Can an Offshore Trustee Steal Your Money?

An offshore trustee cannot legally steal your money because the trustee is bound by strict fiduciary duties under the law of the offshore jurisdiction. However, that doesn’t mean there’s no risk. The real danger lies in choosing the wrong trustee company or failing to set up proper oversight and legal protections.

In a well-structured offshore trust, the trustee is not given free rein. Trust documents, local Cook Islands law, and backup mechanisms, such as trust protectors, are designed to prevent abuse and protect the trust assets, even from the trustee.

An offshore trustee is a licensed fiduciary located outside the United States who manages trust assets on behalf of the trust’s beneficiaries. The trustee is responsible for adhering to the terms of the trust agreement and administering the trust in accordance with the laws of the relevant offshore jurisdiction.

The Cook Islands has the most regulated offshore trustee laws in the world. That is one reason we always prefer our clients to form a trust in the Cook Islands instead of other jurisdictions.

Offshore trustees are professional firms regulated by the financial services authority of the jurisdiction in which they operate. Trustees must meet licensing requirements, submit to audits, and carry liability insurance. These safeguards are intended to give clients confidence that their trust will be properly managed.

The trustee we work with is audited annually by KPMG, one of the top four accounting firms in the world.

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No, a trustee—offshore or otherwise—has a legal duty to act in the best interest of the trust and its beneficiaries. Misappropriating trust assets would be a breach of fiduciary duty and a crime under the laws of nearly every offshore jurisdiction.

Offshore jurisdictions that cater to asset protection trusts, such as the Cook Islands, are especially strict about enforcing trustee duties. Their reputations depend on maintaining trust in their legal systems. Trustees who violate their duties risk license revocation, civil liability, and criminal penalties.

The best offshore trust structures do not rely on blind trust in the trustee. They build in legal, practical, and procedural safeguards to prevent theft or misuse of funds. Common protections include:

• Trust Protector Role: A third-party protector is granted authority to remove or replace the trustee if there’s misconduct or abuse.
• Limited Distributions: Trustees generally cannot make distributions to third parties without explicit instructions or approval.
• Dual Approval for Transfers: In the Cook Islands, distributions must be dual-authorized by an attorney on staff with the trustee company.

If an offshore trustee acts dishonestly or negligently, there are several layers of recourse. First, the trust protector can immediately remove the trustee. Second, the trustee can be sued in the offshore court system. Offshore jurisdictions like the Cook Islands have well-established courts that enforce fiduciary obligations.

Offshore trustee companies also carry professional liability insurance. They are usually underwritten by U.K. institutions. If the trustee’s misconduct results in a loss, insurance coverage may compensate the trust.

Ultimately, offshore trustees who betray client trust lose their business. The economic incentives and legal risks make rogue behavior rare among reputable firms.

The most important decision when creating an offshore trust is selecting a qualified, proven trustee company. Red flags to avoid include:

• Unlicensed or newly-formed trustee companies
• Trustees offering unusually low fees
• Offshore jurisdictions with little or no regulatory oversight
• Trustees unwilling to share sample trust language or references

Most clients work through a U.S.-based attorney who regularly handles offshore trust formation. A good attorney will vet the trustee, negotiate favorable trust terms and fees, and ensure proper oversight.

In practice, it is extremely rare for offshore trustees to steal from a trust. The jurisdictions most commonly used for offshore trusts are motivated to maintain international credibility and enforce their laws. Any trustee that engaged in theft would face swift legal consequences, including criminal prosecution.

Offshore trusts are designed to protect assets—not expose them to unnecessary risk. A properly drafted offshore trust with a reputable trustee and an engaged protector provides one of the strongest asset protection strategies available.

About the Author

Gideon Alper is an attorney who specializes in asset protection planning. He graduated with honors from Emory University Law School and has been practicing law for almost 15 years.

Gideon and the Alper Law firm have advised thousands of clients about how to protect their assets from creditors.