# Cook Islands trust + Nevis LLC: a procedural fortress, not secrecy > How a Cook Islands trust over a Nevis LLC works: charging order, beyond-reasonable-doubt, a three-year sunset and phantom income as procedural barriers. Why it is asset protection, not a tax scheme, and where the contempt line runs. Author: Алёна Дунаева — юрист, Family Office (https://wiki.private.law/authors/dunaeva) Last modified: 2026-06-15T16:23:00.000Z Canonical: https://wiki.private.law/en/cook-islands-nevis-asset-protection Topics: structures Jurisdictions: cook-islands, nevis, usa Semantic tags: company --- **Lawyer, Family Office** --- # The concept Pairing an irrevocable Cook Islands trust with a Nevis LLC is not about secrecy and not about saving tax. It is about procedural cost imposed on a creditor. The regime rests on the Cook Islands International Trusts Act 1984 (as later amended) 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 structure has two layers. 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 point is not to hide assets — you still report every dollar to the IRS. The point is that collection becomes uneconomic: the creditor must re-litigate from scratch in a hostile forum under rules built against them. This is not a guarantee of inviolability; it is a stack of barriers that raise the price and lower the odds of recovery. > 🍓 This structure buys procedural distance, not invisibility. It saves no tax (a grantor trust, transparent to the IRS) and adds reporting — 3520, 3520-A, FBAR, 8938. It works only when funded early: set up after a claim arises, it turns from protection into a contempt trap. # How the two-layer structure works Each layer does its own job and closes its own weakness. Apart, both the trust and the LLC are weaker than together. ## Outer layer: the Cook Islands trust 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. Layered on top is the Cook Islands statutory stack: no recognition of foreign judgments, a criminal standard of proof, a short limitation period. ## Inner layer: the Nevis LLC The LLC holds the assets and gives operational flexibility: you can run a brokerage account without bothering 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 layers at once Because each layer is a separate obstacle. 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 layer 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, not secrecy Protection here is built on friction, not on secrecy. Here is what that friction is made of. ## 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. Nevis allows two years for a fraudulent-transfer claim; after that the court will not hear it, whatever the evidence. The Cook Islands periods are short too, running from the transfer or from when the cause of action arose. ## A bond and a local forum Before suing a Nevis LLC or its property, a creditor must post a bond with a local financial institution — the 2015 amendments set it at EC$100,000 (~US$37,000), and since 2018 the court may set it higher or lower. 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 also lasts at most three years and cannot be renewed. And under Revenue Ruling 77-137 the charging-order holder is treated as the assignee of the economic interest and may owe U.S. tax on the LLC's allocable income — even without receiving a cent in distributions. That is phantom income: tax due, no cash. The manager need only retain earnings inside the LLC and wait the creditor out. # It saves no tax Here it pays to be blunt: 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, not tax planning. Anyone selling it as a tax scheme is misleading the client — and exposing 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 layer 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. It is not a tool to hide assets from a known divorce, move them out from under an existing verdict, or cheat the tax authority. # Risks > ⚠️ The honest downside: a U.S. court does not need to reach the offshore assets to hurt you. It can order you, personally, to bring them back — and jail you for contempt if you refuse. This has happened: FTC v. Affordable Media (the Anderson case, 9th Cir. 1999) and In re Lawrence (11th Cir. 2002), where settlors funded the structure with a claim already looming and kept control over it. The impossibility defence failed — they could in fact return the money. 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 layer 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. # FAQ 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, not invisibility of the assets. ### Will I save on tax? No. It is a grantor trust, fully transparent: the same tax, more forms. Anyone promising tax savings is misleading you. ### 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 you, not the trustee. It is the duress clause and clean, early funding that make a repatriation order fail. --- --- ## FAQ ### Is this about secrecy? No. Everything is reported to the IRS. The protection is procedural friction in a hostile forum, not invisibility of the assets. ### Will I save on tax? No. It is a grantor trust, fully transparent: the same tax, more forms. Anyone promising tax savings is misleading you. ### 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 you, not the trustee. It is the duress clause and clean, early funding that make a repatriation order fail. --- ## Factual claims - Lawyer, Family Office - Before suing a Nevis LLC or its property, a creditor must post a bond with a local financial institution — the 2015 amendments set it at EC$100,000 (~US$37,000), and since 2018 the court may set it higher or lower. - If anything, reporting increases: Form 3520 (transactions with a foreign trust), Form 3520-A (information return of a foreign trust with a U.S. - A second layer is the unsettled law on domestic enforcement: courts disagree on whether a U.S.