasonable cause is a recognized defense against non-willful penalties. However, the standard for reasonable cause is demanding, and the IRS does not routinely waive penalties for filers who simply forgot about the requirement.

FBAR Compared to Form 8938

Cook Islands trust grantors frequently must file both FBAR and Form 8938 (Statement of Specified Foreign Financial Assets under FATCA), and the two forms are often confused because they cover overlapping information. They are nonetheless separate obligations with different rules.

FBAR is filed with FinCEN through the BSA E-Filing System. Form 8938 is filed with the IRS as an attachment to the income tax return. FBAR uses a $10,000 aggregate threshold. Form 8938 uses higher thresholds that vary by filing status and residence: $50,000 on the last day of the tax year or $75,000 at any point during the year for single domestic filers, with higher thresholds for married joint filers and taxpayers living abroad.

FBAR covers foreign financial accounts specifically. Form 8938 covers a broader category of “specified foreign financial assets,” which includes foreign financial accounts but also interests in foreign entities, foreign stock or securities not held in a financial account, and foreign financial instruments or contracts.

The penalties differ as well. FBAR non-willful penalties are approximately $16,500 per violation; Form 8938 penalties start at $10,000 with increases for continued non-filing after IRS notice. More significantly, failure to file Form 8938 suspends the statute of limitations on the entire tax return, meaning the IRS can audit any aspect of the return without any time limitation. FBAR violations do not affect the tax return statute of limitations but carry the risk of the 50-percent willful penalty.

Because the reporting thresholds differ, some filers must file FBAR but not Form 8938 (when aggregate foreign accounts exceed $10,000 but total specified foreign assets fall below the Form 8938 threshold), and in rare cases, a filer may owe Form 8938 for non-account foreign assets without owing FBAR. Most Cook Islands trust grantors exceed both thresholds and must file both forms. Detailed guidance on Form 8938 and other IRS reporting obligations is available in the IRS tax reporting requirements article.

Grantor Trust Reporting Considerations

The grantor trust structure that defines Cook Islands asset protection trusts creates a specific FBAR reporting framework. Because the grantor is treated as the owner of trust assets for U.S. tax purposes under IRC sections 671 through 679, the grantor has a “financial interest” in all foreign accounts held by the trust. The grantor reports these accounts on the grantor’s personal FBAR.

This remains true even though the grantor has no legal title to the accounts, no signatory authority at the bank, and no ability to withdraw funds without the trustee’s cooperation. The FBAR financial interest rules look through the trust to the grantor’s tax ownership, not to the grantor’s practical control over the accounts. The distinction between tax ownership and legal control is central to how Cook Islands trusts work for asset protection purposes, and it is also central to understanding why the grantor must file FBAR.

When the trustee is a Cook Islands entity (as required under Cook Islands law), the trust itself is a foreign entity. The trust may or may not have its own FBAR filing obligation depending on whether it qualifies as a “U.S. person” for FBAR purposes. Cook Islands trusts generally are not U.S. persons because they are formed and administered under Cook Islands law. However, the grantor’s obligation to report trust accounts on the grantor’s personal FBAR exists regardless of whether the trust files its own FBAR.

If the trust structure includes a Nevis LLC owned by the trust that holds the foreign accounts, the analysis adds a layer. The grantor’s financial interest passes through the trust to the LLC and ultimately to the accounts. FinCEN’s regulations attribute financial interest through entities where ownership exceeds 50 percent. Since the trust owns 100 percent of the LLC and the grantor is treated as owning the trust for tax purposes, the grantor must report the LLC’s foreign accounts on the grantor’s FBAR as well.

Delinquent Filing and Remediation

Filers who discover they have failed to file FBAR for prior years have several options, and the approach depends on whether the failure was willful and whether the IRS has already initiated contact.

If the IRS has not contacted the filer and no examination or investigation is pending, the filer may submit delinquent FBARs through FinCEN’s BSA E-Filing System with a statement explaining the reason for late filing. FinCEN’s instructions allow late filing with an explanation, and the IRS has stated that filers who submit delinquent FBARs before being contacted will not be subject to penalties if they properly reported all income from the foreign accounts on their tax returns and were not previously contacted about the delinquent FBARs.

For filers who also have unreported income or other delinquent international information returns, the IRS offers the Streamlined Filing Compliance Procedures. The streamlined domestic offshore procedures require a 5 percent miscellaneous offshore penalty on the highest aggregate balance of unreported foreign financial assets during the compliance period. The streamlined foreign offshore procedures, available to filers who qualify as non-residents, impose no offshore penalty. Both programs require certification that the failure was non-willful.

For filers whose violations are willful or who face potential criminal exposure, the IRS Voluntary Disclosure Program (VDP) provides a structured path to compliance with reduced risk of criminal prosecution, though civil penalties remain substantial. The VDP is appropriate when the failure involves intentional concealment or when the filer cannot credibly certify non-willfulness.

Regardless of the remediation path, delinquent filers should work with a tax professional experienced in offshore compliance before submitting any filings. The choice of program and the content of any narrative statements can significantly affect penalty outcomes.

Common Mistakes

Several patterns of error appear repeatedly in Cook Islands trust FBAR compliance.

The most frequent mistake is filing all IRS forms correctly while neglecting FBAR entirely. Because FBAR uses a different filing system and a different agency, it falls outside the normal tax preparation workflow. CPAs who prepare Forms 3520, 3520-A, and 8938 may not handle FBAR filing, and clients who assume their CPA covers everything may discover years later that FBAR was never filed. The simplest safeguard is an explicit annual confirmation between the grantor and the CPA that FBAR has been submitted through the BSA E-Filing System.

A second common mistake involves underreporting maximum account values. FBAR requires the highest balance during the year, not the year-end balance. An account that held $2 million in June but only $500,000 on December 31 must be reported at $2 million. Filers who rely on year-end statements alone may substantially understate the reportable value.

A third pattern involves failing to report all accounts. If the Cook Islands trustee holds accounts at multiple institutions, or if the trust owns a Nevis LLC that maintains its own accounts at a separate bank, each account must be reported individually. Filers sometimes report only the primary account and overlook subsidiary or secondary accounts held by entities within the trust structure.

Finally, some filers assume that because the trustee controls the accounts and the grantor cannot access them directly, no FBAR obligation exists. This is incorrect. FBAR financial interest is based on tax ownership through the grantor trust rules, not on practical control or signatory authority. The grantor’s inability to access trust accounts is precisely the feature that provides asset protection, but it does not eliminate the reporting obligation.

Coordination with Tax Professionals

FBAR compliance for Cook Islands trusts requires coordination among the grantor, the Cook Islands trustee, and the U.S. tax professional. The compliance requirements article outlines how these parties coordinate across all reporting obligations, including FBAR.

The trustee provides account statements and year-end balance confirmations that the CPA uses to prepare FBAR. Because Cook Islands trust companies operate in different time zones and follow different business calendars, requesting documentation early in the year (January or February) avoids delays that could jeopardize filing deadlines.

The CPA should confirm whether they will file FBAR on the grantor’s behalf or whether the grantor is expected to file independently. If the CPA files, they must be registered with the BSA E-Filing System as an institution filer, and the grantor must complete FinCEN Report 114a authorizing the electronic filing. If the grantor files independently, the CPA should provide the account information in a format the grantor can use to complete the form.

Annual compliance costs for Cook Islands trusts typically include FBAR preparation as part of the broader reporting package, though some CPAs charge separately for FBAR filing. Regardless of how the fee is structured, both the grantor and the CPA should treat FBAR as a discrete compliance item that must be confirmed as complete each year rather than assumed to be included in the tax return preparation.

For comprehensive information about Cook Islands trust structure, formation, and administration, return to the Cook Islands trust overview.