Cook Islands Trust: Asset Protection or Tropical Paradise?

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Last Updated: Aug 24, 2026

Read Time: 3 mins

So we’re here today to talk about asset protection planning, which can mean a few different things. There are two main vehicles to consider when we’re talking about asset protection: LLCs and trusts. LLCs, or Limited Liability Companies, are business entities that can provide a level of asset protection. Trusts, on the other hand, are legal arrangements that hold assets for beneficiaries. These can be used separately or together, depending on your specific situation.

The Three Phases of Asset Protection Trust Planning:

Domestic Asset Protection Trusts (DAPTs):
- Currently, about 19 states have laws that allow for domestic asset protection trusts. This means you can set up a trust for your own benefit and transfer your assets into it, protecting them from creditors, lawsuits, and judgments. However, there are nuances depending on the state you’re in and how the trust is set up. Some states have stronger protections than others, and it’s important to understand the specifics of the state law where you set up the trust.
Foreign Asset Protection Trusts (FAPTs):
- Some people opt for foreign asset protection trusts, particularly if they feel that domestic trusts don’t provide enough protection. Cook Islands, a Polynesian country, is one of the most popular jurisdictions for this type of trust because it has some of the strongest asset protection laws in the world.
- The principle is the same as domestic trusts: you set up a trust for your own benefit, and your assets are protected from judgments, creditors, and lawsuits. When people hear “foreign” or “offshore,” they often worry about the tax implications or fear that it involves tax evasion. However, FAPTs are tax-neutral, meaning there is no tax advantage or disadvantage to using them. They are simply another layer of protection.
Third-Party Settled Trusts:
- This is another domestic strategy where someone else (a third party) sets up a trust for your benefit. If assets are transferred into this trust, either by funding from the third party or through some transaction, those assets are protected from your creditors, lawsuits, and judgments.
- Third-party settled trusts are a powerful tool, especially for families who want to protect assets passed down to children or other beneficiaries from issues like divorce or personal liability.

Choosing the Right Strategy:

When thinking about asset protection, it’s important to consider these three different approaches. It makes sense to sit down with an attorney who specializes in this area and discuss your specific concerns and risks. A good attorney will be able to:

Assess and Identify Risks: They’ll help you understand what your specific risks are—whether it’s lawsuits, creditor claims, or something else.
Quantify the Risks: They’ll help you put a number on how much is at stake and how much protection you really need.
Choose the Best Option: Based on this information, you can decide whether a domestic option, a foreign option, or a combination of both makes the most sense for your situation.

Asset protection isn’t a one-size-fits-all solution. It needs to be tailored to your individual circumstances, and a consultation with an experienced attorney is the best first step.

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