Family Asset Protection Trust
A Family Asset Protection Trust is built around two ideas at once: it's a trust for your family, and it's meant to put assets out of a creditor's reach. Under Texas law those two ideas work together in one direction only. A properly drafted trust can protect what you leave to a spouse, a child, or a grandchild from that person's own creditors, a divorce, or their own bad decisions with money. It cannot protect what you keep for yourself from your own creditors, no matter how the trust is titled or worded.
That's a narrower promise than a lot of what gets marketed under this name, and it's worth understanding before you set one up. This page covers how a family asset protection trust actually works, the Texas statute that draws the line between what it protects and what it doesn't, the domestic, foreign, and Medicaid-planning variations you'll run into, and how the whole thing fits next to a Texas LLC.
What a Family Asset Protection Trust Actually Does
Three roles show up in every version of this trust. You, as the settlor, fund it. Your trustee — could be a family member, could be a professional fiduciary or trust company — takes legal title to what you've transferred and runs it according to the terms you wrote. Your beneficiaries are simply whoever you've named to eventually receive the assets or what they produce. Property Code Section 112.001 gives Texas three ways to actually create the trust in the first place: a written declaration, an outright transfer of property to a trustee, or a transfer timed to take effect only once you die.
None of that protects anything by itself. Property Code Section 112.051 sets Texas's default at revocable — the document has to say irrevocable in so many words, or the settlor keeps the right to cancel it or take the assets back out, and a trust the settlor can still unwind that way is not one a court will treat as holding assets separate from the settlor's own estate. A family asset protection trust only earns the protection its name promises once it's irrevocable and funded: from that point on, the settlor has permanently given up the power to amend it, revoke it, or reclaim what's inside it, and that permanent loss of control is exactly what the law is checking for.
What It Protects — and the One Thing It Doesn't
A spendthrift clause is what actually helps when things go sideways for whoever inherits under this trust — say your daughter isn't the type to make a windfall last, ends up in a contentious divorce, or has a creditor chasing a judgment against her. Property Code Section 112.035(a)-(c) is what authorizes that clause: once it's written into the document, she loses the ability to sign her share over to anyone, borrow against it, or collect it ahead of schedule — the trustee alone controls timing, on whatever terms you built into the trust. And the protection isn't limited to stopping her own bad calls; Texas courts will hold that same line against outside creditors trying to reach her share too. Worth being clear about who benefits, though: every bit of this exists to protect the person inheriting. None of it reaches back to cover you.
Section 112.035(d) is where the promise stops. If the settlor is also a beneficiary of the trust, that same spendthrift language does not stop the settlor's own creditors from reaching the settlor's interest in the trust. Texas has not passed a statute creating an exception to that rule for a self-settled trust — one where the person funding the trust and the person it protects are the same person — the way a handful of other states have. If a self-settled version is specifically what you're after, that's not something Texas law offers under any drafting; see our page on Does Texas Allow Asset Protection Trusts? for the full statute analysis, and our Wyoming Asset Protection Trust page for how that structure works in a state that actually allows it.
Domestic, Foreign, and Medicaid Variations
A family asset protection trust generally takes one of three forms, and which one fits depends on what you're protecting and from what.
A domestic version — set up under the law of a U.S. state rather than an offshore jurisdiction — is the version most families use, and for a Texas family it means an irrevocable trust naming your spouse, children, or grandchildren as beneficiaries rather than yourself. That's the version this page has covered above, and it's usually the least expensive and least complicated of the three to set up and maintain.
A foreign, or offshore, asset protection trust is opened outside the U.S. legal system. It can offer more privacy and, depending on the jurisdiction, real protection that's harder for a domestic creditor to reach — but it costs meaningfully more to set up and maintain than a domestic trust, and it draws closer scrutiny from the IRS, which requires its own reporting from a U.S. person who funds a foreign trust. It generally only makes sense once the size of the estate justifies that added cost and complexity.
A Medicaid asset protection trust is an irrevocable trust used specifically to keep assets from counting against Medicaid eligibility for long-term care. Assets transferred into the trust are subject to Medicaid's five-year lookback period before they stop counting against eligibility — a federal rule that applies the same way in Texas as anywhere else, administered here through the Texas Health and Human Services Commission. Because the lookback runs from the date of the transfer, this kind of trust only works if it's set up years before long-term care is actually needed, not after.
Weighing the Cost and the Trustee Requirement
All three variations cost more to set up than a simple will or a basic revocable living trust, because an irrevocable trust that's actually going to hold up has to be drafted by someone who knows how to do it and then correctly funded — assets have to be retitled into the trustee's name, not just named in a document. A domestic trust for your family is typically the least expensive of the three to set up and maintain; a foreign trust, with its added jurisdiction, reporting, and ongoing trustee costs, is typically the most.
Every version also needs a real trustee, not just one on paper. A family member can serve, but an independent or professional trustee adds credibility, and for a trust meant to survive a challenge, that's often worth the ongoing fee. Talk to an attorney about who should hold that role before you fund the trust, not after.
Pros and Cons for a Texas Family
The advantages: a properly funded, irrevocable family asset protection trust keeps what you leave to a beneficiary out of reach of that beneficiary's creditors, a divorce, or their own bad decisions, for as long as the trustee holds it. A domestic version is comparatively simple and inexpensive to set up next to a foreign trust. And a Medicaid-planning version, set up early enough, can preserve assets for your family that would otherwise have to be spent down first.
The tradeoffs: irrevocable means permanent. You give up access to and control over whatever you transfer in, and that surrender is exactly what makes the protection real — there's no version that protects the assets while leaving you free to undo it later. It requires an actual trustee and real administrative upkeep, not a document that sits in a drawer. And under Texas law, it does not protect your own assets from your own creditors, no matter which of the three variations you choose — only what you've irrevocably given to someone else.
Pairing a Family Asset Protection Trust With a Texas LLC
A trust and an LLC solve different problems, and a lot of Texas families end up using both rather than picking one. If what you're protecting is an asset you're still actively using — a rental property, an operating business, a professional practice — an LLC's charging order protection is usually the better starting point, because it protects the asset while you keep using it, instead of requiring you to give it away. See our Asset Protection Strategies and LLC Asset Protection pages for how that works.
A family asset protection trust is the better tool for the other half of the plan: what you're setting aside for your family rather than actively using yourself. Families holding a business or real estate through an LLC often have the trust hold the LLC's membership interest, so the LLC shields the operating risk and the trust controls who eventually owns it and on what terms. Our Texas Family Holding Company page covers that pairing in more detail.
Conclusion
A Family Asset Protection Trust does real work in Texas — just not the work its name most often gets marketed for. It won't shield your own assets from your own creditors; Property Code Section 112.035(d) rules that out regardless of how the trust is drafted. What it will do, properly funded and irrevocable, is put what you leave to your spouse, children, or grandchildren out of reach of their creditors, their own divorce, or their own bad decisions, for as long as the trustee controls it. Get clear on which of those two goals you're actually trying to accomplish before you set one up, and talk to an attorney about whether a domestic, foreign, or Medicaid-planning version — or an LLC instead — actually fits what you're protecting.