Many people wonder if they can create a living trust for themselves in order to protect their assets. In Texas you cannot do this as long as you have direct control over the assets. If you created what is called an irrevocable trust, then you could have asset protection due to the trust. However, you would have to give up all control of these assets, and most people are not willing to do this for obvious reasons.
But do not be too discouraged, because Texas has some of the best asset protection in the entire country due to our homestead law that is written in the Texas Constitution and codified in the Texas Property Code. Basically our state’s forefathers wanted to further entice people to settle in Texas by helping them protect their assets from creditors from other states. And this general concept of asset protection has been kept throughout our state’s history.
Under current Texas homestead law the home you live in with up to 10 acres of urban land or up to 200 acres in rural areas (100 acres for a single person) are protected from creditors. And there is no maximum value of the property for this protection. This is a tremendous amount of protection, especially when the family home is typically the most valuable asset someone owns.
There are also personal property exemptions for an aggregate value of $60,000 for a family or $30,000 for a single person. This includes protection for the following: home furnishings; provisions for consumption; farming or ranching vehicles; tools; clothes; jewelry not to exceed 25% of the applicable aggregate limit; two firearms; athletic and sporting equipment including bicycles; a two-wheeled , three-wheeled, or four-wheeled motor vehicle for each member of a family or single adult; 2 horses, mules or donkeys; 12 head of cattle; 60 head of other livestock; and 120 fowl. Yep, it’s a pretty interesting list!
There are some exceptions to this homestead protection though. Claims from mortgage lenders, the IRS, governmental entities owed property taxes and some homeowners associations are not protected.
But wait, there’s more! In addition to our homestead laws there are other forms of asset protection that we also already have without the need of a trust. Retirement accounts, college savings plans like 529’s and prepaid tuition plans, proceeds from life insurance policies, and annuities are also protected from creditors.
So for most people there is already a substantial amount of asset protection available without using a trust, especially if they take full advantage of the rules discussed above.