Criticisms of Cook Islands Trusts

Cook Islands trusts are frequently presented as the strongest form of asset protection available—but they are not immune from criticism or regulatory reality. In this episode, we examine the most common critiques of Cook Islands trusts and explain how modern transparency, enforcement, and court powers can limit their effectiveness if misunderstood or misused.

🔎 In This Episode, You’ll Learn:

1️⃣ Subject to Automatic Exchange of Information

Despite perceptions of secrecy, Cook Islands trusts are not invisible.

They are subject to FATCA and CRS, meaning information can be automatically exchanged with tax authorities in the settlor’s or beneficiaries’ home jurisdictions.

2️⃣ Exchange on Request Is Possible

Once preliminary information is obtained through automatic exchange, authorities may proceed with Exchange of Information on Request.

At this stage, the request is no longer considered a “fishing expedition.”

The legal basis for this cooperation is provided by the Multilateral Competent Authority Agreement (MCAA), now signed by roughly 180 jurisdictions.

3️⃣ Enforcement After Disclosure

Once tax or enforcement authorities have the relevant information, domestic courts regain leverage.

Courts may:

• Order the settlor to repatriate funds

• Impose fines or penalties

• Hold the settlor in contempt of court

• In extreme cases, impose imprisonment

This shifts the focus from offshore law to personal compliance obligations at home.

4️⃣ The “Trustee Won’t Repatriate” Argument Is Weak

A common belief is that trustees will simply refuse to return assets. Courts, however, may reject this argument if they determine that:

• The trust can be cancelled or influenced

• The settlor retains indirect control

• A Protector can override trustee decisions

In such cases, courts may conclude that the settlor has effective control—undermining the asset-protection narrative.

5️⃣ Key Takeaway

Cook Islands trusts are not designed to defeat courts or regulators, but to provide lawful asset protection against future, unknown risks.

They must be used with:

• Full tax compliance

• Proper timing

• Real loss of control

• A clear understanding of enforcement realities

This episode offers a necessary counterbalance to overly simplistic claims—helping listeners understand both the strengths and the real-world limits of Cook Islands trusts in today’s transparency-driven environment.