“A blind trust is a type of living trust in which neither the grantor nor the beneficiary has control over or knowledge of the assets in the trust or how they’re being managed. A third-party trustee, who can be an individual or an institution, has full control of the trust assets and does not communicate with the grantor or beneficiary about what is being bought and sold within the trust.”
A blind trust is designed to eliminate any real or perceived conflicts of interest.
A blind trust can be revocable. That means the grantor or creator of the trust can change it later. It also can be irrevocable, meaning it can’t be modified or terminated.
Investopedia says in the article “How to Establish a Blind Trust” that while the concept of putting assets into a trust and then giving up all knowledge and control of those assets might sound a bit loony, in certain situations, it can make perfect sense.
Blind trusts are most commonly used in the political community, but this vehicle can also be quite valuable in other situations.
To avoid any conflicts of interest, a blind trust may be used by retiring or retired business owners and executives who keep large amounts of company stock and may be interested in politics, charitable work, or board membership that requires them to act objectively.
A blind trust also may be a good idea when a person suddenly comes into a large, unexpected sum of money and wants to keep the matter private (e.g., lottery winners).
Creating a blind trust requires an attorney to draft a document that the creator signs to give full power of attorney over the trust assets to an independent, third-party trustee. An experienced trust attorney is the best professional to handle this, because there are state and federal laws governing the creation of blind trusts.
When you draft the trust, you can provide input like what the investment objective of the trust will be. However, after that, you stop communicating with the trustee and have no further information on how the trust’s assets are being handled.
You also must select the right trustee. It should be someone who’s honest and investment savvy, and if you’re trying to separate yourself from your investments, it should be a person with whom you’re not close.
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Reference: Investopedia (May 25, 2018) “How to Establish a Blind Trust”
Suggested Key Terms: Estate Planning Lawyer, Blind Trust