Cook Islands Trust
A Cook Islands trust allows a person to completely protect their assets from domestic creditors. The Cook Islands is widely considered to be the best country to set up an offshore trust. The Cook Islands are made up of 15 islands located in the South Pacific (same time zone as Hawaii).
A Cook Islands trust must have a trustee located in the Cook Islands. Cook Islands trust companies are licensed and regulated by the Cook Islands government. Cook Islands law imposes strict procedures and qualifications on Cook Islands trust companies.
The Cook Islands were the first jurisdiction that enacted 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. 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.
Understanding Cook Islands Trusts
The most well-known version of an offshore trust is the Cook Islands asset protection trust. The use of offshore trusts began in the Cook Islands in the 1980s and 1990s after the Cook Islands developed an extensive statutory framework to protect trust assets from creditors. Since then, other jurisdictions, such as Nevis, Belize, and the Bahamas, have enacted similar statutes.
A Cook Islands asset protection trust involves unrelated third parties serving as trustees, trust advisers, or trust protectors. The trustee has the responsibility and the trust powers to administer the offshore trust and its assets, but they have no beneficial interest in trust property. A trust protector can be given the power to change trustees, reallocate beneficial interests, or direct the investment of trust assets. Advisors may be foreign or U.S. persons with the authority to direct the investment of trust assets.
A Cook Islands trust protects a U.S. debtor’s assets from U.S. civil judgments primarily because the trust’s assets and its trustee are situated beyond the legal reach of U.S. state and federal civil courts. U.S. judges have no authority to compel an offshore trustee to take any action with trust assets. Creditors do not have legal means to levy upon or interfere with administering an offshore trust’s assets.
To levy or garnish assets placed inside a Cook Islands trust, a U.S. judgment creditor must re-litigate the underlying U.S. lawsuit in the foreign courts and obtain a new foreign judgment. This is difficult, expensive, and rarely done.
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Cook Islands Trust Advantages
The Cook Islands are well-regarded as the premier location to set up an offshore trust. As one of the original countries with favorable offshore trust laws, the Cook Islands have a long history of court decisions upholding the protection afforded by its trusts. The most important benefits of a Cook Islands trust include the following:
- Transfers into a Cook Islands trust made more than two years after a creditor’s cause of action has accrued are fully protected.
- A creditor must file a lawsuit within one year from the time the cause of action accrues if the assets are transferred into the trust within two years from the date the cause of action accrues.
- Fraudulent transfer claims cannot be brought in the U.S. The creditor must file the action into the Cook Islands, which is very expensive and burdensome for a U.S. creditor.
- Even if a creditor can bring a fraudulent transfer claim, it is difficult to succeed. They must prove beyond a reasonable doubt that the transfer was made with the intent to defraud that particular creditor and that the transfer left the debtor insolvent.

How to Set Up a Cook Islands Trust
Establishing a Cook Islands trust requires a series of steps, usually with hiring a U.S. attorney specializing in offshore trust formation. While the process may vary slightly depending on specific circumstances, here’s a general step-by-step guide:
- Choose a Trustee Company. The choice of trustee company is the most important step in the Cook Islands formation process. The trustee must be a licensed trust company in the Cook Islands.
- Background Check. Your attorney will assist you in completing the trust application. The trust company must complete a background check and will need to know the source of the wealth being used to fund the trust.
- Prepare Trust Agreement. Your attorney will prepare the trust agreement. This document outlines the terms of the trust and identifies the Settlor (the person creating and funding the trust), the Beneficiaries (those who will benefit from the trust), and the Trustee trust company.
- Decide on a Protector. The Settlor can optionally appoint a Trust Protector, who is given certain powers over the trust and can be a useful safeguard. The trust protector should not be located in the United States.
- Transfer Assets. Once the trust is registered, you will work with the trustee company to transfer assets into the trust. This can include cash, securities, or even business interests.

How a Cook Islands Trust Works
A Cook Islands trust, also known as an international or offshore trust, is a type of legal arrangement that allows individuals or corporations to protect their assets from creditors, lawsuits, or other potential financial threats. This form of trust is established under the laws of the Cook Islands, a South Pacific nation that has developed a specific legal framework favorable for these types of asset protection mechanisms.
The basic structure of a Cook Islands trust involves three parties:
- The Settlor: This is the person or entity that establishes the trust by transferring assets to it.
- The Trustee: This is a person or corporation located in the Cook Islands that holds and manages the trust assets according to the terms of the trust deed. They have a legal duty to act in the best interests of the beneficiaries.
- The Beneficiaries: These are the individuals or entities that receive the benefit of the trust, as determined by the settlor. Most often, the settlor is the primary or only beneficiary.
Should the settlor find themselves under legal duress from a domestic creditor, the trustee of the Cook Islands trust would withhold distributions until the trustee is satisfied that any distribution made would not benefit the creditor.
Example of Cook Islands Trust Formation
Imagine John, a successful real estate developer in the US, concerned about the potential for future creditor claims arising from his line of work. After discussing his situation with a legal advisor, John decides to establish a Cook Islands trust.
John transfers a significant portion of his assets into the trust, which includes various investments and cash. He names himself as primary beneficiary of the trust. Upon his death, his wife and children will become the successor beneficiaries.
A few years later, John is hit with a lawsuit from a construction company claiming breach of contract and demanding a significant amount in damages. Even if the lawsuit is successful, the assets that John placed in the Cook Islands trust are out of reach from this creditor, ensuring his family’s financial stability remains intact.
Disadvantages of a Cook Islands Trust
Trusts established in the Cook Islands are renowned for their asset protection. The Cook Islands have developed a trust law framework that provides strong privacy protections and resiliency against claims from creditors, divorcing spouses, and others. While such trusts have many advantages, several potential drawbacks must be considered.
First, establishing and maintaining a Cook Islands trust is often more costly than trusts set up in other jurisdictions. The offshore trust industry in the Cook Islands is heavily regulated and requires skilled professionals to navigate, resulting in higher costs for legal advice, trustee services, and administrative expenses. Furthermore, regular audits and updates may be needed to maintain compliance with Cook Islands legislation and international standards. Consequently, the financial burden may be prohibitive for individuals and entities with more modest assets.
Secondly, there is the issue of control. In a Cook Islands trust structure, the settlor must give up control of the assets to an offshore trustee, often a licensed trust company. Although this transfer of control is central to the protection offered by the trust, it may be uncomfortable for many settlors who are accustomed to managing their wealth. Moreover, the reliance on foreign trustees presents the risk of potential mismanagement or misconduct, despite the rigorous regulation of the trust industry in the Cook Islands. Picking the right trustee is therefore critical in the Cook Islands trust formation process.
Third, given the international nature of such trusts, clients may face potential difficulties in managing and accessing the trust assets. While the Cook Islands’ legal framework is designed to insulate trust assets from claims, this can complicate matters for the trust settlors and beneficiaries.
Finally, the evolving landscape of global financial regulation can present potential challenges. The increasing push for transparency and the crackdown on illicit wealth might threaten the confidentiality and asset protection offered by Cook Islands trusts. Laws like the U.S. Foreign Account Tax Compliance Act (FATCA) and global initiatives led by the Organisation for Economic Co-operation and Development (OECD) are increasing the pressure on offshore financial centers to share more information. Consequently, the attractive features of Cook Islands trusts today might not be as effective in the future, depending on the evolving global regulatory environment.

Cook Islands Trust Taxation
Taxation is a crucial topic for those planning to establish a Cook Islands trust. Though Cook Islands trusts are generally structured for asset protection rather than tax avoidance, they still hold implications for the settlor’s and beneficiaries’ tax situations.
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. However, this does not mean trusts are entirely free from tax liabilities. The tax obligations arising in the jurisdiction of the settlor or beneficiaries can significantly impact the overall effectiveness of a Cook Islands trust.
In many jurisdictions, for example, settlors are often subject to taxes on the trust income, irrespective of their control over the assets. This is particularly true for settlors living in countries with a worldwide taxation system, such as the United States. U.S. citizens and residents are taxed on their global income, including income generated by offshore trusts. In such circumstances, establishing a Cook Islands trust does not absolve the settlor from their tax obligations at home.
Similarly, beneficiaries may also be taxed on the distributions they receive from the trust. This can lead to double taxation when the settlor has already been taxed on the trust income. Some jurisdictions provide tax credits or exemptions for trust distributions, but this is not universally true.
Moreover, many jurisdictions have specific rules for offshore trusts to discourage tax avoidance. For instance, some countries treat distributions from offshore trusts as taxable income, even if they stem from the principal. Others employ anti-avoidance measures that can tax undistributed income in an offshore trust. The risk of becoming subject to a controlled foreign corporation (CFC) or similar rules can lead to unintended tax liabilities.
Finally, the global push for financial transparency heightens the tax risks associated with Cook Islands trusts. International initiatives, such as the OECD’s Common Reporting Standard (CRS), mandate the automatic exchange of financial account information. As a result, offshore trust structures are increasingly visible to tax authorities worldwide, raising the stakes for compliance with tax obligations.
In summary, while Cook Islands trusts may be free from local taxes, the tax implications in the settlor’s or beneficiaries’ home jurisdictions are a significant concern. Therefore, obtaining professional tax advice is critical when considering a Cook Islands trust. Any failure to properly account for these tax issues can lead to substantial penalties and undermine the benefits of the trust structure.
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. Establishing a bank account in another jurisdiction is also possible. 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.
Fraudulent Transfers
Cook Islands law puts the burden of proof on the creditor to demonstrate beyond a reasonable doubt (the highest standard of proof) that the settlor transferred assets into the trust with the explicit intent to defraud that specific creditor. Moreover, the claim must be brought within a specified time frame, typically within two years of the alleged fraudulent transfer. This is a far more protective stance than many other jurisdictions, which may use a lower standard of proof and allow claims to be brought for a longer period after the transfer.
Is a Cook Islands Trust Worth It?
A Cook Islands trust can be extremely worthwhile for those seeking a high level of asset protection. A Cook Islands trust structure effectively shelters trust assets from future creditors, claims from a divorced spouse, and other legal judgments.
Moreover, the Cook Islands does not recognize foreign judgments, adding a significant protection layer for trust assets. For people facing potential significant liability, such as professionals in high-risk sectors, or those with a high net worth who want to protect their assets from future unforeseen threats, a Cook Islands trust can be a powerful tool.
FAQs About Cook Islands Trusts
How much does a Cook Islands trust cost?
Forming a Cook Islands trust will typically cost between $15,000 and $35,000. The trustee company will also charge an initial formation fee and annual registration fees. A Cook Islands trust with more customized provisions, such as having a trust protector or estate planning features, may cost more.
Is a Cook Islands trust legal?
A Cook Islands trust is a legal way for a judgment debtor to protect assets from domestic creditors. Assets transferred to a Cook Islands trust are almost completely immune from creditor attack. While transfers to the trust are still subject to fraudulent conveyance analysis, it may be practically difficult for a judgment creditor to assert such a claim.
What is the best country to set up a trust?
Many asset protection attorneys consider the Cook Islands to be the best jurisdiction to establish a Cook Islands trust.
About the Author
Jon Alper is an expert in offshore asset protection planning for high-net-worth individuals.

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