The family home is often one of the most important assets a person needs to consider in their estate plan. It can be protected from lawsuits in Texas through a homestead exemption. But what about other property? Is your rental property protected from creditors in Texas?
The short answer: no
If you own a rental house in Texas, you might assume it’s safe from a lawsuit. It isn’t. Texas law does not protect rental property from creditors. The same goes for ranch land, vacant land, and farms.
The one big exception is your homestead. Texas offers strong protection for the home you actually live in (we cover that in a separate post in this series). But a rental house, a working ranch, a farm that earns you income, or a piece of land you simply enjoy visiting on weekends? If you get sued and lose, a creditor can take it.
Real estate exposes you to two threats
Owning investment property in your own name puts you at risk from two directions.
- Someone gets hurt on the property. A tenant slips on the stairs, or a guest is injured on your ranch, and they sue. If the property is in your personal name, the judgment isn’t limited to that property. They can reach everything else you own that the law doesn’t protect: your savings account, your stocks and bonds, and much more.
- You get sued for something unrelated. Say you cause a car wreck on the freeway. It has nothing to do with your land. But if your rental house or ranch is titled in your name, it’s on the table to satisfy that judgment.
How smart Texas investors protect themselves
Savvy real estate investors in Texas hold their property in a limited liability company (LLC) or a limited partnership (LP). These entities build a wall between the property and the rest of your life, and that wall works in both directions.
If someone is hurt on the property, the injured party may be able to reach that property. But they can’t get out of the entity and into your other assets. Your savings, investments, and other holdings stay protected.
If you’re sued personally, for a car wreck or anything else unrelated to the land, the property inside the LLC or LP is protected from being seized to pay that judgment.
Own it in your own name, and it’s exposed. Own it through the right entity, and it’s shielded.
This isn’t a hypothetical risk
Plenty of lawyers own rental houses and ranches, and some of them got those properties from landowners they sued. Real estate can be taken as part of a judgment or accepted as part of a fee. Unprotected property is exactly the kind of asset a plaintiff’s attorney looks for.
The bottom line
Be smart. Keep your rental property protected from creditors in Texas. Even if you own recreational land, a farm, or a ranch in Texas, put it in an LLC or a limited partnership. It’s one of the simplest steps you can take to keep a single lawsuit from putting everything you’ve built at risk.
The right structure depends on your situation, so talk with an experienced Texas estate planning or asset protection attorney before you act. If you would like to learn more about managing real property in an estate plan, please watch the short video below, or visit our previous videos.
This information is NOT intended to be used as legal or tax advice, nor does it establish an attorney-client relationship with Texas Trust Law or any of its attorneys. Please contact your own appropriate advisors to discuss the benefits and effects of any particular legal, charitable & tax strategy.
Cover Photo by Ivan S
