Transferring Real Estate to Cook Islands Trusts

Real estate cannot practically be titled directly in Cook Islands trustees’ names due to deed recording complications, title insurance issues, mortgage concerns, and jurisdictional exposure. The standard approach uses domestic LLCs as intermediary entities: the LLC holds title to the real property, and the Cook Islands trust owns the LLC membership interest.

This layered structure provides combined protection—creditors must reach the LLC interest from the offshore trust, then overcome LLC charging order limitations—while keeping property titled domestically and allowing the grantor to continue managing the property.

Why Use the LLC Structure

Direct transfers of U.S. real estate to Cook Islands trustees create several problems:

County recorders and title companies are unfamiliar with foreign trustees and may refuse or delay deed recording. Title insurance companies often won’t insure properties owned by offshore trustees.

Mortgage due-on-sale clauses typically allow lenders to demand immediate repayment when property ownership changes. Lenders are more likely to enforce these provisions for transfers to offshore trustees than for transfers to domestic LLCs.

Property ownership subjects the owner to court jurisdiction where the property is located. Cook Islands trustees holding direct title to Florida real estate become subject to Florida court jurisdiction, undermining the jurisdictional independence offshore trusts provide.

The LLC structure solves these problems: property stays titled domestically, the Cook Islands trustee never appears on deeds, and the grantor can continue managing as the LLC’s appointed manager.

Basic Implementation Steps

Step 1: Form domestic LLC in the state where the property is located. File articles of organization and prepare an operating agreement. The grantor is the initial LLC member.

Step 2: Transfer property to LLC by executing and recording a deed from grantor to the LLC. Notify the mortgage lender if the property is financed—most lenders consent to transfers to single-member LLCs owned by the borrower.

Step 3: Transfer LLC membership interest to the trust by executing an assignment of membership interests and amending the operating agreement to show the trust as member. See transferring LLC interests for detailed procedures.

Step 4: Establish a management structure allowing the grantor to continue managing the property as the LLC’s appointed manager while the trust owns the membership interest.

The result: the LLC holds title to real estate, the trust owns the LLC, and the grantor manages day-to-day operations.

Management After Transfer

The LLC operating agreement should distinguish between member rights (held by the trust) and manager authority (exercised by the grantor).

The trust as member:

• Receives LLC profit distributions
• Approves major decisions (selling property, refinancing)
• Appoints or removes managers

The grantor as manager:

• Handles day-to-day property management
• Collects rent and pays expenses
• Maintains the property and deals with tenants

This separation preserves the grantor’s practical control while maintaining the legal separation between grantor and trust essential for asset protection.

Rental income should flow through proper channels: LLC distributes to trust, trust distributes to grantor. Avoid treating LLC rental income as personal funds without formal distribution procedures—this commingling undermines asset protection.

Multiple Properties: Single LLC or Separate LLCs?

Single LLC for all properties:

• Lower formation and annual costs
• Simpler administration
• But: liability from one property affects all properties

Separate LLC per property:

• Liability isolation between properties
• Creditors can only reach distributions from the specific LLC
• But: higher costs and more complex administration

High-value properties or properties with elevated liability risks (commercial, properties with pools, multi-family) often justify separate LLCs. Multiple lower-value residential rentals may be combined in a single LLC.

Homestead Property

Primary residences in states with homestead exemptions (particularly Florida’s unlimited homestead) should generally remain outside Cook Islands trusts. Transferring homestead property to LLCs eliminates homestead protection that’s often more valuable than offshore protection.

Keep primary residences titled personally and rely on homestead exemptions for protection. Focus on offshore structures for investment real estate, vacation properties, and rental properties that don’t qualify for homestead.

Mortgage Considerations

If the property is mortgaged, review loan documents for due-on-sale clauses before transferring. Most residential mortgages include provisions allowing lenders to demand full repayment when ownership changes.

Federal law (Garn-St. Germain Act) prohibits enforcement for certain transfers, including those to trusts for estate planning. Many lenders extend this to LLC transfers when the LLC is owned by the borrower.

You can notify the lender before transfer and request written confirmation they won’t enforce due-on-sale provisions. Most lenders routinely consent to single-member LLCs. If the lender refuses, options include paying off the mortgage, refinancing in the LLC’s name, or delaying the transfer until the loan is paid off.

Tax Treatment

Single-member real estate LLCs are disregarded entities for federal tax purposes—rental income and expenses are reported on the owner’s Schedule E. This continues after the trust owns the LLC because grantor trusts are also tax-transparent.

Property transfers to LLCs, then LLC interest transfers to trusts, must be reported on Form 3520 for the year transfers occur. The LLC interest’s value is based on the real estate’s fair market value, typically requiring a qualified appraisal.

State-Specific Issues

Community property states: Both spouses should consent to transfers and be involved in LLC formation and trust planning.

Charging order protection: Most states limit creditors to charging orders on LLC distributions, but some allow additional remedies for single-member LLCs. The offshore trust protection operates regardless of state LLC law—creditors must reach the interest from the Cook Islands trust before state charging order rules matter.

Property tax reassessment: Some states reassess property for tax purposes when ownership changes. Many states exempt transfers to entities owned by the same person. Check state rules before transfer.

For comprehensive guidance on LLC interest transfers, see transferring LLC interests. For other asset types, see brokerage account transfers and the funding checklist. For complete Cook Islands trust information, return to the Cook Islands trust overview.