Family Trust
A family trust is a tool for managing what happens to your estate: it can reduce the tax exposure on a larger estate, keep your financial affairs out of the public probate record, and control how and when your spouse, children, or grandchildren actually receive what you leave them. Because a trust is a legal relationship between you, a trustee, and your beneficiaries rather than a simple set of instructions, setting one up correctly takes more than filling out a form — it takes an attorney who knows how Texas trust law treats the details.
This page covers how a family trust is structured under the Texas Trust Code, what it can and can't protect, the difference between a revocable and an irrevocable trust, and the steps to actually put one in place.
What Is a Family Trust?
Setting up a family trust starts with three roles. The grantor (also called the settlor) creates the trust and transfers assets into it. The trustee — who is very often the grantor, at least at first — holds and manages those assets for the people the grantor names. The beneficiaries are the people who receive the trust's income or principal, either during the grantor's life or after. Property Code Section 112.001 recognizes three ways to bring one into existence: put the declaration in writing yourself, hand the property to someone else to hold as trustee, or write a transfer that only becomes effective once the grantor dies.
What makes a trust a family trust, specifically, is who the beneficiaries are: a spouse, children, grandchildren, or other family members the grantor names, rather than a charity or an unrelated party. A family trust can be either revocable or irrevocable, and that choice — not the fact that it's a family trust — is what determines how much control the grantor keeps and how much protection the trust actually provides.
What a Family Trust Actually Protects
A well-drafted family trust does several things at once: it lets the estate skip probate for anything titled in the trust's name, it gives a successor trustee clear authority to keep managing the assets if the grantor becomes incapacitated instead of waiting on a court-appointed guardian, and it lets the grantor structure distributions around each beneficiary's actual situation instead of handing over a lump sum at eighteen.
It can also protect an inheritance after a beneficiary receives an interest in it. Under Property Code Section 112.035, a trust instrument can restrain a beneficiary's interest from being voluntarily or involuntarily transferred before the trustee actually pays or delivers it — commonly called a spendthrift provision. Structured this way, a family trust can keep a beneficiary's inheritance out of reach of:
- A beneficiary's divorce settlement
- A beneficiary's creditors or a lawsuit judgment against them
- A beneficiary's own bankruptcy
- Poor financial decisions by a beneficiary who isn't ready to manage a lump sum
That protection has a hard limit, and it's worth understanding before you assume a family trust protects everything. Section 112.035(d) strips the spendthrift shield away entirely in the one situation where the grantor named themselves a beneficiary too: a creditor chasing the grantor personally can still reach whatever share of the trust the grantor stands to receive. Texas is not one of the small number of states that lets a settlor place assets in trust for their own benefit and shield those same assets from their own creditors. A family trust protects what you leave to your family — under Texas law, it is not a way to keep protecting assets for yourself after you've placed them in trust.
Revocable vs. Irrevocable Family Trusts
A revocable family trust can be changed or canceled by the grantor at any time under Property Code Section 112.051, and the grantor commonly serves as trustee while alive and competent. That flexibility is also its limit: because the grantor still controls the trust, the assets in it remain part of the grantor's own taxable estate and remain reachable by the grantor's own creditors. A revocable trust's main benefit is procedural — it still avoids probate and keeps the estate's details out of the public record — not tax or creditor protection.
An irrevocable family trust gives up that control permanently. Once assets are validly transferred in, the grantor can't unilaterally take them back, and — because the grantor is no longer the owner and, if the trust is drafted correctly, not a beneficiary either — those assets can be kept out of the grantor's taxable estate and out of reach of the grantor's own future creditors. That's a meaningfully bigger benefit for a larger estate, but it comes at the cost of exactly the control a revocable trust preserves, and it doesn't undo a transfer made to dodge an existing creditor or an existing claim. Which structure fits depends on the size of the estate, who the grantor wants managing the assets, and how much control the grantor is willing to give up — this is squarely a conversation to have with an attorney before signing anything.
How to Set Up a Family Trust in Texas
Setting up a family trust takes three real steps, and skipping the last one is the most common way a family trust ends up doing nothing at all.
The first step is the trust agreement itself: a written document naming the trustee and any successor trustee, naming the beneficiaries, describing the assets the trust will hold, and spelling out how and when the trustee should make distributions. If you want the arrangement to work as a family trust rather than a general-purpose trust, the named beneficiaries need to actually be family members.
The second step is deciding — with an attorney, not alone — whether the trust should be revocable or irrevocable, and drafting it to match that choice along with your actual tax and control goals. A template built for someone else's estate is a common way to end up with a trust that doesn't fit yours.
The third step is funding the trust: actually retitling assets — real estate, bank and brokerage accounts, an interest in a family business — into the trustee's name. A trust that owns nothing does nothing. This step is easy to put off because it means contacting every financial institution and county records office involved, but an unfunded trust provides none of the probate-avoidance or management benefits the first two steps set up.
Family Trusts and Taxes
Texas has no state personal income tax and no state estate or inheritance tax, so a family trust's tax role here is mostly about the federal side of the ledger. An irrevocable trust becomes its own taxpayer: after the grantor's death, or immediately for some irrevocable trusts created during life, the trust files its own federal fiduciary income tax return for income it retains rather than distributes, separate from the grantor's or beneficiaries' personal returns. For larger estates, moving assets into an irrevocable trust can also keep future growth on those assets out of the taxable estate entirely — another reason this decision is worth an attorney's and, often, an accountant's input rather than a do-it-yourself form.
Pairing a Family Trust With a Texas LLC
Families holding real estate or a family business alongside personal assets often use a family trust and a Texas LLC together rather than picking one: the LLC holds and shields the operating business or the rental property from a lawsuit arising out of that property or business, and the trust holds the LLC's membership interest to control who eventually owns it and how. If a family business or a real estate holding company is part of the estate, that structure is worth working out at the same time as the trust — see our pages on a Texas Family Holding Company and Texas real estate holding companies for how that pairing typically works, and LLC for Asset Protection for what the LLC layer adds on its own.
A family trust is not a one-size-fits-all document, and the source of that variation is exactly what this page has walked through: whether it's revocable or irrevocable, who besides the grantor is named a beneficiary, and whether it's actually funded. Get those three questions right with an attorney who knows Texas trust law, and a family trust does real work — avoiding probate, managing incapacity, and controlling how your family actually receives what you leave them. Get them wrong, and it's an expensive document that does nothing.