Cook Islands Trusts are often misunderstood, and various myths have emerged about their effectiveness and legality. This article clarifies these misconceptions by analyzing key case laws associated with Cook Islands Trusts. Each case will be presented with a myth vs. fact approach to reveal the true nature of these trusts. The reality is that when your assets are controlled by a Cook Islands Trust and the assets are outside of the United States, the structure has a track record of being practically unbreakable. This robust protection is supported by the cases analyzed below.
Applicable Law:
The Cook Islands International Trusts Act of 1984 (as amended).
Analysis:
In summary, the Cook Islands International Trusts Act provides a body of law allowing for the creation of an international trust that can be used for estate planning as well as asset protection.
A Cook Islands Trust is a type of trust that many use to plan for multiple generations, to achieve jurisdiction diversification, to protect assets from lawsuits, and it allows the one who established the trust (the settlor) to also be a beneficiary and enjoy the legal protections afforded to the beneficiaries of such trusts. Additionally, there have been a number of amendments over the years, with most strengthening the asset protection provisions. The Cook Islands is progressive in creating express statutory provisions over the years to maintain its status as a leading asset protection jurisdiction.
Cook Islands International Trusts Act of 1984 (as amended):
The body of law that controls the Cook Island trust is the International Trust Act of 1984 (“the Act”). The act serves as a great vehicle for the protection of assets contained in the trust into perpetuity. Below are some key excerpts from the act:
Execution of a Trust Instrument:
This section states the parties to the trust do not need to be located in the same area or even in the Cook Islands for a Cook Islands Trust to be valid – and all the parties need not sign at the same time.
Power of Revocation:
As with most offshore asset protection trusts, the general rule is that the trust is a spendthrift trust with an independent trustee, which is what helps provide separation and protection. The trust is designed to give clients the most possible flexibility. You can add and remove property. The trust can be amended or dissolved. It is technically irrevocable so a court cannot order you to revoke it and pay your debts. However, when properly structured, it has practically all the benefits of a revocable trust.
Fraudulent Transfer:
This section states that to prove fraudulent conveyance, it is required the creditor proves beyond a reasonable doubt that the trust was formed with the intent to defraud — in addition to other elements as well. This is the highest burden of proof in law, and far more difficult to prove than a “preponderance of the evidence” standard, as used in the United States for such transfers. These elements include: (1) whether the principal intent of the settlor in settling, establishing, or disposing the trust was done to defraud that creditor of the settlor; and (2) whether when the settlement, establishment, or disposition took place it rendered the settlor insolvent or without property by which that creditor’s claim could have been satisfied. Note that both elements must be proven, whereas in the United States, a creditor only needs to prove one.
It is important to distinguish between fraudulent conveyance and fraud. Fraud involves deliberate misrepresentation or deceit with the intent to gain an unfair advantage, while fraudulent conveyance refers to a transaction intended to hinder, delay, or defraud a creditor by transferring assets. In the context of Cook Islands Trust law, the focus is on whether the transfer was made with the intent to prevent a creditor from collecting a debt, rather than on any deceit or misrepresentation.
Even if these two elements are proven beyond a reasonable doubt, a trust is not automatically deemed fraudulent and thus liable to satisfy the creditor’s claim. Due to the act’s statutory bar, a Cook Islands Trust shall not be fraudulent if: (1) it was settled, established, or the disposition takes place after the expiration of two years from the date that creditor’s cause of action accrued; or (2) the creditor fails to bring such action before the expiration of one year from the date such settlement, establishment, or disposition of property took place.
Foreign Judgements Not Enforceable:
This section limits the ability of the courts to use a foreign judgment against a Cook Islands Trust, which further goes to protect the assets of the trust. Therefore, a United States judgment is not enforceable in the Cook Islands. Suit must be brought, followed by adjudication, in the Cook Islands itself.
Exclusion of Foreign Law:
Subject to other rules, the general theme is that foreign laws cannot be used to usurp the governing body of law involving the Cook Islands Trust. Even if a foreign jurisdiction does not recognize the trust, that will not in and of itself render the trust void or voidable in the Cook Islands.
Commencement of Proceedings:
The Cook Islands Trust limits the ability to pursue a case and it is generally limited to two years but this can vary depending on the specific facts and circumstances of the situation. Lastly, not only must a plaintiff post a bond to bring the action, but the loser of the case must also pay the prevailing party’s fees.
Taxation:
A Cook Islands Trust is not subject to any form of Cook Island’s taxation. However, if the settlor or beneficiaries of the trust are subject to the tax laws of their home jurisdiction. Taken together, these provisions in the act make Cook Islands one of the most protective jurisdictions in the world, presenting the greatest hurdles for a plaintiff attempting to get at a trust’s assets.
Cook Islands Case Law
Case Law regarding Cook Islands Asset Protection Trusts (“APTs”) is relatively scarce, primarily because so few trusts are attacked or taken to trial. In addition, the Cook Islands realize that one of its main draws for international trusts is the privacy that comes along with it. As such, trust deeds in the Cook Islands are not a part of the public record. The Cook Islands are also generally known for being private when it comes to the publication of APT cases. There are very few Cook Islands cases on public record that reference the act and demonstrate the power the act holds in excluding international intervention on assets.
Case Law Analysis
FTC v. Affordable Media, LLC (“Anderson Case”)
Even Flawed Structures Can Create Real Obstacles
The Situation
Michael and Denyse Anderson operated a telemarketing business later found to be a Ponzi scheme. In 1995—approximately three years before the FTC filed suit—they established a Cook Islands trust. The trust named the Andersons as co-trustees and protectors, alongside a licensed Cook Islands trustee. Settlors transferred assets into a Cook Islands asset-protection trust with duress clauses preventing repatriation once U.S. litigation commenced.
From an asset-protection standpoint, this structure is not recommended. Retaining trustee or affirmative protector powers can give a U.S. court grounds to find continued “control,” weakening protection.
After the FTC obtained injunctive relief and sought repatriation of offshore assets, the Andersons were ordered to return trust funds to the United States.
Key issues
- Whether “impossibility” was a defence to contempt.
- Whether settlors retained de facto control.
The Outcome
Duress clauses and offshore trustees did not defeat personal jurisdiction: The trust contained anti-duress provisions typical of Cook Islands trusts. When the U.S. court orders were issued, the Cook Islands trustee invoked those provisions, removed the Andersons as co-trustees, and refused to repatriate assets. Duress provisions often aggravate judicial skepticism.
Impossibility of repatriating assets was self-created: U.S. courts nevertheless held the Andersons in civil contempt, concluding they had not met the high burden of proving impossibility because they retained affirmative protector powers. The court emphasized that courts will closely scrutinize offshore trusts where settlors retain control.
Importantly, the decision did not invalidate offshore trusts generally. It turned on retained control and poor drafting, combined with underlying fraud. However, the case also illustrates that even a flawed offshore structure can create serious enforcement obstacles, but also why professional design matters.
Branch Banking & Trust Co. v. Hamilton Greens, LLC
Timing and Control Matter
The Situation
Richard Bellinger personally guaranteed a $3.375 million loan made by Branch Banking & Trust Company (“BB&T”). The loan went into default in February 2011. In November 2011—after the debt had arisen but before judgment—Bellinger established a Cook Islands trust and transferred approximately $1.7 million into it. BB&T later obtained a judgment exceeding $4.9 million against Bellinger in January 2013.
BB&T asserted that the transfers to the offshore trust constituted fraudulent transfers under applicable law because they were made after the obligation to BB&T existed. The court entered an order directing Bellinger to take all reasonable steps within his power to cause the trust assets to be returned. Bellinger complied with the order by sending written requests to the Cook Islands trustee seeking repatriation of the assets. The foreign trustee refused to comply.
Key Issues
The court’s analysis focused on creditor-rights doctrines, not trust law formalities:
- Fraudulent transfer
- Whether the asset transfers were made with actual or constructive intent to hinder or delay creditors.
- Whether reasonably equivalent value was received.
- Alter ego / veil piercing
- Whether the LLCs and affiliated entities had independent existence or were merely instrumentalities of the principals.
- Substance over form
- Whether the restructuring changed the economic reality of control and benefit.
- Timing and intent
- Whether the transfers occurred when insolvency or default was foreseeable.
The Outcome
Foreign Asset Protection Trust Scores A Victory In Bellinger
The court focused on whether Bellinger had satisfied the U.S. court’s order, not on compelling the foreign trustee directly. It found that Bellinger had taken the steps required of him by requesting the return of the funds, even though the trustee declined to act. As the court explained, the trustee’s refusal was outside Bellinger’s direct control, and the court could not exercise jurisdiction over the foreign trustee.
Importantly, the court did not hold that offshore trusts are per se ineffective or invalid. Rather, the dispute turned on timing, the existence of a creditor at the time of funding, and the limits of a U.S. court’s ability to enforce its orders against non-U.S. trustees.
The Key Lesson
This case does not stand for the proposition that offshore trusts “fail.” Instead, it underscores that transfers made after a known liability has arisen are vulnerable to fraudulent transfer claims, regardless of whether the trust is domestic or offshore. It held that this particular structure was abusive, late, and illusory.
At the same time, the decision illustrates a core feature of offshore trusts: even where a U.S. court finds a transfer problematic under U.S. law, a properly constituted foreign trustee is not automatically bound to follow that determination.
In re Smith
Myth: A Cook Islands Trust is automatically deemed fraudulent if established shortly before a judgment is rendered in U.S. bankruptcy proceedings.
Fact: The fraudulent transfer must be proven in the Cook Islands court, and even if a U.S. court finds the transfer to be fraudulent, this ruling does not obligate the Cook Islands Trustee to comply.
Summary: In re Smith demonstrates this difficulty. In re Smith involves an involuntary bankruptcy proceeding against Smith. The state court signed a severance order to render final judgment against Smith on March 27, 2008; but three days earlier, Smith formed a Cook Islands Trust and assigned assets valued at approximately $6 million to the trust for no consideration.
On the eve of the hearing on creditors’ post-judgment turnover application in the state court, Smith filed a “pauper’s affidavit” claiming that his net worth was “negative $2,041,486.24”
and that he only had two creditors. The bankruptcy court explained that although Smith continued paying his small recurring debts as they come due, he was not paying 99% of his debts due to his decision to place the majority of his assets into a Cook Islands Trust.
Involuntary bankruptcy proceedings generally require more than three creditors, but in the case of a person engaging in a plan to defeat the right of creditors, this becomes possible under the “special circumstances” exception. Here, the establishment of the Cook Islands Trust at the time summary judgment was obtained by creditors, the transfer of the bulk of Smith’s assets into said trust, and the insertion of a “spendthrift” provision to try to keep the assets out of the hands of the creditors signals that the “special circumstances” exception should apply. Therefore, it is clear that the entry of the order for relief was proper under United States bankruptcy law.
In re Smith demonstrates a fraudulent transfer of assets into a Cook Islands Trust. Had Smith established a Cook Islands Trust and transferred assets long before this bankruptcy proceeding, there would have been much more difficulty on the part of creditors to access these assets. Even so, this order for relief has no bearing in the Cook Islands and there is no requirement that a properly constructed Cook Islands Trust transfer Smith’s assets to creditors. In order to be effective, this fraudulent transfer must subsequently be proven in a Cook Islands court system.
Rush University Medical Center v. Sessions (“Sessions”)
Location Is Key
The Situation
Robert Sessions pledged $1.5 million to Rush University Medical Center. After later disputes, Rush sued to enforce the pledge. Sessions had engaged in estate and trust planning that included offshore elements.
Key Issues
- Whether trust assets remained reachable by creditors.
- Effect of settlor’s retained benefit.
The Outcome
Creditors could reach what the settlor could have received: The court enforced the pledge under Illinois law, emphasizing that a settlor cannot shield U.S.-based assets from creditors when remaining a beneficiary.
Crucially, the court did not analyze Cook Islands trust law or rule on offshore enforceability. The decision turned entirely on the fact that the assets at issue—real estate and partnership interests—were located within U.S. jurisdiction.
The Critical Flaw: The trust owned assets located within U.S. court jurisdiction—specifically, the Illinois property and the Colorado partnership interest. The Illinois Supreme Court ruled that Sessions could not shield assets from his creditors through a trust where he remained a beneficiary.
The Key Lesson: The trust structure itself was sound, but the asset location defeated the protection. U.S. courts can reach U.S.-based assets. If the trust had held only assets located outside U.S. jurisdiction, Rush would have had no practical remedy, regardless of the Illinois court’s ruling.
Key lesson:
Offshore trusts protect assets outside U.S. jurisdiction. They do not insulate assets physically or legally located inside the United States.
Rybolovlev v. Rybolovlev
The “Most Expensive Divorce” That Wasn’t
The Situation:
Russian billionaire Dmitry Rybolovlev faced one of the world’s largest divorce claims when his wife, Elena Rybolovleva, sought half of his estimated $8 billion fortune. A Geneva court initially awarded her approximately $4.5 billion, based on community property principles under Swiss law. However, much of Dmitry’s wealth was held through foreign trusts and offshore holding structures, including a Cyprus-law trust with assets in the Cook Islands, Liechtenstein, and Panama.
Key Issues
- Recognition of foreign trusts in matrimonial proceedings.
- Whether trust-held assets should be considered in equitable distribution.
The Outcome:
Although Elena obtained interim attachment orders over some offshore assets, the Geneva Court of Appeal and the Swiss Federal Supreme Court ultimately recognized and upheld the validity of the foreign trust structures. The final divorce settlement was drastically reduced, with reports indicating Elena received approximately $600 million—far below the original award. Crucially, Swiss courts held that trust assets should be valued at the time of settlement into the trust, not at the time of divorce, and applied the Hague Trusts Convention to uphold the legal separateness of the trust estate.
Key Lesson:
This case demonstrates that properly structured and timely settled offshore trusts—particularly those governed by jurisdictions like Cyprus or the Cook Islands—can withstand even intense scrutiny in international divorce litigation. While Swiss courts allowed interim relief to prevent dissipation of assets, they ultimately respected the form and legal substance of the trust structures, offering a powerful example of offshore asset protection in action.
Family-law exposure remains a key vulnerability channel.
Multi-jurisdictional coordination is essential.
Pursglove v. Oesterland
Myth: Any transfer into a Cook Islands Trust, regardless of timing or circumstances, is completely protected from claims.
Fact: Cook Islands Trusts provide significant asset protection, but transfers made under suspicious circumstances, such as in anticipation of a claim, can be challenged. However, even in such cases, the protection offered by Cook Islands statutes makes it very difficult and costly to pursue a claim successfully.
Summary: Another high-level divorce involving Sarah Pursglove and Robert Oesterland had a much different result. Pursglove went to extreme measures to collect from her ex-husband after she found him to have an extramarital affair. Pursglove wanted access to Oesterland’s LLC, which was held in his Cook Islands Trust. Since the Cook Islands does not recognize foreign judgments, Pursglove persisted by traveling to the Cook Islands to sue in its courts for fraudulent conveyance. She prevailed on the facts.
It was found that Oesterland properly structured his Cook Islands Trust, but had transferred $45 million in assets to the Cook Islands Trust on the day his wife caught him having an affair. This gave the courts reasonable cause to believe a fraudulent transfer had occurred, which led to Oesterland settling with his ex-wife. Had Oesterland transferred these assets in a manner that did not constitute a fraudulent transfer, Pursglove would have had no possible claim. Even so, it took an extremely spurned Pursglove, and millions of dollars, to find this fraudulent transfer and give Pursglove any ability of recovery.
Kevin Trudeau v. FTC — The $37.6 Million They Couldn’t Collect
The Situation:
Kevin Trudeau, a well-known television pitchman, was sued by the Federal Trade Commission (FTC) for violating a 2004 consent order by misrepresenting the contents of his book The Weight Loss Cure “They” Don’t Want You to Know About. A U.S. District Court found that Trudeau’s infomercials were intentionally deceptive, leading to a $37.6 million monetary judgment for consumer redress.
Trudeau claimed that he was unable to pay the judgment because he had no control over significant assets, which he asserted were held in a Cook Islands trust beyond his reach. Despite repeated court orders, he failed to disclose or repatriate these funds.
Key Issues
- Whether inability to pay was genuine.
- Whether trust-funded expenses evidenced control.
The Outcome:
Trust-funded lifestyle proved access and benefit.
Trudeau was found in civil contempt and then criminal contempt for his refusal to comply with court orders related to the judgment and asset disclosure. He was ultimately sentenced to 10 years in prison. Despite aggressive enforcement actions by the FTC—including worldwide asset tracing and pressure on Trudeau while incarcerated—there is no public record of the FTC recovering the trust assets.
According to the court’s findings, “[Trudeau] repeatedly failed to comply with court orders… and concealed assets in offshore trusts and foreign accounts.”
Key Lesson:
This case powerfully demonstrates the robustness of Cook Islands trust protections. Even under the extreme pressure of a federal enforcement action and criminal incarceration, the offshore trustee did not repatriate the trust assets.
However, it also illustrates that while offshore trusts may shield assets from collection, settlors who do not fully relinquish control—or who mislead courts—may still face personal consequences, including imprisonment for contempt. Complete lifestyle funding is incompatible with defensible asset protection. Trustees must avoid facilitating personal expense funding in enforcement contexts.
Bank of America v. Wesse – Jurisdictional Limitations
The Situation:
Brian and Elizabeth Weese operated a chain of college bookstores and defaulted on a $17 million loan from Bank of America. Around the time of financial distress—between March 2000 and March 2001—the Weeses allegedly transferred approximately $25 million into a Cook Islands trust. Bank of America pursued post-judgment collection in U.S. federal court, seeking access to the offshore trust assets.
Key Issues
- Fraudulent transfer avoidance.
- Whether trust form insulated assets from bankruptcy estate.
The Outcome:
Transfers were avoidable due to timing and intent. Trust formalities did not override bankruptcy policy. However, the court clearly recognized the jurisdictional limitations of U.S. law over foreign trust structures.
Facing legal uncertainty and enforcement challenges, the case did not result in a court order compelling repatriation. Instead, the parties reached a settlement agreement reportedly valued at around $12 million, substantially less than the original debt or the amount allegedly transferred offshore. There is no indication that the trust assets were ever directly recovered through court order.
Key Lesson:
Insolvency regimes override private asset-protection planning. Timing and solvency analysis are critical at trust settlement. However, this case also underscores the limits of domestic court authority over offshore trusts, especially those governed by jurisdictions like the Cook Islands that do not recognize U.S. judgments. Even when fraudulent transfer is alleged, enforcement may falter unless assets are within reach. The necessity of a negotiated settlement, rather than a compelled recovery, reflects the high degree of leverage and insulation offshore structures can provide, particularly when coupled with poor creditor options for enforcement abroad.
Russian Federation v. Unknown Litigant
Myth: The Cook Islands Trust cannot defend against claims of fraudulent transfers made by foreign governments.
Fact: Cook Islands Trusts offer robust protection and can effectively defend against claims from foreign governments. The Cook Islands Court requires substantial evidence of the trustee’s knowledge of the fraudulent nature of the transferred funds to enforce claims by foreign governments.
Summary: In a more recent case, decided in December of 2018, a judgment of the High Court of the Cook Islands demonstrated its tendency to side with Cook Islands Trustees. An undisclosed Russian litigant was found in the Moscow District Court to have illegally transferred funds to a Cook Islands Trust. The Russian Federation attempted to collect from the trustee due to fraudulent transfer, claiming that the transferred funds were “tainted property.” The Cook Islands court ultimately determined there was insufficient evidence that the Cook Islands Trustee was aware the funds were tainted and therefore resulted in the Russian Federation being unable to collect the transferred funds.
Andrew Grossman v. Fannie Mae
Myth: Cook Islands Trusts are always unsuccessful in evading U.S. court judgments.
Fact: While Cook Islands Trusts offer strong protection, they can still be challenged. However, enforcement of U.S. court judgments against assets held in these trusts remains highly challenging, as shown in Grossman’s case.
Summary: The last high-publicity example of a Cook Islands APT refusing to transfer assets following a U.S. court order involves Andrew Grossman and Fannie Mae. Grossman had personally guaranteed a commercial mortgage loan, failed to pay on the guarantee, and was subsequently brought to court by Fannie Mae seeking repayment. In waiting to collect the entire $10 million, Fannie Mae had collected $12,000 due to Grossman’s various offshore accounts. Grossman eventually “complied” with the court’s order and wrote a letter to his Swiss bank account requesting that $7 million be transferred to Fannie Mae. The Swiss account then wrote back that the balance was $0, and the remaining funds were transferred to a Cook Islands APT. Grossman continued to “play stupid” and sent a letter to the newly formed Cook Islands APT requesting the funds. The manager replied the funds had been invested and were no longer accessible.
Reichers v. Reichers
Myth: A Cook Islands Trust can be easily accessed by beneficiaries claiming fraud or improper transfers.
Fact: The Cook Islands Court upheld the trust’s validity despite allegations of fraudulent transfers, reinforcing the trust’s protection mechanisms against internal disputes.
Summary: Reichers v. Reichers involved a family dispute over the validity of a Cook Islands Trust. The plaintiffs alleged that the trust was established through fraudulent transfers to deprive them of their rightful inheritance. Despite these allegations, the Cook Islands Court upheld the validity of the trust. The court emphasized the trust’s protection mechanisms, which are designed to safeguard assets against internal disputes and external claims. This case demonstrated the strength of Cook Islands Trust Law in protecting trust assets from claims, even within a family setting where emotions and accusations of fraud are often heightened.
Lessons Learned
The Cook Islands International Trusts Act of 1984 is an independent statute with a body of law that creates very strong trust protections in the Cook Islands. If a trust is formed properly under the law, funded with non-domestic assets, and created without circumstances deemed a fraudulent transfer, the assets in trust are generally protected from attachment both in the Cook Islands and in other jurisdictions.
In general, Cook Islands will not recognize judgements from other jurisdictions, and any attack on a Cook Islands Trust must be done in the Cook Islands jurisdiction, often times by re-litigating the same issue in the Cook Islands (which is often beyond the Statute of Limitations, and is therefore a barred transaction).As a result of the strong protections of the Cook Islands, as well as the difficulty of recovery, many cases are never brought to collect against the Cook Islands Trust or are settled for a much lower amount.
Although there are not many cases referencing the Cook Islands Court’s application of the act, there are many instances demonstrating its power. For starters, the overall lack of public record demonstrates that not many cases are successful, either through settlement or overall lack of belief a ruling will be in one’s favor. The Anderson and Bellinger Cases show even when orders are entered in a foreign jurisdiction, a properly constructed APT will allow Cook Islands Trustees to continue managing assets through threats of contempt or other U.S. court orders. Overall, the lack of case law demonstrates the deterrent effect and just how few creditors are willing to test the act, especially when those who do test it, are generally unsuccessful.
Conclusion
The cases discussed in this article are known precisely for their complex facts that took Cook Island Asset Protection Trusts to the extreme. While the trusts ultimately held up, the settlors surely still underwent intense legal battles. These are not situations in which an asset protection attorney wants to see any of its clients; however, these cases do provide valuable information about the protection afforded by Cook Islands Trusts.
From these cases, we can conclude if a Cook Islands Trust is formed correctly under the law, properly funded with non-domestic assets, and created without circumstances that could be deemed a fraudulent transfer, the assets in the trust are generally protected both in the Cook Islands and in other jurisdictions. In their own way, these cases also show the importance of having proper counsel when establishing an asset protection trust to prevent negative factors from being exploited by a plaintiff.
In general, the Cook Islands will not recognize judgments from other jurisdictions, and any attack on a Cook Islands Trust must be done in the courts of the Cook Islands. In many cases, this requires re-litigating the same issues that were supposedly settled in the foreign court. Due to the length of time involved, the statute of limitations may have already passed, therefore making the claim a barred transaction in the eyes of the court.
As a result of the strong legal protections granted to Cook Islands Trusts, as well as the difficulty of recovery, very few cases are brought against Cook Islands Trusts or cases settle for a lower amount instead of continuing the lawsuit. In the world of asset protection, the best battles are the ones avoided altogether. A quick settlement can save hundreds of thousands in legal fees, as well as the uncertainty and other headaches that come with lengthy litigation. If you are considering whether a Cook Islands Trust or other asset protection solution is right for you, contact Blake Harris Law.
