Located just south of the US Hawaiian islands lies a lawsuit-proof paradise of untouchable assets – the Cook Islands.
It could have easily been another forgettable island in the Pacific ocean.
Except for one thing… it boasts the most dominant asset protection trust laws on the planet.
The Cooks are a global pioneer in offshore asset-protection trusts, with laws devised specifically to protect foreigners’ assets from legal claims in their home countries. And when I say “devised specifically to protect”, I mean that literally – the law was hand-written by a US trust attorney.
In 1989, a Cook official began seeking ways to generate revenue for the islands. He contacted Barry Engel, a Denver, Colorado lawyer who specialized in asset-protection trusts. After realizing the potential of creating an international wealth shelter, Engel was hired to help write the new Cook law.
The country enacted the newly drafted International Trusts Amendment Act (ITAA) later that same year.
Cook Island trusts are now bulletproof, and it is not a matter of theoretical protection. Every case in which it has been put to the test it has provided full protection for the assets of the client.
In two cases, the US government was the one attempting to penetrate the trust. They came up empty on both attempts.
Fannie Mae, a government-sponsored lender, is still waiting to collect on a $10 million judgment against an Oklahoma developer who defaulted on his loans. In legal filings, Fannie Mae says it has collected only $12,000 — and “that is not for lack of trying.” The “clear purpose” of the trust, Fannie Mae complains, “is to avoid payment of the judgments obtained by Fannie Mae.”
The Federal Trade Commission also struck out. In 2007, the FTC won a $37.5 million judgment against Kevin Trudeau for “airing blatantly deceptive infomercials” for his diet book “The Weight Loss Cure.” So far, they have collected nothing. The government claims Mr. Trudeau “uses sophisticated asset-protection devices designed to defeat the jurisdiction of American courts.”
The Cayman Islands and Switzerland capture most of the headlines for offshore accounts and secret bank accounts, but the Cook Islands offer a very unique advantage to Americans – the long arm of United States law simply does not reach there. The Cooks generally disregard foreign court orders, making it easier to keep assets from creditors, or anyone else.
Offshore Company, an international financial services firm who has been setting up similar entities for decades, explains:
“This is how the Cook Islands Trust works: A court in your area says, “Give us the money.” So, you put together a letter and mail it to the trustee. You inform them that your local judge has ordered you to bring back the funds. The trustee is required to follow the instructions provided in the Cook Islands Trust document. The asset protection trust states that the trustee is prevented from letting the funds out of the trust when the beneficiary is acting under force from the courts. So, the trustee, who resides outside of your local court’s reach, refuses to comply. You are not in trouble because you are willingly obeying the judge’s orders and asking the trustee to bring back the funds. You’re in an “impossibility to act” position which is certainly valid for a legal defense.
Prior to the “bad thing” taking place, you (who are the beneficiary of the trust) are in full control. Thus, you manage the daily financial affairs. The way this is accomplished is that we form an offshore limited liability company (LLC). The LLC is owned by the trust 100%. You are the Manager of the offshore LLC and you control the assets of the LLC. You are the signer on all bank accounts. Then, when the “bad thing” crops up, the trustee takes your place as LLC manager.
Once the “bad thing” fades away, the controlling position, the management of the LLC, is returned to you and you are back in the pilot’s seat with all of your money safe and secure. Meanwhile, during times of legal threat, if you have items that need paid, the trustee can take care of them for you. You can ask the trustee to forward some of your funds to an individual who you trust. They can, in turn, provide money for your needs. Thus, you still retain the ability to receive your money, but your legal enemies do not. The end result is that the money for which you have worked so diligently is safe and out of harm’s way.”
These trusts often get a bad rap, not because they are illegal, but because of the infamous individuals who often use them.
A 2013 data leak revealed that Allen Stanford, the convicted mastermind of a $7 billion Ponzi scheme, held a Cook trust. So did Dr. Michael Kamrava, the fertility doctor who lost his license after implanting embryos that gave birth to octuplets in the Octomom case.
Denise Rich, ex-wife of disgraced trader Marc Rich, had a Cook trust worth more than $100 million in assets, including a 157-foot yacht, a Learjet 60 and a Swiss bank account.
But despite some of the unpleasant trust holders who make the news, these entities are becoming wildly popular among the law-abiding wealthy. Doctors, developers, corporate executives and parents of teenage drivers can all benefit from the asset protection offered by the Cooks.
Win a malpractice suit against your doctor? To collect, you will have to go to the other side of the globe to plead your case again before a Cooks court and under Cooks law. That is a big selling point for a broad swath of wealthy Americans fearful of getting sued, and some who have been.
“Lawyers can debate the morality of these trusts,” said Mr. Engel, the author of the ITAA who has established more than 1,300 Cook 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.”
Americans have moved more than $1 trillion to offshore accounts around the world, and the United States has begun to crack down with over-reaching laws such as FATCA. But the Cooks have gotten little attention from American regulators so far.
“There’s been a lot of pressure on the Caymans and other places to clean up,” said Heather Lowe, director of government affairs at Global Financial Integrity, a Washington research and advocacy group. “There are many areas where pressure is not exerted, and the Cooks is one of them. Using a Cook trust to hide assets from your spouse may not make the headlines.”
So what is the cost to set up an impenetrable fortress around your hard-earned assets?
It will depend slightly on who you use and the complexity of your situation, but setup fees average around $10,000. Maintenance including Form 3520 filings with the IRS, annual registration expenses and trustee time to facilitate these procedures will run you another $5,000 to $10,000 in yearly upkeep.
But for many investors, this is a small price to pay for the level of protection and secrecy a Cook Islands trust can offer.