If you plan on opening an offshore trust in the Cook Islands, that’s probably a smart choice. This jurisdiction offers strong asset protection as it doesn’t recognize foreign judgments. Creditors must file fraudulent transfer claims with Cook Islands courts, a burdensome and expensive process many won’t attempt.
However, you may have some questions about Cook Island Trusts. Most prominently, what fees are associated with a Cook Islands Trust that are not part of the setup cost? In addition to the setup fee, which can range from $10,000 to $100,000, you must consider annual maintenance fees, legal costs, and taxes.
Below, we explore additional fees in Cook Islands trust management to help you budget for these expenses.
Annual Maintenance Costs
Ongoing Cook Islands trust fees include annual maintenance costs. You must pay these fees every year, and annual expenses for a Cook Islands Trust can be significant for a complicated asset portfolio and trust structure.
Learn more about the fees beyond the setup cost in a Cook Islands trust below.
Trustee Fees
You will need an offshore trustee to manage your assets as part of your trust. Your trustee has an important job, as you put them in charge of your assets. In the event of a U.S. court judgment, one cannot compel the Cook Islands trustee to make distributions since all distributions are subject to the trustee’s discretion. This is because the trustee legally owns assets in the trust.
Annual trustee fees typically range from $3,500 to $8,000. The more work the trustee needs to do, the higher your fees will be. A trust with frequent distributions or transactions will cost more than one that is largely inactive. Many trustees charge by the hour rather than a flat rate, while others charge a combination of a flat rate and an hourly rate.
Banking and Account Fees
You’ll also have to pay annual fees to the bank where the trust holds your assets. These fees will vary depending on the bank and the value of your assets.
Additionally, you will pay a wire fee for each transaction. Fees can range from $50 to $100 per transaction.
Legal and Compliance Costs
Annual fees for a Cook Islands Trust also include legal and compliance costs. Your attorney may periodically review your trust to ensure your plan remains optimally structured. Depending on how complicated your trust is, legal fees can cost you anywhere from a few hundred to tens of thousands of dollars per year.
Cook Islands Trust Taxation
The Cook Islands is an appealing jurisdiction for offshore trusts because of its favorable taxation laws. This jurisdiction charges no income, estate, or capital gains tax on trusts so long as you and your beneficiaries do not reside in the Cook Islands. However, taxes in your home country would still apply. You must also report capital gains from the trust’s income on your personal tax return.
It’s worth noting that the IRS is well aware of offshore trust tax avoidance and evasion schemes, such as opening a bank account in a foreign country and using the funds to pay for everyday expenses in the U.S. The penalties for tax avoidance and evasion can be severe. This is why it is important to use proper legal and tax advisors when creating and maintaining your offshore trust.
Professional Advisory Cost
It’s well worth consulting lawyers, accountants, and other financial professionals regarding your offshore trust. You’ll have to pay fees to do so, and many of these professionals charge by the hour. Depending on who you work with, you could pay anywhere from $100 to $1,000 per hour.
If you hire an accounting firm to prepare your taxes, this incurs an additional fee. The cost depends on how complicated your trust is and the complexity of your portfolio.
Factors Affecting the Cost of a Cook Islands Trust
Now that we’ve answered, “What fees are associated with a Cook Islands Trust that are not part of the setup cost?” you may want to know what affects those fees. We explain some of these factors below.
Complexity of the Trust
The more complicated your trust is and the more work the trustee must do, the higher your fees will be. Fees for a simple, no-frills Cook Island Trust could cost about $20,000 to $40,000.
If your trust is very complicated (for instance, if you have multiple beneficiaries located in different countries), fees can be much more expensive. Fees for highly complex Cook Islands Trusts may cost anywhere from $50,000 to $100,000.
Assets Involved
If you have just a few assets to protect, such as a bank account and a couple of vehicles, fees will cost less than they would for a much more complicated asset portfolio. This is because your attorney must take extra steps to safeguard each additional asset.
If you’d like to protect real estate, for instance, the fees can be significant. Unlike personal property and financial assets, which you can easily move offshore and title to an offshore trust, real estate is fixed in one location and cannot be transported to a foreign jurisdiction.
To solve this challenge, your attorney must use a technique called equity stripping. This strategy essentially “strips” the equity from the property, converting it into cash, which the trust will then protect in the offshore jurisdiction.
Equity stripping is complex and time-consuming, so expect your attorney and the lender to charge high fees to carry it out.
Amount of Time Needed To Establish the Trust
If you need to set up a Cook Islands Trust as soon as possible, expect your attorney to charge high fees for an expedited job. An expedited trust setup can add thousands to the total cost.
Experience of the Legal Professional
As you might expect, the more experienced an attorney is, the more money they can command for their services. An inexperienced attorney may charge as little as $10,000 to set up a trust, while a more experienced one might charge $100,000 or more.
Low-cost law firms may sound like a bargain, but you run the risk of the attorney not setting up your trust correctly. You risk losing your assets and may even come under fire for fraudulent conveyance if a judge suspects you of transferring assets to dodge creditors.
Inclusion of LLC
If you’d like to maintain control over your assets, you can create a limited liability company (LLC), transfer assets to the LLC, and then transfer ownership of the LLC to the trust. This provides strong protection because the trustee can take ownership of the LLC should a creditor come after your assets.
This process is complicated, of course, so expect your attorney to charge a high fee for the service.
Contact an Asset Protection Attorney
If you’d like to know more about setting up a Cook Islands Trust, contact Blake Harris Law today.
