ARTICLE · 01 OCTOBER 2026

Trust Structures And Asset Protection During Bankruptcy

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Trust structures can protect assets held for others, but they do not shield a bankrupt person's own entitlements, trustee indemnity rights, or transfers made to defeat creditors. The deed, financial records and transaction history determine whether trust property remains outside the bankruptcy estate or becomes available to creditors through beneficial interests, indemnity claims, or voidable transaction recovery.

AustraliaInsolvency/Bankruptcy/Re-Structuring

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Article Summary

Trust structures and asset protection during bankruptcy turn on actual ownership, enforceable entitlements and the history of transfers. Property genuinely held for others is excluded by section 116(2)(a) of the Bankruptcy Act 1966, but a bankrupt’s fixed beneficial interest, personal loan account, distribution entitlement or trustee indemnity may still matter. Discretionary beneficiary status and practical control do not, by themselves, establish ownership of every trust asset.

Section 120 can recover undervalued transfers within its five-year statutory period, subject to specific exceptions and solvency defences. Section 121 targets transfers whose main purpose is to prevent, hinder or delay creditor access, without an equivalent fixed look-back period. Paying market value alone does not satisfy its recipient defence.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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