Who Needs a Cook Islands Trust?

A Cook Islands trust is not a general-purpose planning tool. It is expensive to establish, adds ongoing compliance obligations, and introduces administrative complexity that simpler structures avoid. The question is not whether it provides strong protection—it does—but whether a particular person’s situation justifies that cost and complexity over domestic alternatives.

The Evaluation Framework

Three factors determine whether a Cook Islands trust makes sense: litigation exposure, asset vulnerability, and the inadequacy of domestic alternatives.

Litigation exposure means the likelihood that a significant claim will be brought against the person in the future. “Significant” matters here. Everyone faces some theoretical risk of being sued. A Cook Islands trust is designed for people whose professional activities, business operations, or personal circumstances create a materially elevated probability of large claims—claims that could exceed insurance coverage and threaten accumulated wealth.

Asset vulnerability refers to how much of the person’s wealth is exposed to creditor collection if a judgment is entered. Assets already protected by state exemptions (homestead property in Florida, qualified retirement accounts under federal law, exempt life insurance and annuity values) do not need offshore protection. The relevant figure is the value of non-exempt assets at risk, not total net worth.

Domestic inadequacy is the final filter. If a domestic asset protection trust, family limited partnership, or state exemption strategy can achieve comparable protection, the additional cost and complexity of a Cook Islands trust is not justified. Cook Islands planning typically enters the picture only after domestic options have been evaluated and found insufficient for the level of exposure involved.

All three factors must be present. High litigation exposure with few non-exempt assets does not justify the structure. Substantial non-exempt assets with low litigation exposure do not either. And if domestic tools adequately address the risk, offshore planning adds cost without proportional benefit.

Profiles Where the Structure Fits

Certain professional and business profiles consistently satisfy all three criteria.

Physicians and surgeons face uncapped malpractice exposure in most states. Insurance provides a layer of protection, but policy limits do not always match the size of potential verdicts, and some claims fall outside coverage. A physician with significant non-exempt savings and investments accumulated over a long career faces a specific, recurring risk that domestic planning tools may not fully address. This is particularly acute for physicians approaching retirement who will lose their malpractice tail coverage and no longer carry active policies.

Real estate developers and investors face liability from construction defects, environmental claims, personal injury on properties, and guarantees on commercial loans. The nature of real estate development means that claims often arise years after a project is completed, making the exposure difficult to insure against comprehensively. Developers with substantial liquid assets outside their real estate holdings are common candidates.

Business owners giving vendor warranties in connection with a sale face a specific, time-limited but potentially large exposure. More than half of business sales lead to post-closing litigation based on representations and warranties. A seller who receives a large cash payment and faces a warranty period of two to five years has a defined window during which a substantial claim could consume the sale proceeds. For sellers whose post-sale wealth is concentrated in the proceeds, the risk-to-asset ratio is high.

Executives and officers of companies in heavily regulated or litigious industries face personal liability exposure that may not be fully covered by D&O insurance. This is especially relevant for officers of companies in financial services, healthcare, or technology sectors where regulatory enforcement actions can target individuals.

High-net-worth individuals in litigious professions or personal circumstances sometimes face exposure that is not tied to a single professional activity. A person involved in multiple business ventures, real estate holdings, and personal guarantees may have cumulative exposure that exceeds what any single insurance policy or domestic structure can address.

Who Does Not Need One

A Cook Islands trust is not appropriate for people with modest non-exempt assets, even if their litigation exposure is elevated. If total non-exempt assets are under $1 million, the cost of establishing and maintaining an offshore trust (typically $20,000 to $30,000 in the first year and $5,000 to $10,000 annually thereafter) consumes a disproportionate share of the assets being protected. Domestic tools are almost always more cost-effective at this level.

It is also not appropriate for people with low litigation exposure regardless of net worth. A retiree with $5 million in savings, no active business interests, and no foreseeable creditor claims does not need offshore protection. The assets may be substantial, but the risk does not justify the structure.

People facing active lawsuits or imminent claims should not establish a Cook Islands trust as a response to existing litigation. The trust’s protective provisions are designed to address future creditors, not to shield assets from claims that have already materialized. Transferring assets to a Cook Islands trust after a claim has arisen or is reasonably foreseeable creates serious fraudulent transfer risk under both U.S. and Cook Islands law. The application process article discusses the timing considerations involved in trust formation.

People who want tax benefits will not find them here. A Cook Islands trust is tax-neutral for U.S. persons. It is treated as a foreign grantor trust, and all income flows through to the settlor’s personal return. It creates additional reporting obligations but no tax savings. Anyone promising tax advantages from a Cook Islands trust is either mistaken or dishonest.

The Cost-Benefit Calculation

The practical question is whether the cost of the structure is proportional to the risk it addresses. A physician with $3 million in non-exempt assets practicing in a state with uncapped malpractice damages faces a quantifiable risk. If a single adverse verdict could consume most of that wealth, the $20,000 to $30,000 setup cost and ongoing maintenance fees represent a reasonable cost relative to what is being protected. The costs article provides a complete breakdown of expected expenses.

Conversely, a business consultant with $500,000 in non-exempt assets and standard professional liability insurance is unlikely to face a claim that both exceeds insurance coverage and threatens accumulated savings. Domestic planning—properly titled assets, state exemptions, an umbrella policy—addresses the realistic risk at a fraction of the cost.

The decision is ultimately about proportionality. A Cook Islands trust is a sophisticated, expensive tool that provides protection no domestic structure can match. That protection has value only when the risk justifies it.

For a comprehensive overview of how Cook Islands trusts work, return to the Cook Islands trust overview.