Types of Trusts in Texas: Revocable, Testamentary, and Special Needs

The main types of trusts in Texas are revocable living trusts, irrevocable trusts, testamentary trusts, spendthrift trusts, special needs trusts, and charitable trusts. Each is built around a different trade-off: how much control you keep, how the IRS taxes the income, whether creditors can reach the assets, and whether the beneficiary can still qualify for government benefits. The Texas Property Code, Title 9, sets the legal framework for all of them, and federal tax law layers on top.¹ Picking the wrong structure can mean unnecessary taxes, lost benefits, or assets exposed to lawsuits, so the differences are worth understanding before you sign anything.

Revocable Living Trusts

A revocable living trust is the default starting point for most Texas families. Under Texas Property Code § 112.051, every trust is revocable unless the document explicitly says otherwise.² The person who creates it (the settlor) keeps full control during life. You can add or remove assets, change beneficiaries, swap trustees, or dissolve the trust at any time.

Because you keep that much control, the IRS treats the trust as a “grantor trust.” Income flows through to your personal return, and the trust does not need its own tax identification number while you are alive.³ The same lack of separation means creditors can reach assets inside the trust to satisfy your debts. A revocable trust offers no asset protection during your lifetime.

The main payoff is probate avoidance. Assets properly titled in the trust’s name pass directly to beneficiaries at your death without court-supervised probate. You typically serve as both initial trustee and primary beneficiary, so day-to-day life does not change. A successor trustee named in the document steps in if you become incapacitated or die, which keeps management private and continuous.

Irrevocable Trusts

An irrevocable trust goes the other direction. Once you sign and transfer assets, you give up the right to reclaim, modify, or undo the arrangement. The property leaves your estate permanently. That is the point: assets inside an irrevocable trust are generally shielded from estate taxes, gift taxes above certain thresholds, and your personal creditors.

Because you no longer own or control the assets, the IRS treats the trust as a separate taxpayer. The trustee obtains its own federal employer identification number and files an annual trust return.³ Income not distributed to beneficiaries is taxed at compressed trust brackets that reach the top marginal rate far faster than individual brackets, which makes distribution planning a core part of running an irrevocable trust.

The federal estate and gift tax basic exclusion amount for 2026 is $15,000,000 per person, following the One, Big, Beautiful Bill Act signed on July 4, 2025.⁴ That exclusion adjusts for inflation beginning in 2027. Estates below that line generally owe no federal estate tax regardless of structure. For estates above it, irrevocable trusts remain one of the most effective ways to reduce the taxable estate. The 2026 annual gift tax exclusion is $19,000 per recipient, so a settlor can move up to that amount per person per year into an irrevocable trust without using any lifetime exclusion.⁵

Common varieties include irrevocable life insurance trusts, which keep policy proceeds out of the taxable estate; generation-skipping trusts, which transfer wealth to grandchildren while minimizing transfer taxes; and grantor retained annuity trusts, which pay the settlor an annuity before the remainder passes to beneficiaries. Each serves a different goal, but all share the same trade-off: you permanently surrender control in exchange for tax or creditor benefits.

Testamentary Trusts

A testamentary trust does not exist during your lifetime. It is written into your will and springs into existence only after you die and the will completes probate. Texas Property Code § 112.001 expressly allows creating a trust by testamentary transfer.¹ Once the probate court validates the will, the executor pays debts and taxes and transfers remaining assets into the trust for the named trustee to manage.

Testamentary trusts are a common choice for parents who want to leave assets to minor children or to beneficiaries who should not receive a lump sum. The will can direct the trust to pay income for education and support until the beneficiary reaches, say, age 25, then distribute the remaining principal outright. The drawback is that the assets must pass through probate first, which takes time, costs money, and creates a public record. Families who want to skip that step generally use a revocable living trust instead.

Although probate itself is court-supervised, Texas law does not require ongoing judicial oversight of the trust once probate closes unless a court specifically orders it.⁶ A beneficiary or the trustee can petition the district court to require accountings or settle disputes, but the court does not monitor the trust on its own.

Spendthrift Trusts

A spendthrift trust is not really a separate category. It is a protective feature layered onto another trust. Texas Property Code § 112.035 allows a settlor to include a spendthrift clause that prevents the beneficiary from voluntarily assigning or pledging their interest, and that blocks creditors from seizing it before the trustee makes a distribution.⁷ Simply stating that the beneficiary’s interest is “held subject to a spendthrift trust” is enough to activate the maximum statutory protection.

The protection is strong but not absolute. Texas carves out an important exception when the settlor is also a beneficiary: the settlor’s own creditors can reach the settlor’s interest in the trust estate regardless of any spendthrift language.⁷ You cannot shield your own assets from your own creditors by putting them into a trust that benefits you. Courts in many states also recognize exceptions for child support and spousal maintenance claims.

Spendthrift clauses are most useful when the beneficiary has a history of financial trouble, faces potential lawsuits, or simply lacks the experience to handle a large inheritance. Until the trustee actually hands over cash or property, creditors with judgments, bankruptcy trustees, and collection agencies generally cannot reach the trust assets.

Special Needs Trusts

A special needs trust (sometimes called a supplemental needs trust) holds assets for a person with a disability without disqualifying them from means-tested government benefits like Supplemental Security Income and Medicaid. The SSI program counts only $2,000 in resources for an individual when deciding eligibility.⁸ A properly drafted special needs trust keeps the assets outside the beneficiary’s countable resources while still paying for things government programs do not cover, like transportation, recreation, and personal care items.

Two versions exist, and the differences carry major financial consequences:

A first-party special needs trust is funded with the disabled person’s own money, often from a personal injury settlement or inheritance. Federal law requires the beneficiary to be under 65 when the trust is established, and whatever remains at the beneficiary’s death must first repay the state Medicaid program for benefits provided during the beneficiary’s life.⁹
A third-party special needs trust is funded by someone other than the beneficiary, usually parents or grandparents. These carry no Medicaid payback requirement, so remaining assets can pass to other family members or charities named in the document.

The critical rule either way is that distributions must supplement, not replace, government benefits. If the trustee hands cash directly to the beneficiary, SSI treats it as income and may reduce or eliminate the monthly payment. Paying vendors directly for goods and services avoids this problem. Getting the mechanics wrong is one of the most common and costly mistakes trustees make.

Texas courts can also modify an existing trust to qualify a beneficiary for government benefits under Property Code § 112.054, even when the original document never contemplated special needs planning.¹⁰ That provides a safety valve when someone with a disability inherits through a trust that was not drafted with eligibility in mind.

Charitable Trusts

Texas defines a charitable trust broadly to include any trust whose purpose benefits a charitable entity organized for scientific, educational, philanthropic, environmental, or other civic purposes described by Section 501(c)(3) of the Internal Revenue Code.¹¹ Unlike private trusts, charitable trusts can last indefinitely because the rule against perpetuities does not apply to them.

The Texas Attorney General acts as the public’s watchdog. Any proceeding that would terminate a charitable trust, distribute its assets to non-charitable recipients, or depart from the stated purpose requires notice to the Attorney General’s office, which decides whether to intervene.¹² When the original purpose becomes impossible or impractical, Texas courts can apply the cy pres doctrine to redirect the assets toward a similar charitable goal rather than dissolve the trust. Settlors who fund charitable trusts generally receive income tax deductions for their contributions, and the trust’s tax-exempt status lets the assets grow without being eroded by annual income taxes.

Matching the Trust Type to Your Goal

Choice usually tracks the goal:

If the primary aim is avoiding probate while keeping control of your assets, a revocable living trust is the standard answer.
If your estate is well above the $15,000,000 federal exclusion, or you need protection from future creditors, an irrevocable trust is the right tool despite its permanence.
If you want to leave assets to minor children through your will and probate timing is acceptable, a testamentary trust works.
If a beneficiary cannot be trusted with the money or faces lawsuits, a spendthrift clause belongs inside whichever trust you choose.
If a beneficiary receives SSI or Medicaid, a special needs trust (first-party or third-party depending on the funding source) preserves eligibility.
If the goal is lasting philanthropy, a charitable trust combines tax deductions, exemption from the rule against perpetuities, and court-supervised flexibility through cy pres.

These categories are not mutually exclusive. An irrevocable life insurance trust can include spendthrift language. A testamentary trust can be drafted as a special needs trust. A charitable trust can be either revocable or irrevocable at the start. The labels describe features that stack.

Funding the Trust Matters as Much as Choosing One

Picking the right type is only half the job. A revocable living trust does nothing for probate avoidance if you never actually transfer assets into it. Funding requires re-titling each asset so the trust, rather than you individually, is listed as the legal owner. For real estate, that means recording a new deed in the trust’s name. Bank and brokerage accounts need to be re-titled or have the trust named as beneficiary. Anything left outside the trust at your death still passes through probate unless it has a separate beneficiary designation or is jointly owned.

A pour-over will acts as a backstop. It directs that any assets you forgot to transfer during life should pour over into the trust after death. Those assets still go through probate, but once that process ends, the trustee manages them under the trust’s terms alongside everything else. Without a pour-over will, forgotten assets pass under Texas intestacy rules, which may not reflect what you wanted at all.

1
State of Texas. Texas Property Code Section 112.001 – Methods of Creating Trust
2
State of Texas. Texas Property Code Section 112.051 – Revocation, Modification, or Amendment by Settlor
3
Internal Revenue Service. Abusive Trust Tax Evasion Schemes – Questions and Answers
4
Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
5
Internal Revenue Service. Gifts and Inheritances
6
State of Texas. Texas Property Code Section 115.001 – Jurisdiction
7
State of Texas. Texas Property Code Section 112.035 – Spendthrift Trusts
8
Social Security Administration. Understanding Supplemental Security Income SSI Resources
9
Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
10
State of Texas. Texas Property Code Section 112.054 – Judicial Modification, Reformation, or Termination of Trusts
11
State of Texas. Texas Property Code Section 123.001 – Definitions
12
Office of the Attorney General. Proceedings Involving a Charitable Trust