Disclosure of Cook Islands Trusts After a Judgment

After a creditor obtains a judgment, the next step in the collection process is post-judgment discovery. This is the phase where the creditor investigates what assets the debtor owns, where they are located, and how they are held. For a debtor who has a Cook Islands trust, post-judgment discovery raises a specific question: must the trust be disclosed, and if so, what information must be provided?

The short answer is that a Cook Islands trust must be disclosed in post-judgment discovery. There is no legal basis for concealing the existence of an offshore trust from a court or a judgment creditor conducting lawful discovery. Attempting to hide the trust creates far greater legal exposure than disclosing it.

How Post-Judgment Discovery Works

Once a judgment is entered, the creditor has broad rights to investigate the debtor’s financial affairs. Under Federal Rule of Civil Procedure 69, a judgment creditor may obtain discovery from the debtor or any third party to aid in collecting the judgment. State procedures provide similar tools, including debtor examinations, written interrogatories, and document production requests.

The scope of post-judgment discovery is wide. Courts permit creditors to inquire into virtually every aspect of the debtor’s financial life, including bank accounts, investment accounts, business interests, real property, trust interests, and transfers made to third parties. The debtor is typically required to answer under oath and to produce supporting documents such as tax returns, financial statements, and account records.

Post-judgment discovery is not limited to assets the debtor currently controls. Creditors may also investigate transfers the debtor has made, interests the debtor holds as a beneficiary, and assets the debtor previously owned. This means that a Cook Islands trust — even one established years before the judgment — falls squarely within the scope of permissible discovery.

The Obligation to Disclose

A judgment debtor who has established or funded a Cook Islands trust is required to disclose its existence when asked through lawful discovery. This includes providing information about when the trust was established, how much was transferred, what assets the trust holds, who serves as trustee, and what powers the debtor retains under the trust deed.

This disclosure obligation exists regardless of whether the trust is structured to prevent the debtor from accessing trust assets. The fact that a duress clause has been triggered, or that the trustee operates independently, does not eliminate the debtor’s obligation to answer truthful questions about the trust’s existence and structure. The distinction between disclosing information about the trust and having the ability to compel the trustee to act is critical. Disclosure does not require the debtor to repatriate assets or direct the trustee to do anything. It requires the debtor to provide truthful information.

Courts have consistently held that debtors who conceal offshore trusts face consequences far more severe than those who disclose them. Failure to disclose can result in denial of bankruptcy discharge, adverse inference rulings, additional sanctions, and — most importantly — the elimination of any credibility the debtor might otherwise have when asserting an impossibility defense to a contempt motion.

What Must Be Disclosed

The specific information a creditor can obtain through post-judgment discovery about a Cook Islands trust typically includes the trust deed or a description of its material terms, the identity of the trustee and any trust protector, the date the trust was established and funded, the assets transferred and their value at the time of transfer, the current value of trust assets if known to the debtor, any distributions the debtor has received, the debtor’s retained powers under the trust instrument, and any correspondence between the debtor and the trustee.

Some of this information may also be available from the debtor’s tax filings. U.S. persons with foreign trusts are required to file Form 3520 and Form 3520-A annually, and these filings contain information about the trust’s existence, its assets, and its transactions. A creditor can request copies of these filings during post-judgment discovery.

What Cannot Be Compelled

While the debtor must disclose information about the trust, there are limits on what post-judgment discovery can achieve in the Cook Islands trust context.

The creditor cannot use post-judgment discovery to compel the Cook Islands trustee to produce documents or testimony. The trustee is a foreign entity not subject to the personal jurisdiction of the U.S. court, and Cook Islands law prohibits trustees from complying with foreign court orders that conflict with the trust deed and local statutes. Post-judgment discovery operates against the debtor personally, not against the offshore trustee.

Similarly, post-judgment discovery does not give the creditor the ability to seize trust assets directly. Discovery identifies where assets are located. Execution — the actual seizure of assets — requires separate legal proceedings and different legal authority. For assets held offshore by a Cook Islands trustee, execution through the U.S. court system is not available. The creditor would need to pursue separate proceedings in the Cook Islands, which implicates the limitation periods and burden of proof provisions of Cook Islands law.

The Fifth Amendment Question

Judgment debtors occasionally raise Fifth Amendment concerns about disclosing offshore trusts, arguing that disclosure could expose them to criminal prosecution for tax evasion or unreported foreign accounts.

The Fifth Amendment privilege against self-incrimination does apply in post-judgment proceedings, but its scope is narrow. A debtor may invoke the privilege as to specific questions where the answer would create a real risk of criminal prosecution. However, the privilege does not permit blanket refusal to participate in post-judgment discovery. A debtor must respond to each question individually and must demonstrate a genuine basis for believing that the answer would be incriminating.

In practice, properly structured and fully reported Cook Islands trusts do not create Fifth Amendment issues. The trust is legal. The transfers are legal. The IRS reporting has been filed. There is nothing incriminating about disclosing a lawfully established and properly reported offshore trust. The Fifth Amendment concern arises primarily in cases where the debtor has failed to comply with reporting obligations — a problem of noncompliance, not a problem with the trust itself.

Why Disclosure Does Not Undermine the Trust

Clients sometimes fear that disclosing the trust to a creditor will undermine its protective value. This concern reflects a misunderstanding of how Cook Islands trusts work.

A Cook Islands trust does not rely on secrecy for its protection. Its protective value comes from the jurisdictional barrier it creates: trust assets are held by a foreign trustee operating under foreign law, and a U.S. creditor cannot reach those assets through U.S. legal proceedings alone. That barrier exists whether or not the creditor knows the trust exists.

In fact, disclosure of a properly structured trust can strengthen the debtor’s position in several ways. It demonstrates good faith, which supports credibility in any subsequent contempt proceeding. It establishes that the trust was not concealed, which undermines fraudulent intent arguments. And it forces the creditor to confront the practical reality of what collection would actually require — re-litigating the case in the Cook Islands under Cook Islands law.

The cases where offshore trusts have produced the worst outcomes for debtors almost universally involve concealment. Debtors who hid trust assets, lied during discovery, or failed to file required tax returns gave courts reason to question their credibility and impose harsh sanctions. Debtors who disclosed their trusts, complied with tax reporting, and cooperated with discovery while maintaining that they could not compel the trustee to act fared significantly better.

Disclosure During Bankruptcy

Disclosure obligations are even more stringent in bankruptcy. A bankruptcy debtor must list all assets, including beneficial interests in foreign trusts, on the bankruptcy schedules. Failure to do so can result in denial of discharge, which means the debtor remains personally liable for all debts despite having gone through the bankruptcy process.

Bankruptcy courts have broad jurisdiction and take a particularly dim view of concealed offshore assets. Several reported cases involving Cook Islands trusts resulted in adverse outcomes not because the trust structure failed, but because the debtor failed to disclose the trust or lied about its existence during the bankruptcy proceeding.

The practical lesson is straightforward. Full, prompt disclosure of the Cook Islands trust — in bankruptcy or in post-judgment discovery — is not a vulnerability. It is a requirement, and complying with it is consistent with the trust’s legitimate protective function.

For a broader discussion of how the post-judgment enforcement process unfolds, see what happens after judgment. For comprehensive information about Cook Islands trust structure and legal framework, return to the Cook Islands trust overview.