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Does a Trust Protect Assets? Understanding How Trusts Work in Texas

When planning your estate or protecting your wealth, one of the most common tools you’ll hear about is the trust. But does a trust truly protect your assets—from creditors, lawsuits, or probate?

The answer depends on the type of trust you establish and how it’s set up.

At The Lange Firm, we help families across Texas design strategic estate plans using trusts to secure wealth, reduce taxes, and protect loved ones. In this blog, we’ll explore:

• What a trust is and how it works

• The types of trusts that protect assets—and those that don’t

• Common misconceptions about trust protections

• Real-world examples of when a trust can shield assets

• How The Lange Firm can help you structure a legally sound trust

What Is a Trust?

A trust is a legal arrangement in which one party (the grantor) gives another party (the trustee) the right to hold and manage assets for the benefit of a third party (the beneficiary).

In Texas, a trust can own:

• Real estate

• Bank and brokerage accounts

• Life insurance

• Business interests

• Intellectual property

• Collectibles and personal property

Trusts are flexible and can serve many purposes—from minimizing taxes to controlling distributions for heirs.

Does a Trust Protect Assets from Creditors?

It depends on the type of trust:

✅ Irrevocable Trusts: Yes, With Limitations

An irrevocable trust means the grantor gives up control of the assets. Once transferred, those assets no longer legally belong to the grantor, which provides strong protection against:

• Creditors

• Lawsuits

• Bankruptcy

• Long-term care (Medicaid spend-downs)

However, protections only apply after the trust is properly funded and free of fraud. If a court finds that the trust was created to intentionally avoid paying debts, it can be challenged.

❌ Revocable Living Trusts: No

A revocable trust allows the grantor to change or dissolve the trust at any time. Because the grantor still maintains control, these trusts:

• Do not shield assets from creditors

• Do not offer lawsuit protection

• Do not protect against divorce settlements

But they do provide other important benefits, including avoiding probate.

Does a Trust Avoid Probate in Texas?

Yes, both revocable and irrevocable trusts avoid probate if properly funded.

That means:

• No court involvement is needed to transfer assets

• Beneficiaries receive assets faster

• Privacy is preserved (no public court filings)

• There’s reduced risk of will contests or estate disputes

Avoiding probate is one of the biggest reasons Texans use trusts in their estate plans. At The Lange Firm, we ensure your trust is fully funded—because an unfunded trust offers no probate protection.

Does a Trust Protect Against Medicaid Spend-Downs?

Medicaid has a five-year look-back period on asset transfers.

That means if you place assets in an irrevocable Medicaid trust at least five years before applying for long-term care assistance, they:

• Are not counted as part of your assets

• Can be used to qualify for Medicaid

• Can protect your home and savings for heirs

These trusts must be carefully drafted. Our estate planning attorneys at The Lange Firm specialize in Medicaid-compliant trusts that shield assets while preserving eligibility.

Real-World Example: Asset Protection Through a Trust

Scenario: Jane is a 65-year-old widow in Houston with $2 million in assets. She’s worried about long-term care costs and lawsuits from her former business dealings.

Strategy:

• She establishes an irrevocable trust, transferring her home, investments, and a rental property into it.

• The trust names her children as beneficiaries.

• She appoints a neutral trustee and includes language to protect assets from creditors and preserve Medicaid eligibility.

Outcome:

• Five years later, Jane qualifies for Medicaid without losing her assets.

• Her children inherit the properties tax-efficiently without probate.

• The trust shielded Jane’s estate from financial exposure.

This is just one of many ways The Lange Firm uses strategic trust planning to protect families.

Misconceptions About Trust Asset Protection

❌ “Any trust will protect my assets.”

Only irrevocable trusts offer true asset protection. Revocable trusts do not.

❌ “I can set up a trust right before I get sued.”

Courts can reverse fraudulent transfers made to avoid creditors. Trusts must be set up proactively.

❌ “Once it’s in a trust, no one can touch it.”

Some trusts can be pierced by courts, especially in divorce or bankruptcy cases. Asset protection requires precise legal language and strategic planning.

Which Trusts Protect Assets in Texas?

Note: Texas does not recognize DAPTs for in-state residents, but other planning tools can offer similar protection.

How The Lange Firm Helps Texans Protect Assets Through Trusts

We help individuals and families:

• Choose the right type of trust

• Fund the trust with real estate, accounts, and personal property

• Draft protection clauses for long-term care and creditors

• Distinguish between community and separate property

• Comply with Texas trust and tax laws

Whether you’re planning for retirement, caring for a special needs loved one, or protecting your legacy—we have solutions tailored to your goals.

Frequently Asked Questions

🟦 Can I still get income from a trust that protects assets?

Yes, you can structure certain irrevocable trusts to allow income distributions while still protecting the principal.

🟦 Can a trust protect me from divorce?

Trusts may shield inherited assets from a spouse, especially if they remain separate property and are held in a trust.

🟦 Can creditors go after a beneficiary’s trust inheritance?

Not if the trust includes a spendthrift clause, which restricts creditors from accessing a beneficiary’s interest.

Final Thoughts: Does a Trust Protect Assets?

Yes—but only when it’s the right kind of trust, drafted carefully, and funded properly. Whether you’re trying to avoid probate, protect against creditors, or prepare for Medicaid, a trust can be a powerful tool—but it’s not one-size-fits-all.

📞 Contact The Lange Firm today to schedule a consultation. We’ll help you determine whether a trust fits into your estate plan—and how to structure it to provide maximum protection under Texas law.

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