Trusts are typically set up for the benefit of a trustmaker’s loved ones, a charitable organization, or a third party, with the trust money and property being distributed to the beneficiaries upon the trustmaker’s death. But there are situations in which a person may want to set up a trust to be used during their lifetime for their own benefit to maintain privacy or avoid a potential conflict of interest. In such cases, a blind trust might be appropriate.
How Blind Trusts Work
The “blind” part of a blind trust refers to the idea that the trustmaker, or grantor (i.e., the person who establishes the trust), remains in the dark about how the trust’s money and property are managed. Although they may lay out general parameters for the trust such as investment goals prior to creating it, once the trust is formally established, the trustee (the person designated to control the trust assets) has full discretion to handle the trust’s holdings and has no communication with the trustmaker.
The beneficiary of a blind trust also has no knowledge of what goes on with the trust. However, in most cases, the trustmaker is also the beneficiary. That is, the trust contains their personal money and property, and the trustee manages that money and property for the benefit of the trustmaker-beneficiary—the trustmaker-beneficiary just has no knowledge of, or control over, the activities of the trust.
Blind Trusts and Public Figures
Blind trusts are a workaround to real or perceived conflicts of interest. A public figure can place the money and property that might create a conflict of interest into a blind trust and turn the money and property over to an independent trustee. The official can then claim that they do not know how their actions in office will affect their private financial interests, because they have no control over those interests.
A dozen states have laws that regulate blind trusts, and these regulations must be followed closely. Federal ethics laws also have rules about what qualifies as a blind trust and how it should function to comply with the law.
Blind Trusts and Company Executives
Conflicts of interest can similarly impact officers, directors, and others who own shares in a company and have information not available to the public. Ownership of these shares can call into question whether a corporate insider is acting in the best interests of the company and its shareholders—as federal financial law requires them to—or in their own interests.
Publicly traded companies usually only allow insiders to trade company stock during “window periods.” A blind trust set up during a window period can be a mechanism for avoiding these trading limitations. The trustee of the insider’s blind trust is given guidelines for selling company stock, and the trustee is then free to execute this plan without running afoul of insider trading laws.
Blind Trusts and Lottery Winners
Let us say that you are the lucky winner of the $1 billion Powerball lottery. As excited as you are to spread the news and raise the big cardboard check on television, you decide that you want to remain anonymous. There are plenty of reasons to keep a low profile—reporters, scammers, harassment, and requests for money from friends and family, to name just a few. But not all states allow lottery winners to remain anonymous.
If you do not live in one of those states and you want anonymity, you can use a blind trust to protect your identity. However, “blind” trust is a bit of a misnomer in this situation. It is just a regular trust that uses a name other than your legal name. You retain control of the trust and its money and property, but you are “blind” to the public because the trust is not easily linkable to you.
Don’t Go Blind into a Blind Trust—Talk to a Lawyer
Blind trusts are set up for very specific reasons, and for them to function as intended, they must be set up carefully. If you want to prevent conflicts of interest or maintain privacy, it is vital that you work with an experienced estate planning attorney to ensure the accuracy and validity of your blind trust. Please contact us to schedule an appointment.