The concept
The pairing of an irrevocable Cook Islands trust and a Nevis LLC works as a generator of procedural costs for the creditor: recovery stays legally possible but becomes slow, expensive and, in most cases, uneconomic. The regime rests on the Cook Islands International Trusts Act 1984 (as amended in 1989) and the Nevis Limited Liability Company Ordinance, whose §60 makes the charging order the sole creditor remedy. On top sit the U.S. grantor trust rules and Revenue Ruling 77-137, which set the tax and phantom-income mechanics.
The diagram below shows who owns what: the trust holds the LLC interest, the LLC holds the assets, and the creditor gets only a charging order.
The structure has two parts, and their roles differ. The irrevocable Cook Islands trust holds legal title and owns 100% of a Nevis LLC; the LLC holds the liquid assets — a brokerage account, cash, interests. The settlor stops being the owner but stays a beneficiary. A licensed trustee in Rarotonga is beyond the reach of a U.S. court, and a duress clause lets the trustee ignore settlor instructions given under another court's coercion.
The assets stay fully visible: the owner reports every dollar to the IRS, and account data flows out through the CRS and automatic-exchange channels — both jurisdictions take part in AEOI. The effect of the structure is purely economic: the creditor has to re-litigate from scratch in a hostile forum under rules built against them, and for most that makes recovery uneconomic. The structure raises the price and lowers the odds of recovery; it promises no inviolability.
Where it came from
The modern asset protection trust was invented in the Cook Islands: the 1989 amendments to the International Trusts Act 1984 were the first in the common-law world to turn the fraudulent-conveyance doctrine in the debtor's favour. The history of the genre, the map of jurisdictions — from the Cook Islands and Nevis to the American DAPTs — and the lessons of the Anderson case are covered in the overview article on asset protection trusts.
The Nevis LLC was built into the scheme later, as an operational shell: the Cook Islands supply an impregnable trust perimeter, Nevis a flexible company that a creditor can enter only through a charging order. How the trust itself is built — settlor, trustee and beneficiary — is covered in How a trust works.
Who holds title and who runs the assets
The trust and the LLC do different jobs, and each closes a weakness the other leaves open. Apart, they are weaker than together.
The Cook Islands trust: holder of title
The trust moves legal title beyond reach and solves the key problem — jurisdiction. A U.S. court can order a person (the settlor, a manager) to act, but not a foreign trustee. If the trustee takes full independent control under the duress clause, even the settlor cannot voluntarily comply with a repatriation order. On top of that sits the Cook Islands statutory protection: no recognition of foreign judgments, a criminal standard of proof, a short limitation period.
The Nevis LLC: holder of the assets
The LLC holds the assets and gives operational flexibility: a brokerage account can be run without going to the trustee for every trade. Legally, the sole member of the LLC is the trust, not the individual. Under Nevis law the only thing a judgment creditor gets is a charging order — a right to distributions, if any are ever made. The manager simply makes none, and the creditor gets nothing.
Why both are needed
Because the trust and the LLC are two separate obstacles. To reach the LLC's assets, a creditor must first pierce the trust. To reach the trust, they must win in a Rarotonga court under local law. And the charging order at the LLC level is a practical barrier before the trust is even tested. This is exactly why a standalone Nevis LLC without a trust is more exposed: a U.S. court may characterise its membership interest as the debtor's personal property and issue its own charging order under the forum state's law. The trust wrapper removes that problem — the trust owns the interest, not the person.
Procedural barriers: what the friction is made of
Protection here rests on friction: every step the creditor takes runs into a separate procedural obstacle.
No recognition of foreign judgments
A U.S. judgment is worth exactly nothing in the Cook Islands or Nevis. A creditor cannot simply bring their verdict and enforce it — they must litigate from scratch in the local court, under local law, physically present in a foreign jurisdiction.
Fraudulent transfer — the beyond-reasonable-doubt standard
To challenge a transfer into the trust as fraudulent, a creditor must prove — to the criminal standard, beyond a reasonable doubt — that the settlor acted with the principal intent to defraud that specific creditor and was insolvent at the time of the transfer. In the U.S. the same question is decided on the civil more-likely-than-not standard. The gap between those two bars is a chasm, and few creditors are willing to jump into it.
A short limitation period
Both the Cook Islands and Nevis impose hard deadlines. In Nevis, since the 2015 amendments, a fraudulent-transfer claim must be brought within two years of the transfer; after that the court will not hear it, whatever the evidence.
In the Cook Islands the two-year clock runs from the date the creditor's cause of action accrued, not from the transfer (s.13B, International Trusts Act 1984). A transfer is protected if it was made before the cause of action accrued, or more than two years after it accrued. Where the transfer falls inside those two years, the creditor has one year from the date of the transfer to commence proceedings — otherwise the transfer is likewise deemed non-fraudulent. Missing either deadline closes the question.
A bond and a local forum
A bond is required both for the trust and for the LLC, but the two work differently. At the trust perimeter the sum is named in the statute: before bringing an action against trust property, a creditor must deposit a bond from a financial institution in Nevis with the Permanent Secretary in the Ministry of Finance; the 2009 and 2015 amendments brought it to EC$270,000 — about US$100,000 at the pegged rate of EC$2.70 to the dollar (s. 61, Nevis International Exempt Trust Ordinance 1994, CAP. 7.03(N)).
For the LLC the statute names no figure: s. 62 of the Nevis Limited Liability Company Ordinance 2017 (Ordinance 2 of 2017, in force 1 January 2018) leaves the amount to the Nevis court, which may vary it as the case proceeds. So the creditor must commit real money before the first procedural step. Combined with the refusal to recognise foreign judgments, this often makes collection simply uneconomic.
A self-expiring charging order and phantom income
The Nevis charging order is the exclusive remedy: no foreclosure on the interest, no management, no forced distribution. It lasts at most three years and cannot be renewed — and throughout that time the debtor keeps full membership rights, voting and, if also the manager, continuing to manage the assets.
On top of this, planners add the phantom-income argument: on the logic of Revenue Ruling 77-137, the charging-order holder can be treated as the assignee of the economic interest and may owe U.S. tax on the LLC's allocable income — even without a single distribution. The argument is disputed — a charging order alone does not give the creditor dominion and control, so the real applicability of 77-137 is questionable. But it works even as a threat: the manager need only retain earnings inside the LLC and wait the creditor out.
It saves no tax
The whole structure is tax-neutral. It is a grantor trust under U.S. rules — transparent to the IRS, with all income landing on the settlor's return as if the structure did not exist. No deferral, nothing taken out of the tax base.
If anything, reporting increases: Form 3520 (transactions with a foreign trust), Form 3520-A (information return of a foreign trust with a U.S. owner), FBAR (FinCEN 114) and Form 8938 (FATCA); depending on the LLC's classification, possibly 5471 or 8865. This is an asset-protection tool; there is no tax planning in it. Selling it as a tax scheme misleads the owner and exposes them to draconian penalties for unfiled forms.
Where it fits
Who it suits: people with serious but not-yet-materialised litigation exposure — surgeons, developers, founders — and a meaningful pool of liquid assets (think upwards of half a million dollars). The trust wrapper starts to matter above the level where a standalone Nevis LLC's vulnerability to domestic enforcement becomes critical.
Timing is everything. The structure must be funded while no claim is on the horizon and none can reasonably be foreseen. Its strength is procedural; it does nothing for a transfer that was already fraudulent when made. Against an already-known divorce, an existing verdict or a tax claim it turns into evidence of bad-faith asset-stripping — and strikes the settlor himself.
Risks
The contempt and repatriation risk is real precisely when the structure is set up too late or the settlor keeps too much control. A duress clause helps only to the extent it genuinely strips the settlor of the ability to comply — and only with clean, early funding.
A second risk is the unsettled law on domestic enforcement: courts disagree on whether a U.S. court can issue its own charging order against an interest in a foreign LLC. The trust wrapper defuses this, but there is no judicial consensus. A third is compliance: a missed 3520 or 3520-A carries penalties measured as a percentage of assets, so the structure demands a CPA who understands foreign trusts. Offshore by itself draws IRS attention — everything must be impeccably reported.
Q/A
The questions that usually open the conversation.
Is this about secrecy?
No. Everything is reported to the IRS. The protection is procedural friction in a hostile forum; it does not make the assets invisible.
Will I save on tax?
No. It is a grantor trust, fully transparent: the same tax, more forms. Promises of tax savings are misleading.
Can I set this up once a claim is on the horizon?
That is the classic trap. Funding the structure when a claim is already foreseeable turns it from protection into grounds for contempt and a fraudulent-transfer suit — exactly as in Anderson and Lawrence.
Why a Nevis LLC if I already have the trust?
The LLC gives operational flexibility — running a brokerage account without going to the trustee for every trade — and a second charging-order barrier. The trust owns the LLC; the LLC owns the assets.
Can a U.S. court just force me to bring the assets back?
Yes — that is the core residual risk. The court acts on the owner, not on the trustee. It is the duress clause and clean, early funding that make a repatriation order fail.