The New York Times published an article this past weekend regarding Cook Islands asset protection trusts. The article suggested that these offshore trust provide excellent protection for even the most egregious debtors.
Cook Island trust, and trust formed in other favorable jurisdictions, do provide effective asset protection in many cases. The article did not mention the type of situations where the Cook Island trust would be less effective. For example, the article did not address the issue of fraudulent transfers of U.S. assets to offshore trusts.
The Cook Islands has a two year statute of limitations on fraudulent transfers compared to Florida’s four year statute. If a debtor moves money to the Cook Islands within two years of a judgment the transfer is subject to attack as a reversible fraudulent transfer. In that event a U.S. court could order the debtor to bring back the money fraudulently conveyed and subject the debtor to contempt sanctions is he does not comply.
Additionally, offshore trusts are less effective in bankruptcy proceedings because U.S. bankruptcy courts have worldwide jurisdiction. A U.S. bankruptcy trustee could either pursue the debtor’s assets in the Cook Islands or more likely have the bankruptcy court to order the bankruptcy debtor to take necessary steps to turn over trust assets to the bankruptcy estate.
A Cook Island trust will make collection more difficult for U.S. civil creditors but it is not unconditionally effective as it was portrayed in the article.
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