What Is a Blind Trust?
Blind trusts are living trusts where an individual gives the trustee the full control and responsibility of assets. To be able to serve its purpose, the trustee shouldn’t have any close or personal relationship with the settler. There is high privacy and no conflict of interests.
Individual who resort to blind trust have no knowledge of the status of the assets. It benefits people who are objective in business or political roles since there is heightened privacy.
How Does a Blind Trust Work?
Blind trusts go hand in hand with experienced lawyers since they have state and federal laws as governing bodies. The individual who signed up for a blind trust together with the beneficiaries don’t have any involvement and authority over the assets after the formalization and completion of the process. There should be no communication with the trustee if it is regarding the assets.
Why establish a blind trust if you will control over your assets?
The main purpose of blind trusts is avoidance of conflict of interests. Let’s take a corporate executive as an example. A corporate executive has fiduciary responsibility to the shareholders. So, the executive turned into a blind trust to manage these shares. It will eliminate conflict of interest issues, insider trading issues, and trading securities issues. Board members will have no knowledge of the status of the assets.
Another example is an elected official who used blind trusts to remove doubts that his business interests abroad have nothing to do with his office.
This is a sensitive topic on insider trading. Insider trading is trading with the use of non-public information. This can lead to prosecution as it is against the law. “Buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.” as Securities and exchange commission defines insider trading.
Politicians and government officials who resorts to blind trusts
Some politicians turn into blind trust because their position in the government has a conflict of interest with affiliation in the finance market. Select committee on ethics implies that members, officers, or employees’ finances or related involvement like financial holdings or owning stocks can affect their duty performances. These reasons can also affect their employment, votes, actions and meetings. Blind trusts remove them from being subjects of conflict of interest during their employment.
Lottery winners and blind trusts
Blind trusts ensure heightened privacy for lottery winners since winning the lottery might cost them their security. However, this type of blind trust enables the lottery winner to have control over his winnings. In this case, when we “blind” trust, the “blind’ refers to the public eye and not the lottery winner. Blind trust helps these winners to remain anonymous.
Setting up a blind trust
How does one setup a blind trust? There are several reasons why people use blind trusts and it depends on what kind of situation they are in. Some examples are estate planning, winning lottery, or conflict of interest with political affiliations. State laws may vary from one state to another but generally these are the committee requirements to setup a blind trust:
- Read and understand your state’s laws.
- Collect all data and information about the assets to be put in a blind trust.
- Identify a responsible third party to become the trustee.
- Hire an experienced lawyer to draft the trust agreement and the distribution of the assets after the blind trust’s expiration date.
- The attorney should sign and notarize the agreement before transferring the assets to the blind trust.
