Using Trusts for Asset Protection in Texas

Trusts are among the most versatile legal tools available for asset protection. Whether you’re a business owner, investor, or someone planning to transfer wealth to the next generation, the right trust structure can shield your assets from creditors, lawsuits, and probate — all while keeping your affairs private. At Guerra Days Law Group, we design strategic trusts tailored to Texas law and your specific financial goals.

What Is a Trust?

A trust is a legal relationship where one party (the grantor) transfers ownership of assets to another party (the trustee) to hold and manage for the benefit of a third party (the beneficiary). Properly structured, a trust can:

  • Separate legal ownership from beneficial ownership
  • Protect assets from lawsuits, judgments, or bankruptcy
  • Avoid probate and keep your estate private
  • Control how and when assets are distributed to heirs
  • Provide long-term management for special needs or spendthrift beneficiaries

But not all trusts are created equal. The wrong type of trust — or a poorly drafted one — could provide zero protection or trigger unexpected tax consequences.

Revocable vs. Irrevocable Trusts

Trusts fall into two broad categories, each with very different asset protection benefits:

Revocable Living Trust

This type of trust allows you to retain full control over your assets during your lifetime. It’s commonly used to avoid probate and manage assets during incapacity. However, because the grantor retains control, these trusts do not offer asset protection from creditors or lawsuits.

Irrevocable Trust

In contrast, an irrevocable trust removes assets from your personal estate and places them under the control of a trustee. This separation — if done properly — shields those assets from personal liability and future legal claims. You cannot amend or revoke the trust at will, which is what makes it so powerful.

Types of Trusts Used for Asset Protection

Depending on your goals, we may recommend one or more of the following trust structures:

1. Asset Protection Trust (APT)

This is a specialized irrevocable trust designed specifically to protect assets from future creditors. While Texas does not have domestic APT statutes, we can structure hybrid versions using Texas law or refer to compliant jurisdictions like Nevada, Delaware, or South Dakota when appropriate.

2. Spendthrift Trust

A spendthrift clause prevents beneficiaries from squandering their inheritance and protects trust assets from the beneficiary’s creditors until the assets are actually distributed. These are ideal for beneficiaries with debt issues, addictions, or poor financial judgment.

3. Medicaid Asset Protection Trust (MAPT)

Used in elder law planning, this irrevocable trust shelters assets so the grantor can eventually qualify for Medicaid long-term care benefits without depleting all savings or selling the home.

4. Life Insurance Trust (ILIT)

An Irrevocable Life Insurance Trust removes life insurance death benefits from your taxable estate and ensures those funds are protected and distributed according to your wishes.

5. Family Trust / Legacy Trust

Used for multi-generational wealth planning, this type of irrevocable trust protects assets from divorce, lawsuits, and creditors while preserving them for children and grandchildren.

What Can Be Placed Into a Trust?

Virtually any asset can be transferred into a trust, including:

  • Real estate (including homesteads and investment properties)
  • Bank and brokerage accounts
  • Business interests or LLC membership units
  • Life insurance policies
  • Intellectual property and royalties
  • Collectibles and valuables

We carefully assess each client’s situation to determine which assets are suitable for transfer, and whether tax or control issues exist that require special handling.

What Trusts Can and Cannot Protect

Asset protection trusts are highly effective when implemented properly and early — but they’re not magic. Here’s what to know:

  • They cannot protect assets from existing judgments or creditors.
  • They must be irrevocable or discretionary in order to work.
  • They must not violate the Uniform Fraudulent Transfer Act (UFTA).
  • They must be funded with valid transfers and documented properly.

Attempting to “hide” assets after litigation begins or within a short time of filing bankruptcy can backfire. That’s why we emphasize proactive planning — not reactive scrambling.

Trusts + Business Entities = Maximum Protection

Some of the strongest protection comes from layering strategies — for example, placing an LLC inside a trust. This can protect assets from both inside and outside liability. If someone sues the business, they can’t reach the trust assets. If someone sues you personally, they can’t get to the LLC assets held in trust.

This type of planning is especially effective for:

  • Real estate investors with multiple properties
  • Doctors, dentists, and other professionals
  • Business owners with valuable intellectual property or contracts

Our Process: Custom Trust Planning That Works

Every trust we draft is customized — no templates or generic forms. Our process includes:

  1. Assessing your net worth, risks, and goals
  2. Recommending the right type of trust(s) for your situation
  3. Drafting the trust agreement and funding documents
  4. Coordinating with your CPA or financial advisor, if needed
  5. Reviewing the plan annually or as life events occur

Explore More Asset Protection Resources

This page is part of our full Texas Asset Protection series. Learn how other strategies complement trust planning:

Start Your Trust-Based Asset Protection Plan Today

Whether you want to protect real estate, secure an inheritance for your children, or build a long-term legacy, we’re ready to help. Schedule a confidential consultation to design a trust strategy that’s built to last — and built for Texas law.

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