Situated in the South Pacific, about halfway between New Zealand and Hawaii, is a tiny island nation that is home to around 15,000 people—and untold billions in assets from the world's ultrawealthy.
Called the Cook Islands, it has become one of the most popular offshore trust destinations over the past few decades. It's the kind of place where a billionaire American tech titan or well-to-do surgeon can go to enjoy coral reefs, rainforests, and turquoise lagoons, and then shield millions in assets from creditors and U.S. courts all in one trip.
While the Cayman Islands and Switzerland have long been bywords for stashing money away from the U.S. government, the Cook Islands Trust is the true gold standard in wealth protection, experts say.
Starting in the early 1980s, the country implemented a unique trust system designed to offer myriad benefits to the world's elite that they can't find anywhere else on earth. For Americans, those benefits include shielding assets from U.S. creditors, not accepting judgments from U.S. courts, and not providing a public registry for trust deeds. It is against the law there to identify anyone who owns a trust, or disclose their value. The country has a rich case law history related to its trusts, which provides settlors—those establishing the trusts—with peace of mind.
Here's how it works. The settlor must find a professional trust company located in the Cook Islands to act as the trustee, one which is licensed and bonded by the Financial Supervisory Commission, or FSC, an independent governing body responsible for regulating financial services.
When the settlor establishes the trust, they select a beneficiary, which can even be themselves. Then they transfer both tangible and intangible assets into it, ranging from art and real estate to cryptocurrency and intellectual property. This is often done via a shell company to provide even more cover. Technically, the assets are now property of the trust, not the settlor. (And the settlor doesn't actually need to travel to the nation, which is geographically isolated from much of the world; all of this can be done electronically.)
"We create a structure that is hard for anyone to break," says Blake Harris, an asset protection attorney who has worked with clients to set up Cook Islands trusts for the past decade. "And it’s very much ethical. It’s necessary to protect yourself."
To Harris's point, there are a number of legitimate reasons to set up a Cook Islands trust. Many people in professions that lend themselves to litigation—like doctors and lawyers—do so to protect their assets from potentially frivolous lawsuits. And any law-abiding American will file disclosures on the trusts every year to the IRS. Lawyers and other advocates push them as tax- and value-neutral, simply another planning tool in the wealthy person's arsenal.
But the fact that the country is largely untouchable by U.S. or other foreign courts holds appeal to those with few moral concerns. Though the country has tried to shed its image of being a secretive tax haven—it has the FSC and has passed anti-money-laundering legislation—its trusts turned up extensively in the exposés known as the Panama, Paradise, and Pandora papers. Those reports cited the use of the trusts by Russian oligarchs, world leaders, billionaires, and celebrities. A decade ago, a trove of documents analyzed by the New York Times and other news outlets revealed that R. Allen Stanford, a felon who ran a $7 billion Ponzi scheme, housed millions of dollars there, as did other criminals.
While the ethically dubious deeds of the rich and famous get a lot of media attention, the trusts are often used in much more quotidian affairs—such as by one partner to shield assets during a divorce, lawyers say. While the spouse with the Cook Islands trust would legally need to list it and the assets on court documents, some do not do so—and it is exceedingly difficult for their soon-to-be-ex spouse to even prove the trust's existence, never mind actually get their hands on the assets a U.S. court determines they are owed.
In fact, the plaintiff would need to travel there and relitigate the case under Cook Islands law. There, they would need to prove, beyond a reasonable doubt, that the person who set up the trust did so with the intent to defraud them, which is exceedingly difficult. Additionally, the statute of limitations to challenge transfers to the trusts is just two years. Another reason Cook Islands are the gold standard—they buy negotiation power, says Harris.
"If all of your assets are in your pocket and someone is trying to take them, they might be able to. But if the money is not even in that room but in a different country not under your control, chances are they can't get anything," he says. "Most plaintiffs, if they’re dealing with a Cook Island Trust, they are more likely to take a settlement."
And you don't need to be a billionaire to do something like that. In fact, he says, that kind of behavior is more common among those with a high but still relatively modest level of assets, say $1 million to $10 million.
The Cook Islands makes money off the registration fees, taxes on the trust companies, and other trust-related services. After tourism, business related to offshore trusts is the country's top economic driver.
Still, Harris stresses that offshore trusts are perfectly legal entities for wealthy people interested in asset protection—and they shouldn’t feel shamed for setting them up. Offshore trusts can help protect assets for beneficiaries like children, he says, or from creditors or others looking for a quick payday from the ultrawealthy. He believes they have a place in the financial planning of the world's top 1%—or even top 10%.
"One of the biggest misconceptions I run into is that offshore trusts are only necessary for super wealthy people," says Harris. "If you have $1 million and you’re sued for $5 million, that could be devastating to you."
