What Is a Blind Trust?

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Let me explain what a blind trust is directly to you. It's a trust where you, as the trustor, hand over control of your assets to a trustee who manages them without your knowledge. This setup is often used to dodge conflicts of interest. The trustee gets full discretion over the assets and any investments, handling everything including income generated. You can end the trust if you want, but while it's active, you have no say in what's happening and get no updates from the trustee. I see this commonly in cases where people need to separate their job responsibilities from their personal investments.

Key Takeaways

A blind trust is set up by the trustor giving full control to the trustee.
The trustee manages assets, investments, and income independently.
These trusts help avoid conflicts between employment and investments.

In a standard trust, you as the trustor appoint a trustee to act as fiduciary, following the agreement like distributing funds after your death. The trust might hold stocks, bonds, or real estate, and you often stay in touch with the trustee while the beneficiary knows about the holdings.

But with a blind trust, it's different—you and the beneficiaries have no idea what's inside or how it's managed. No one gets to influence buys or sells. You can make it revocable, so changes or termination are possible, or irrevocable, locking everything in place. Choosing between them depends on your goals; an irrevocable one, for instance, removes assets from your legal ownership to shield them from creditors or programs like Medicaid.

Special Considerations

There are some real challenges with blind trusts that you should know. As the trustor, you start off knowing the initial investments, and it's hard to forget that when making future decisions. You might even set rules for management or choose trustees you trust to act a certain way. So, honestly, their effectiveness in wiping out conflicts of interest isn't foolproof. Still, high-profile folks like politicians with big wealth use them to at least demonstrate an attempt at impartiality.

Setting up a blind trust can cost a lot, so if you're a politician or executive, consider other options to handle conflicts. You could sell specific investments, properties, or holdings and switch to index funds or bonds. Or just convert everything to cash during your term. Be aware, though, that selling might hit you with taxes, and things like real estate aren't easy to offload. Remember, no legal setup fully erases all conflicts or ensures ethical actions.

Anyone can create a blind trust, but they're common for leaving money to heirs or avoiding conflicts. In estate planning, you might use one to keep beneficiaries in the dark about the amount until they hit a milestone, like turning a certain age or finishing college.

Politicians frequently turn to them when elected, especially if their investments could clash with duties. The 1978 Ethics in Government Act requires asset disclosure unless in a blind trust. For instance, if you own stock in a company facing regulations, a blind trust cuts you off from any trading decisions made by the trustee.

What Is a Blind Trust?

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