How U.S. Courts Pierce Cook Islands Asset Protection Trusts

At Dilendorf Law Firm, we assist U.S. and international clients with evaluating offshore trust structures—including Cook Islands Trusts—by providing independent legal risk assessments and structural reviews.

Our firm regularly advises high-net-worth individuals, family offices, and tech founders on the legal, tax, and compliance risks associated with offshore asset protection strategies.

Importantly, we help clients navigate complex tax issues, including the capital gains tax that may be triggered under IRS Section 684 when appreciated assets are transferred to foreign non-grantor trusts.

Cook Islands Asset Protection Trusts (APTs) are widely regarded as the benchmark for safeguarding international wealth. They offer strong legal features, including:

• Self-settled spendthrift provisions
• Short statutes of limitation
• Rejection of foreign court judgments
• Strict confidentiality for trustees

These elements make Cook Islands trusts especially popular among high-net-worth individuals seeking protection against lawsuits, divorce, or creditor claims.

The country’s legal framework, particularly the International Trusts Act (ITA), is often described as a legal fortress. However, despite its strength, U.S. courts have repeatedly shown that these protections aren’t absolute, especially when the person who created the trust remains under American jurisdiction.

Federal and state judges have developed effective legal strategies to penetrate offshore trusts, especially if the trust was created in response to legal exposure or if the creator maintains any form of control.

This article examines those strategies by analyzing key court decisions where Cook Islands trusts ultimately failed to block enforcement.

The FTC v. Affordable Media Case: Control Equals Contempt

The foundational case in this area remains FTC v. Affordable Media, LLC, 179 F.3d 1228 (9th Cir. 1999). Michael and Denyse Anderson, facing an FTC enforcement action for securities fraud, transferred investor funds into a Cook Islands trust and appointed themselves as both trustees and protectors.

The trust instrument included a duress clause: if the Andersons were compelled by a court to direct the trustee to distribute funds, the trustee was instructed to freeze the trust.

When the FTC obtained a repatriation order, the Andersons invoked impossibility, arguing the foreign trustee’s refusal barred them from complying. The Ninth Circuit rejected this argument, reasoning that the Andersons retained indirect control through their protector status and had effectively engineered the impossibility.

As the court explained:

Although the Andersons assert that their “inability to comply with a judicial decree is a complete defense to a charge of civil contempt, regardless of whether the inability to comply is self-induced,” […], we are not certain that the Andersons’ inability to comply in  this case would be a defense to a finding of contempt. It is readily apparent that the Andersons’ inability to comply with the district court’s repatriation order is the intended result of their own conduct – their inability to comply and the foreign trustee’s refusal to comply appears to be the precise goal of the Andersons’ trust. (FTC v Affordable Media, LLC, 179 F3d 1228, 1239 [9th Cir 1999])

The court upheld their civil contempt incarceration and emphasized that a contemnor cannot avoid enforcement by creating their own inability to comply.

Affordable Media established several key principles: retained powers—especially through protector roles—are construed as effective control; duress clauses are not bulletproof when the settlor can trigger or define them; and self-created legal obstacles do not excuse contempt of court.

In re Lawrence: Six Years in Jail for Refusing to Repatriate

In In re Lawrence, 279 F.3d 1294 (11th Cir. 2002), the court went even further. Mark Lawrence had a $20 million arbitration award entered against him, which he tried to avoid by placing over $7 million in a Cook Islands trust before filing for bankruptcy. Like the Andersons, he argued that a duress clause prevented the trustee from returning the funds.

The bankruptcy court disagreed with the defense and jailed Lawrence for civil contempt. He spent nearly six years in prison. The Eleventh Circuit upheld this order, holding that the incarceration was coercive rather than punitive and, therefore, constitutional.

As the Court of Appeals explained, “Lawrence’s claimed defense is invalid because the asserted impossibility was self-created” (Lawrence v Goldberg (In re Lawrence), 279 F3d 1294, 1300 [11th Cir 2002])

The court noted that the trust had been structured in anticipation of creditor claims and that Lawrence retained influence—particularly through his ability to remove and replace protectors. The Court of Appeals agreed with the bankruptcy court’s finding that Lawrence had created the trust as “an obvious attempt to shelter his funds from an expected adverse arbitration award,” and retained the ability to influence the trust’s administration:

[A]t the time Lawrence became an excluded person under the Trust he retained the ability to appoint a new Trustee who would have the power to revoke the excluded person status at any time. (Lawrence v Goldberg (In re Lawrence), 279 F3d 1294, 1300 [11th Cir 2002])

The lesson is stark: even when foreign trustees are legally barred from complying, courts will jail the settlor if they believe there’s any practical path to asset repatriation. “Holding the keys to the jail cell” became the phrase synonymous with asset protection contempt law.

In re Cork: Fraudulent Transfers and Discharge Denial

Cork v. Gun Bo, LLC (In re Cork), 566 B.R. 237 (D. Ariz. 2017), illustrates how U.S. courts analyze transfers to offshore trusts under fraudulent transfer law and discharge denial provisions of the Bankruptcy Code (11 U.S.C.S. § 727(a)(2)).

“During state court litigation, […] Cork and his wife transferred $3.1 million to a Swiss bank account held by a Cook Islands trust […] controlled by Cork. The state court found that the transfers were fraudulent and made “in order to secret funds from” [creditors]” (In re Cork, 566 B.R. at 247).

The bankruptcy court examined the timing of the transfers, the lack of consideration in return for $3.1 million transfer, and Cork’s continued control and benefit from the trust.

The court concluded the transfers were made with actual “intent to hinder, delay or defraud” and denied Cork a discharge under the §727(a)(2).

This case emphasized that using foreign trusts does not shield debtors from traditional fraudulent transfer analysis and that courts can issue turnover orders and contempt sanctions even when assets are abroad.

SEC v. Solow: Prior Access Equals Present Control

In SEC v. Solow, 682 F. Supp. 2d 1312 (S.D. Fla. 2010), Solow attempted to shield assets from a securities fraud judgment by placing them in a Cook Islands trust. He argued that he had no control over the trust, saying he “[didn’t] have a dollar to [his] name,” and could not comply with the court’s disgorgement order.

Despite these claims, the court found: “that Mr. Solow rendered himself unable to pay the Final Judgment by shifting assets to his wife and by abdicating all financial responsibility to her” (Id. at 1323)

The court also established that Solow had used trust assets to pay taxes and personal expenses, which undermined his credibility. Relying on Affordable Media and Lawrence, the court held that any past access to trust assets can establish control and rejected his impossibility defense: “Mr. Solow’s inability defense is unavailing because such inability was self-created.” (Id. at 1330).

The key point: The court stated, The Eleventh Circuit adheres to the “time-tested adage: if it walks like a duck, quacks like a duck, and looks like a duck, then it’s a duck.” Mr. Solow still lives a luxurious lifestyle, enjoying the benefits of the money he has made over the years, yet he refuses to repay the victims of his fraud. Such a situation cannot stand. (Id. at 1334).

This illustrates that a debtor who has ever benefited from a Cook Islands trust will face an uphill battle in proving lack of control, especially if distributions were made with the debtor’s knowledge or participation.

In re Allen: Bankruptcy and Bad Faith – Offshore Trust No Safe Harbor

Allen received over $6 million from Advanced Telecommunication Network. When the company later obtained a court ruling declaring the transaction fraudulent and ordering the funds returned, Allen attempted to shield the money by transferring it to an offshore trust and filing for bankruptcy.

Despite Allen’s bankruptcy filing, the court made it clear: U.S. courts will look past offshore structures when enforcing judgments — especially when those structures are used to conceal assets following a fraudulent transfer.

The court granted preliminary injunctive relief and ordered that the funds be repatriated. When the Allens failed to comply with the court order, the Florida Bankruptcy Court twice held Daniel Allen in contempt of court. (In re Allen, 768 F3d 274, 277 [3d Cir 2014])

The takeaway is clear: Simply placing funds in a Cook Islands trust does not protect them from legal recovery or court scrutiny.

Netsphere v. Baron: Securing U.S. Jurisdiction Over Offshore Assets

In Netsphere, Inc. v. Baron, 703 F.3d 296 (5th Cir. 2012), , the Fifth Circuit Court of Appeals affirmed U.S. jurisdiction over assets transferred by the debtor to a Cook Islands trust. While not a direct challenge to the trust itself, the court’s willingness to disregard formal offshore protections in favor of equitable remedies reflects the same enforcement approach seen in other Cook Islands trust cases.

The court confirmed that Baron attempted to move U.S.-based assets to a foreign trust — of which he was the sole beneficiary — and ordered the repatriation of funds to secure his obligations:

Baron planned to move assets that were at the time subject to jurisdiction in the United States to a trust in a foreign country […] and Baron is the trust’s sole beneficiary. […] [T]he assets being transferred out of the United States would have been the principal source of payment for his allegedly unpaid attorney fees. […] [T]he bankruptcy court ordered Baron to request from the trust that $330,000 be deposited with the bankruptcy trustee as security, to be held until further court order. The money was deposited and held “to pay [Baron’s] obligations.” (Netsphere, Inc. v Baron, 703 F3d 296, 303 [5th Cir 2012])

This case reinforces that U.S. courts will assert jurisdiction and compel repatriation when offshore trusts are used to avoid legal obligations.

Rush University v. Sessions: Public Policy Trumps Self-Settled Trusts

In Rush Univ. Med. Ctr. v. Sessions, 2012 IL 112906, the Illinois Supreme Court invalidated a Cook Islands trust established by Robert W. Sessions, holding that its self-settled nature rendered it void as to both existing and future creditors under longstanding common law principles. The decision reaffirmed that public policy prohibits debtors from using offshore spendthrift trusts to shield assets from legitimate creditor claims.

The trust granted Sessions broad lifetime benefits and full control as the “Trust Protector,” while invoking Cook Islands law and spendthrift provisions to deter creditor access. The court rejected these protections, holding that a self-settled spendthrift clause “is void as to the then-existing and future creditors, and creditors can reach the settlor’s interest under the trust.” (Rush Univ. Med. Ctr. v. Sessions, 366 Ill. Dec. 245, 247, 980 N.E.2d 45, 47, 2012 IL 112906, ¶ 1).

The court further emphasized that the Illinois Uniform Fraudulent Transfer Act did not displace the common law rule:

[W]e hold that the Uniform Fraudulent Transfer Act did not displace or abrogate the common law trust rule with respect to self-settled trusts. (Id., ¶ 35)

U.S. Bank v. Rose: Even Sophisticated Plans Can Fail

In U.S. Bank Nat’l Ass’n v. Rose, the debtor, Michael Rose, defaulted on multimillion-dollar obligations to U.S. Bank. Prior to defaulting, Rose transferred valuable real estate and business interests—estimated by the bank to be worth nearly $7 million—to the Cook Islands. The trust was structured to exclude its assets from the reach of any court outside the Cook Islands and named Rose’s wife and children as beneficiaries. Rose claimed he no longer retained control over the trust.

U.S. Bank alleged that Rose was fraudulently attempting to conceal, assign, or otherwise dispose of property to hinder the bank’s ability to collect as a creditor. The Illinois Appellate Court agreed, stating:

Not only did Rose not inform U.S. Bank that he had formed a trust in the Cook Islands, he actively concealed the fact that he had transferred significant interests to the trust, in blatant violation of the Antiassignment Covenant. (U.S. Bank N.A. v Rose, 378 Ill Dec 718, 722, 4 NE3d 601, 605, 2014 IL App (3d) 130356, ¶ 20 [2014])

The Appellate Court of Illinois ruled that U.S. Bank’s motion for attachment should be granted against Rose’s assets.

The Cook Islands Legal Framework: Statutory Strength, Jurisdictional Limits

The Cook Islands International Trusts Act 1984, particularly as amended, contains some of the most debtor-friendly provisions in the world. Section 13B prohibits trustees from complying with foreign court orders. Section 13D blocks enforcement of foreign judgments. Section 13K limits fraudulent transfer claims unless brought within two years of the asset transfer and under strict evidentiary standards.

However, none of these protections prevent U.S. courts from exercising personal jurisdiction over a U.S.-based settlor. That’s the critical divide. Even if the Cook Islands trustee ignores repatriation demands, U.S. judges can jail the settlor, deny discharge, impose fines, or appoint receivers.

Duress and Flight Clauses: Theory vs. Reality

Cook Islands trusts often include “duress clauses,” which prohibit trustee compliance under legal compulsion, and “flight clauses,” which authorize redomiciling the trust if litigation arises. These clauses aim to frustrate enforcement, but courts view them skeptically.

In Affordable Media, the duress clause failed because the Andersons retained the power to certify duress. In practice, if a settlor has the power to influence how and when these clauses activate, courts will treat them as self-constructed shields—and override them.

Conclusion: The Fortress Is Only as Strong as Its Foundation

The idea that Cook Islands trusts are completely shielded from lawsuits isn’t true. Time and again, U.S. courts have shown that their legal reach can crack even the toughest offshore structures—especially when the trust creator (the “settlor”) is still subject to U.S. authority and tries to hide assets or reacts too late.

In cases like FTC v. Affordable Media, In re Lawrence, In re Cork, and SEC v. Solow, judges didn’t need to seize the offshore assets directly. Instead, they ordered the settlors to act—and if they refused, the penalties were harsh: denied bankruptcy discharge, steep daily fines, asset handover, court-appointed receivers, and even long-term jail time.

That said, Cook Islands trusts can still be a smart way to protect assets or plan internationally—if done right. That means:

• No control over the trust
• Funding the trust well in advance of any legal exposure
• Full transparency and legal compliance

The goal isn’t just to build a legally insulated structure abroad, but to make it hold up under U.S. legal scrutiny too.