Cook Islands Trust | Best Offshore Asset Protection

High-risk professionals, business owners, or anyone with an elevated liability risk and accumulated wealth may be considering an asset protection strategy.

One widely accepted method of doing this is the domestic asset protection trust, or DAPT, which allows for protection from future creditors and assures that wealth can be passed onto future generations.

A domestic asset protection trust (DAPT) is a self-settled spendthrift trust, which allows settlors to protect their own assets.

While this type of trust may seem sufficient at first glance, certain circumstances will still be excluded from its protections, leaving assets vulnerable to legal claims.

As such, a Cook Islands International Trust is a more effective for of asset protection.

Which assets in a DAPT will be within reach of creditors?

It is important to keep in mind that not every asset will be protected from legal actions against the settlor.

Several factors, including federal and state laws, may influence a creditors’ rights to access trust assets. For example:

• Tax payments may still be required from the trust.
• Child support, alimony, and spousal support may still be accessible by the court.
• Judgments from some courts may be awarded against the settlor, depending on state law, the language of the trust, and the type of judgment.
• A court’s discretion may result in the trust’s being used to pay for “necessary services or supplies”, such as medical services.

What are the safest ways to shield assets from creditors?

This is one of the most commonly asked questions by high-net-worth individuals; and for US citizens it might seem like the Domestic Asset Protection Trust (DAPT) is the best option.

Qualified disposition statutes in 14 states have made it possible to establish such a trust, but the top tier states are Nevada, Ohio, and South Dakota.

State-based DAPTs offer some generic protections from creditors, but as many people have learned, they are certainly not always bulletproof.

Any US-based trust can be vulnerable in certain situations, primarily because US law is designed to protect creditors.

How are DAPTs vulnerable in legal actions?

Because many state and federal laws favor creditors, several US cases have proven that DAPTs are far from impenetrable.

Whether because a court exercised its “discretion” to apply federal bankruptcy laws to interpret the fraudulent transfer of assets (Battley v. Mortensen, 2011), or the trust assets were vulnerable to equitable distribution in a divorce (Dahl vs. Dahl, 2015), it is clear that domestic trusts are not invincible.

A Cook Islands Trust is a more effective form of asset protection

A global pioneer in offshore asset protection, the Cook Islands offers a trust with unparalleled anonymity and security, which is available to US citizens looking to shield assets from legal claims.

While the Cayman Islands, Switzerland and the British Virgin Islands may be known for tax rates that allow the rich to shelter income from the US government, the Cook Islands, a self-governing state associated with New Zealand, offer a different type of secrecy: the long arm of United States law simply does not reach it.

The Cooks make it easier to keep assets out of the grasp of creditors, or anyone else, because they generally disregard foreign court orders.

According to a 2015 New York Times article, Cook Islands, a Paradise of Untouchable Assets, these islands are a tropical paradise where wealthy individuals can “hide your hard-earned assets far from the grasp of former or soon-to-be-former spouses, angry business partners or, if you happen to be a doctor, patients who might sue you.”

These stories, which were documented by the New York Times, cite examples of how U.S. courts were unable to dismantle Cook Islands trusts:

• Nadya Suleman, who became known as the Octomom after giving birth to octuplets in 2009, sued the doctor who implanted the embryos in her. However, Dr. Kamraya’s assets were in a Cook Islands trust and therefore difficult to recover.
• The Federal Trade Commission (FTC) has also come up dry, in an attempt to collect a $37.5 million judgment against Kevin Trudeau, author of The Weight Loss Cure, for “airing blatantly deceptive infomercials.”
• Even the United States government has had a hard time going up against a Cook trust. Fannie Mae, a government-sponsored lender, was unable to collect on a $10 million judgment against Oklahoma real estate investor Andrew Grossman, despite a trial that dragged on for years.

Without a doubt, public perceptions have prevented some individuals from pursuing this option, but rest assured there is nothing illegal about establishing a Cook Islands trust.

Cook Islands Are Crypto-Friendly

Cook Islands Ministry of Finance and Economic Management (MFEM) recently modernized the trust industry by launching ‘Smart Trust platform’ built on a blockchain.  This moved the traditional legal framework and processes onto a blockchain-based digital platform.

This program enables creation of Crypto Smart Asset Protection Trusts, which allows clients to manage their crypto assets and NFTs in a safe and trusted environment. 

Crypto Smart Asset Protection Trusts built on the blockchain:

• ensures privacy;
• allows management and trading of cryptocurrencies inside placed inside of a trust;
• ensures transparency between desired individuals (e.g., trust beneficiaries) but not available to the world at large;
• allows transfer of digital asset ownership (e.g., Bitcoin, Ethereum, NFTs) to the trust from any third party;
• allows transfer of asset’s ownership out of the trust.

The use of Crypto Smart Asset Protection Trusts allows asset protection planners and clients access protection without the inherent problems and risks of traditional trusts.  Smart Trusts efficiently combined the benefits of the traditional trust with blockchain technology, transcending limitations that existed in the ownership, management and administration of both cryptocurrency and physical assets.

The Structure

A typical Cook Islands Wealth Protection structure has several components allowing both flexibility and protection:

• The Settlor establishes a Cook Islands International Trust
• A Cook Islands licenced 
• provides the Trustee
• The Settlor and his family members can be appointed as discretionary beneficiaries of the Trust
• A Protector can be appointed to monitor the activities of the Trustee, and can be granted absolute or veto powers or a combination of both
• The Settlor can provide a letter to the Trustee detailing his/her wishes in regards to the investment and distribution of assets both during and after his/her lifetime
• The Trust owns 100% of a limited liability company (“LLC”) incorporated in the Cook Islands, or other jurisdiction appropriate to the client’s circumstances
• The Settlor, or his representative, is the Manager of the LLC.
• Assets are held and managed within the LLC or entities underlying it

Features

• The Trustee is not required to be involved in the management of the LLC or its assets.
• The Trustee can be granted power to remove and replace the Manager of the LLC in certain circumstances to protect the interests of the Manager and the assets under his/her control
• The Manager is not personally liable for the debts, obligations or liabilities of the LLC
• The Trustee is not subject to foreign judgements or forced heirship rules.

Benefits

• Assets held within the structure, including family businesses, can be managed and operated by the Settlor and his/her family without interference from the Trustee
• The Settlor’s personal and business assets can be passed to the next generations in an orderly fashion in accordance with his/her wishes.
• A change in Manager of the LLC does not give rise to fraudulent conveyance claims
• Enhanced protection of assets from unforeseen creditors
• Legitimate confidentiality of ultimate ownership of assets within the structure

Why do Cook Islands Trusts exist?

Americans have parked more than $1 trillion in offshore accounts around the globe, and while the US government has tried to regulate it, the Cook Islands trust seems to be relatively immune to US scrutiny.

Cooks Trusts are widely used by multinational companies to avoid taxes and have not been linked to money laundering or terrorist financing, and as a result they have garnered very little attention from foreign regulators.

Perhaps it is the stable government and comparatively sophisticated court system (based in English common law), or it could be the seemingly bulletproof level of asset protection, but there is little doubt that the Cook Islands trusts remain in great demand among high-net-worth individuals.

For the Cook Islands, the trust business has been nothing short of a bonanza.

According to the New York Times, business generated by the trusts, including registration fees, taxes on trust companies, and various support services, accounts for more than 8 percent of the Cooks economy, just after tourism.

Why is a Cook Islands Trust so attractive for wealthy Americans?

Our litigious society puts high-risk professionals in a precarious position, and they want protection that can be relied upon. The Cook Islands trust laws eliminate some of the less desirable aspects of US asset protection trusts while providing a more robust set of advantages that favor the settlor.

As the Cook Islands Trust became more ubiquitous and increasingly popular with American businesses, they have maintained a great reputation for security.

Any individual or business looking for powerful asset protection benefits, particularly those who are worried about future litigation, will want to consider this option.

Here are some of the most compelling reasons to consider a Cook Islands trust:

• Cash and investment accounts, as well as real estate holdings, crypto and businesses, may be registered in the trusts, but unlike DAPTs none of these are required to be physically located in the Cooks.
• All business related to a Cook Islands Trust may be handled electronically, with no need to travel to the islands.
• The laws surrounding Cook Islands trusts were written with Americans in mind and were actually written by a Colorado asset protection attorney.

The best candidates for a Cook Islands trust would be any high-risk professional with assets exceeding $1 million.

These include lawyers, doctors, accountants, architects, real estate developers, and corporate directors. Even the parents of teenage drivers could be considered “high risk”.

The unique benefits of a Cook Islands Trust

The financial and legal benefits of these trusts are numerous, including:

• Protection from lawsuits
• Strict confidentiality
• No income taxes
• No limits on the perpetuity of the trust
• Flexibility to select managing trustees from one’s own country
• Zero impact from inheritance laws or court judgments from other countries

A creditor who wishes to extract assets from a Cook Islands trust must re-try the case in the island nation where it was formed, in a jurisdiction known for its unfriendliness to creditors.

Even if the plaintiff chooses to go down this road, and many will not have the resources, they must provide proof “beyond a reasonable doubt”, not just the “preponderance of evidence” used in the United States.

In addition, the plaintiffs are required to pay legal fees and court costs upfront. It is also likely that the loser of the case will pay their own legal fees as well as the winner’s.

Lawyers who set up Cook trusts often use them as a negotiating tool, knowing that if litigation arises many creditors will opt for a cents-on-the-dollar settlement over a long and arduous trial halfway across the globe.

Legal views of the Cook Islands Trust

Many US attorneys echo the sentiments of California lawyer Jay D. Adkisson, who told the New York Times, “U.S. jurisdiction stops at the Pacific and on the beach,” when asked about Cook Islands Trusts.

“Nothing will happen,” said Adkisson. “That’s why those with Cook trusts include a high number of the unscrupulous who have committed fraud and are trying to hide their ill-gotten gains.”

In the same article, attorney Barry Engel, who has established over 1,300 Cooks trusts, said this: “Lawyers can debate the morality of these trusts. My first duty is to my clients and my clients have a need. This is in response to a legal system that has spun a little out of control and is abused by lawyers for legal extortion and who can throw someone’s life into a tailspin. Trusts are our response to that abuse of the legal system.”

Other options for asset protection

Given the Cook Islands’ success in attracting business, many other countries, plus 14 US states, have enacted some form of asset protection statutes. The first state to offer such protections was Alaska, which enacted its first asset protection law in 1997.

Delaware and South Dakota followed soon after, followed by South Dakota, Nevada, and Wyoming.

Most other countries’ asset protection statutes are not as tough as the Cook Islands’ trust, causing many DAPTs to be broken open, or “pierced”, by creditors who were able to collect judgments against fund assets.

In order to understand the vulnerability of DAPTs, it helps to do a comparison between the average DAPT and the Cook Islands trust.

What are the differences between a DAPT and a CI trust?

• Statute of limitations for a Cooks trust is one year
• Burden of proof is higher for creditors to prove liability against a Cooks trust
• The plaintiff must prepay all legal fees in the Cook Islands (a deterrent to potential lawsuits)
• Tax protection is stronger for Cook Islands trusts
• Strength of asset protection statutes make the Cooks trust impenetrable, even by the federal government
• The value of the assets is not disclosed, and it is against the law in the Cooks to identify who owns the trusts or to provide any information about them.

Why choose an offshore Cook Islands Trust over a domestic asset protection trust (DAPT)?

An international structure, whether in the Cook Islands or elsewhere, is usually preferable to a domestic asset protection trust (DAPT), and here is why.

• Offshore trusts are not subject to court orders from the United States. This means a judge can order a offshore trustee to release funds or face jail time, but these orders can be ignored because he or she is not bound by US court orders.
• Offshore trust jurisdictions ignore US judgments. In the Cook Islands, as well as Belize and Nevis, the courts do not recognize US judgments. This means any creditor would have to start from scratch and file a new lawsuit in the trustee’s offshore jurisdiction, usually at a tremendously high cost of time and money. Not surprisingly, this can deter even the most tenacious plaintiffs from pursuing an offshore trust.
• When a plaintiff wins a judgment against an out-of-state trustee, every other US state is required to recognize it. This means a creditor can move the judgment to any other state and start seizing assets held in a DAPT without incurring additional court costs.
• Federal courts can essentially ignore state law and are not bound by it. This means a state based DAPT could be pierced by a federal judgment, rendering its assets exposed to creditors without due process.
• Privacy is nonexistent with a DAPT, meaning local trustees in a DAPT may be subpoenaed and forced to produce documents that incriminate a defendant, in accordance with the laws of his state of residence. On the other hand, an offshore trustee can simply ignore such depositions and subpoenas.

When to use a DAPT

While a Cook Islands trust is preferred in most cases, there are a few situations where a DAPT may be appropriate.

• When a settlor resides in one of the fourteen states currently offering a DAPT, a self-settled trust may be a consideration. Nevada offers the shortest windows of time in which one can challenge transfers into the trust.
• Another reason to use a DAPT may be if one expects to avoid federal lawsuits.
• It is also important for settlors in a DAPT to have moved all of their assets into the trust before any problems arise.
• Anyone who does not meet all of the criteria mentioned above should strongly consider a Cook Islands, or offshore, trust.

The states currently offering a DAPT are Alaska, Nevada, Delaware, Ohio, Missouri, Rhode Island, Utah, South Dakota, Wyoming, Tennessee, New Hampshire, Hawaii, Oklahoma or, Virginia, meaning these states all recognize self-settled DAPTs.

Conclusion

Most of the commonly known domestic trusts, such as living trusts, land trusts, and title-holding trusts, are not the best asset protection vehicles.

A DAPT may protect certain assets, especially when the trust is established in one of the aforementioned states, but nothing exceeds the ability of offshore asset protection trusts, such as the Cook Islands trust, to protect assets from the legal claims of creditors.

Resources:

• What You Should Know About Asset Protection Trusts
• Fresh Look at State Asset Protection Trust Statutes
• Offshore Asset Protection Trust: Prudent Planning Device or the Last Refuge of a Scoundrel?
• The Estate and Gift Tax Implications of Self-Settled Domestic Asset Protection Trusts: Can You Really Have Your Cake and Eat it Too?
• Spendthrift and Discretionary Trusts
• Irrevocable Asset Protection Trust
• US Senate Report | Tax Haven Abuses: The Enablers, The Tools and Secrecy
• Domestic Asset Protection Trusts: Debtor’s Friend and Creditor’s Foe
• Asset Protection Trust – Cornell Law School
• Developing Trust in the Self-Settled Spendthrift Trust
• Abusive Trust Tax Evasion Schemes – Questions and Answers – IRS
• Abusive Trust Tax Evasion Schemes – Facts (Section II) – IRS
• Trusts: Common Law and IRC 501(c)(3) and 4947 – IRS
• Domestic Asset Protection Trusts – Brooklyn Journal of Corporate, Financial & Commercial Law
• A Fresh Look at State Asset Protection Trust Statutes – Columbia Law School
• Domestic Asset Protection Trust Alternatives Impact Traditional Estate and Gift Tax Planning Considerations
• Digital Assets and Intestacy

Cooks Islands Trust Resources

• Cooks Island International Trust Act
• Cook Islands: Trustee Companies
• Cook Islands Asset Protection Law
• Cook Islands: Registry – Financial Supervisory Commission
• Asset Protection Trusts
• NYT Article: the Cook Islands, a Paradise of Untouchable Assets
• Behind the Corporate Veil: US Tax Court
• Protection Assets from Creditors Legally, Ethically, and Morally
• Offshore Asset Protection Trust: Prudent Financial Planning Device
• Foreign Trusts
• US Position on Offshore Tax Havens
• Guide to Law Online: Cook Islands Trusts
• Give the People What They Want? The Onshoring of the Offshore
• Use of Trusts and LLCs in Asset Protection
• International Trust and Estate Planning: Asset Protection Trusts
• US Senate Committee on the Judiciary: Fighting Financial Networks Through Transparency
• Cooks Island – International Monterey Fund
• What’s is the U.S. Position on Offshore Tax Havens?
• Asset Protection Trusts – Foreign Asset Protection Trusts

Alaska Domestic Asset Protection Trusts

• The Alaska State Legislature
• DAPT Completed Gift Version (PLR 200944002)
• Trusts – Alaska Court System
• Self-Settled Spendthrift Trusts and the Alaska Trust Act – Duke Law School
• Alaska on the Asset Protection Map – Duke Law School
• IRS Rules Self-Settled Alaska Trust WIll Not Be in Grantor’s Estate – Hofstra University
• New Alaska Law Will Enhance Nationwide Estate Planning  – Hofstra University

Delaware Domestic Asset Protection Trusts

• Treatment of Delaware Statutory Trusts – State of Delaware
• Accounting and Distribution of Trust Funds – State of Delaware
• Corporate Forms and Certificates for a Statutory Trust – Delaware.gov
• Dynasty Trusts: Nothing Lasts Forever – Delaware Tax Institute
• The Delaware Business Trust Act Failure as the New Corporate Law – Boston University School of Law
• Delaware Statutory Trusts are Controlled by Contract  American Bar
• Trusts in the News – Multistate Tax Commission

Illinois Domestic Asset Protection Trusts

• State Provisions Authorizing Establishment of DAPTs

Michigan Domestic Asset Protection Trusts

• Domestic Asset Protection Trusts – Michigan Legislature

Nevada Domestic Asset Protection Trusts

• What Should You Kow About Asset Protection Trust
• The Estate and Gift Tax Implications of Self-Settled Domestic Asset Protection Trusts: Can you Really Have Your Cake and Eat it Too?
• Fresh Look at State Asset Protection Trusts Statutes
• Domestic Asset Protection Trusts: Debtor’s Friend and Creditor’s Foe
• Emerging Challenges in Asset Protection Planning
• Nevada Asset Protection Strategies
• Domestic Asset Protection Trusts: Ushering in the Klabacka Era
• Modern Trust | Art of Property Passing and Receiving Wealth
• Dynasty Trust State Ranking Charts

New Hampshire Asset Protection Trusts

• Memorandum Opinion Discussing Fraudulent Transfer To DAPT Standard
• Trusts in the News
• Congression Hearing on DAPTs

South Dakota Asset Protection Trusts

• Wills & Trusts – South Dakota Consumer Protection
• SD Law Recognition of Spindrift Clauses and Transfers into DAPTs

Wyoming Domestic Asset Protection Trusts

• List of Wyoming Trust Companies
• Wyoming Trust Industry
• Wyoming Asset Protection Trust Requirements
• Uniform Trust Code Amendments – Wyoleg.gov
• Wyoming Uniform Fraudulent Transfers Act – Wyoleg.gov
• Developing Trust in the Self-Settled Spendthrift Trust – Wyoming Law Review
• The Undiscovered Country: Wyoming’s Emergence as a Leading Trust Jurisdiction – Wyoming Law Review
• Legal Investments for a Wyoming Trustee – Wyoming Law Journal
• The Discovered Country: Wyoming’s Primacy as a Trust Situs Jurisdiction – Wyoming Law Review