Pacific Law – Asset Protection Structures – 12th March 2025

In this session, you will gain a comprehensive understanding of asset protection strategies, focusing on the use of legal structures to shield personal wealth and investment assets from liability.

Presented by legal expert Derek Sky of Pacific Law, the session covers trusts, companies, and self-managed super funds, offering real-world examples and practical advice. You’ll also explore how to safeguard your family home, manage risk through structuring, and minimize tax effectively. Here’s what you’ll learn from this session:

Asset Protection Fundamentals

Asset protection is about minimising the financial consequences of risk, such as lawsuits, business failure, or bankruptcy. Derek explains that legal structures—including trusts, companies, and super funds—separate personal assets from risky activities, protecting wealth from unexpected liabilities. Examples include a developer avoiding liability by moving assets to a separate trust and a landlord facing a lawsuit after tenant injury.

Discretionary Trusts (Family Trusts)

Discretionary trusts form the foundation of most asset protection strategies. They hold assets for a range of beneficiaries, allowing income and capital to be distributed at the trustee’s discretion. Importantly, you don’t “own” the trust’s assets, meaning personal creditors cannot access them if you’re sued. Key roles include the trustee (often a company, to reduce personal liability) and the appointor, who controls who acts as trustee.

Use Cases:

• Holding property, shares, cash, or crypto.
• Operating businesses (with caution for licensing or risk exposure).
• Planning for flexible income distribution and capital gains tax benefits.

Piggy Bank Trusts

A piggy bank trust is a special-purpose discretionary trust used for safe asset storage. It never engages in risky activities—no borrowing, real estate, or business operations—and can be managed by individual trustees due to low risk. It’s ideal for holding:

• Cash, shares, Bitcoin (unleveraged).
• Shares in private companies, except corporate trustees (due to lending policy changes by banks like Macquarie).
• Gifting strategies to protect personal wealth, such as contributing cash to the trust and borrowing it back.

Piggy bank trusts can also secure your home equity using a gift and loan-back arrangement, protecting the value without losing tax advantages like the principal residence capital gains exemption.

Consulting Trusts

Designed to generate service-based income, consulting trusts allow you to:

• Charge consulting fees for work done on your own deals (site visits, feasibility studies, management).
• Create recognised income for lenders, improving borrowing capacity.
• Operate side businesses (e.g., Airbnb management) under a separate structure for asset protection.

Consulting trusts do not hold assets or perform high-risk activities; their purpose is service income generation.

Admin Trusts

An admin trust serves as a centralised management structure for those with multiple investment trusts. It simplifies operations by consolidating rent collection and expense payments, reducing administrative burden. It does not hold property or assets and is not designed for tax planning or asset protection.

Unit Trusts for Joint Ventures

When collaborating with multiple investors, a unit trust can formalise shared ownership, with each party holding fixed units and receiving proportional income and capital. This is suitable for larger projects or joint ventures with 3+ participants.
Unit holders are usually discretionary trusts with corporate trustees for protection. Special consideration is given to funding methods (equity vs. loan) and bank requirements.

Companies in Asset Protection

Companies are separate legal entities useful for:

• Operating businesses or holding assets directly (less common for investors).
• Acting as corporate trustees for trusts, offering liability protection.
• Distributing profits via dividends, often to a discretionary trust for flexibility.
  Key Consideration: Companies do not receive capital gains tax discounts and should not retain large profits due to exposure to business risks.

Bucket Companies

A bucket company receives income distributions from discretionary trusts and pays tax at a flat 30% rate, often lower than personal tax rates. It allows income deferral and can act as a friendly bank, loaning funds for future projects. Strict rules apply, including Division 7A loan requirements when lending to individuals or trusts, which must be carefully managed by an accountant.

Self-Managed Super Funds (SMSFs)

SMSFs provide high-level asset protection and preferential tax treatment, but are highly regulated. They are suitable for holding long-term assets, with strict restrictions on use and investment types. Mistakes in SMSFs can result in severe tax penalties, so expert advice is crucial.

Advanced Structuring and Succession Planning

Derek discusses progressive structuring, from an initial investment trust to multiple trusts, consulting and admin trusts, piggy bank and bucket companies, and eventually succession planning. Control—not ownership—becomes the key focus in estate planning for structured assets.

Costs, Risks, and Practicalities

• Structures require annual costs (tax returns, company fees).
• Borrowing is more complex but manageable with the right lender or broker.
• Asset protection often outweighs costs, but legal and accounting advice is essential before setup.
• Family law (e.g., divorce) can override asset protection structures, requiring binding financial agreements for protection.

By the end of this session, you’ll undertand how to use legal structures to protect assets, reduce tax, and manage investment risk. Whether starting with one trust or preparing for complex projects, this session equips you with a roadmap for long-term wealth protection and growth.

Action Items

• Contact Pacific Law or Investor Pacific Structures to set up asset protection structures.
• Consult with an accountant to discuss the tax implications and requirements for setting up various structures.
• Review existing property ownership and consider the “gift and loan back” arrangement to protect the primary residence.
• Discuss with a loan broker the options for borrowing and financing when using various asset protection structures.