The NSW Court of Appeal recently confirmed that the bankruptcy of a personal trustee or appointer of a family trust does not affect the protection afforded to the family trust assets by the trust structure. 

The Court considered whether the trustee in bankruptcy (T) held the property in question for the benefit of creditors. The effect of a sequestration order against the personal trustee of the trust (C) was that such interest as C had in the property vested in equity in T. T then gained legal title by way of a statutory procedure whereby registration as proprietor can be obtained by a trustee in bankruptcy pursuant to equitable vesting, and claimed that he held the property for the benefit of creditors.

The Court held that statutory vestings do not destroy any trust of which a bankrupt was a trustee. Rather, the NSW Bankruptcy Act 1966 precludes the vesting of any property held by a bankrupt in trust for another. Therefore, the trust in question was not destroyed and the property was not held by T for the benefit of creditors, but was held subject to the existing equities.

See Court decision here.