Pros and Cons of Cook Islands Trusts: 2026 Legal Guide

What Is a Cook Islands Trust?

A Cook Islands trust is a legal structure that allows a person to shield their assets from lawsuits and judgment creditors. It moves your 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.

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

Advantages of Cook Islands Trusts

There are five key advantages of Cook Islands trusts:

1. Non-Recognition of Foreign Judgments

The Cook Islands does not recognize U.S. court judgments. If a creditor wins a lawsuit against you, the judgment is not enforceable in the Cook Islands. The creditor must start a brand new lawsuit in the Cook Islands courts.

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

2. Short Statute of Limitations for Fraudulent Transfers

If you transfer assets into a Cook Islands trust, a creditor has a very short window to file a fraudulent transfer claim:

• 2 years from the date of transfer.
• 1 year from the date the lawsuit cause of action arose (if the transfer happened within that 2-year window).

Once this time expires, the creditor cannot successfully unwind a fraudulent conveyance in the Cook Islands.

3. Burden of Proof

To win a fraudulent transfer claim in the Cook Islands, a creditor must prove its claim beyond a reasonable doubt (criminal standard). In the U.S., they only need a “preponderance of the evidence” (51% certainty).

This makes it very difficult for creditors to win.

4. Immunity to U.S. Public Policy Concerns

With a domestic trust (e.g. Nevada or Wyoming), a judge in your home state might rule that your trust is invalid because it violates your home state’s public policy.

A Cook Islands judge does not care about U.S. public policy. They only follow Cook Islands law, which is specifically written to protect the Trust.

5. Proven Track Record

The Cook Islands was one of the first nations to enact debtor-friendly trust laws. Because they have been doing this for decades, there is a long history of court decisions upholding these trusts.

Example Cook Islands Trust Plan

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 a licensed and insured company in the Cook Islands that holds and manages the trust assets according to the terms of the trust agreement. 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.

The trust functions as a holding company that owns liquid assets and business entities. These entities can own other income-producing assets, such as domestic real estate LLCs and other operating companies.

This structure allows for a balance of protection and control. While the trust owns the assets, you can remain the manager of the underlying subsidiary companies. This allows you to manage your assets day to day.

However, should you face legal duress, the foreign trustee has the power to step in and protect the assets.

Disadvantages of Cook Islands Trusts

There are three main disadvantages to forming a Cook Islands trust.

1. 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.
2. 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.
3. Regulations and compliance. Trust beneficiaries must handle reporting such as Forms 3520/3520-A and FBAR filings.

2026 Update

For 2026, the Cook Islands remains the most popular jurisdiction to set up an offshore trust. To date, very few creditors have ever succeeded in collecting from a Cook Islands trust.

Cook Islands trustee companies have been expanding international banking and investment options for people needing ot protect liquid assets.

Continuing into 2026, trustee companies are also offering more comprehensive options to protect cryptocurrency and other digital assets.

How to Set Up a Cook Islands Trust

To set up a Cook Islands trust, you must (1) choose a trust company, (2) complete due diligence, (3) sign the trust agreement, and (4) fund the trust.

1. Choose a Trustee

You cannot be your own Trustee. You must hire a licensed trust company in the Cook Islands. They are regulated by the government and carry insurance.

2. Due Diligence (KYC)

Because of anti-money laundering laws, the Trustee will run a deep background check on you. You must provide a passport copy, proof of address, and proof of source of funds.

3. Draft the Trust Agreement

Your U.S. attorney drafts the trust agreement. This document defines the beneficiaries and includes a duress clause, which says the Trustee must ignore your instructions if you are acting under court order (duress).

4. Fund the Trust

You will then open a bank account in the name of the trust. This account is typically opened in the Cook Islands, Switzerland, or Panama. You can transfer your liquid assets (cash, stocks, crypto) into this account.

How Much Does a Cook Islands Trust Cost?

The setup cost for a Cook Islands trust is about $20,000. This includes legal fees, trustee fees, and banking setup.

Annual trustee fees are about $5,000, which should be paid to the trustee.

CPAs charge about $1,500 to file annual information returns for Cook Islands trusts.

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.

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.

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 coordination with income tax reporting and may require disclosures of foreign bank accounts through FBAR or FATCA regulations.

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.

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.

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 3-4 weeks to establish a Cook Islands trust.