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Selecting an Offshore Jurisdiction for the APT

Volume II, Number 1 – January/February 1993

Factors To Consider


Selecting the jurisdiction in which the Asset Protection Trust (“APT”) will be located is a very important step. Consideration must be given to a number of factors at that location, including:

  • The legal system,
  • Healthy economic environment,
  • Stable political and social system,
  • Favorable trust protection and tax laws,
  • Compatible verbal communication,
  • Quality professional services,
  • Modern tele-communications, and
  • Procedural and legal advantages.

In this issue we will examine the most important of these factors in relation to a jurisdiction we often utilize, the Cook Islands.


In selecting an offshore jurisdiction for the establishment of the APT, we recommend one whose legal system is based upon the English common law, as opposed to one which is based upon the civil law (sometimes referred to as the Napoleonic Code). The reason for this position is that although the civil law does have a legal concept which resembles our trust concept (called a “usufruct”), the common law trust concept does not exist in the civil law.

Civil law jurisdictions such as Liechtenstein and the Channel Islands have adopted specific legislation in an attempt to assimilate our common law trust concept into their legal systems. However, to avoid possible unexpected property and tax law results, absent some compelling reason to the contrary, we will continue to recommend the use of common law jurisdictions for the establishment of the APT, until our common law trust concept becomes established in these jurisdictions through a well-developed body of case law.


In 1571 the Statute of Elizabeth was enacted in England. Since then, it has provided the basis for the fraudulent transfer laws of much of the civilized world (See AP NEWS, Vol. I, No. 5). The problem with the rule and its progeny has been their overly broad application. Therefore, in selecting a jurisdiction for the establishment of the APT, we recommend one which has enacted legislation specifically overriding and replacing the Statute of Elizabeth. Why do we look for such a jurisdiction? In asset protection planning we seek to create a legal obstacle course in the path of future potential creditors. By utilizing a jurisdiction which has repealed the Statute of Elizabeth, we place one more hurdle in the creditor’s path.

Among the jurisdictions which have adopted legislation overriding the Statute of Elizabeth are the Cook Islands, Gibraltar, the Bahamas, and the Cayman Islands.

An extremely important aspect to be considered in choosing an offshore jurisdiction is the extent to which it adheres to the legal concept of “comity”. Comity is the legal principle under which the courts of one jurisdiction will give effect to the laws and judgments of another jurisdiction.

For example, a judgment obtained in Florida can be enforced in Georgia. However, a judgment obtained anywhere in the United States will not be enforced by the Courts of the Cook Islands.

Thus, a creditor seeking to reach the assets held by an APT subject to the laws of the Cook Islands would have to hire a lawyer in the Cook Islands (who could not legally take the case on a contingency basis), and begin his case all over again. The creditor would also be faced with the possibility of being responsible for some portion of the trust’s legal fees in the event he were unsuccessful – a possibility which tends to be daunting to a creditor, and one which is quite different than would obtain under our legal system. Under the Cook Islands’ legal system therefore, the creditor’s “nothing to lose” attitude cannot exist.

Other trust protection legislative provisions which should be in place in the selected jurisdiction are those which override certain common law restrictions on establishing a trust for one’s own benefit. A simple example will serve to illustrate this point: A “spendthrift” trust is one which contains certain provisions which preclude the creditors of a beneficiary from reaching the beneficiary’s interest in the trust.

While it is entirely permissible in the United States for A to establish a spendthrift trust for B, in no jurisdiction in the United States can one create a “spendthrift” trust for his own benefit. In the Cook Islands, however, creating a spendthrift trust for one’s own benefit is allowed.

The jurisdiction selected should permit the tax-free establishment and operation of the APT. As mentioned in a previous issue (AP NEWS, Vol. I, No. 4), the APT is generally established as a “grantor trust” for U.S. income tax purposes. This means the U.S. grantor (creator of the trust) will continue to report the income of the APT on his tax return. Given this level of taxation, it is important that the APT not be again subject to taxation in the offshore jurisdiction.


From 1888 until 1901 the Cook Islands were a protectorate of Great Britain, jointly administered with New Zealand. In 1901, the boundaries of New Zealand were extended to include the Cook Islands, and New Zealand assumed the responsibility for its administration. In 1965, the New Zealand Parliament, pursuant to the Cook Islands Constitution Act, gave the Cook Islands self government founded upon its own written constitution. The Cook Islands is an English common law jurisdiction with a stable Parliamentary form of government based upon a two party system.

In 1981, the Cook Islands Government embarked upon a legislative course intended to establish the Cook Islands as an international financial center by creating an “offshore jurisdiction”. The framework of the Cook Islands’ offshore jurisdiction was formulated by refining and adapting legislative provisions from other financial centers of the world. The offshore jurisdiction is independent of the domestic laws of the Cook Islands, and trusts operating within the offshore jurisdiction are entirely exempt from any form of taxation in the Cook Islands.


Several jurisdictions present themselves as being satisfactory for the establishment of an APT. For the present, however, the Cook Islands appear to have the most comprehensive and conscientiously drafted trust legislation in the world.

Globally recognized professional asset protection planners in U.S. Donlevy-Rosen & Rosen, P.A. is a law practice with a focus on offshore asset protection planning. Let us explain the significant difference our experience can make when you want to thoroughly protect your assets. Call 305-447-0061 or simply send us a message using our contact page