This is a kind of living trust where the grantor and beneficiary don’t control or know about the assets in the trust or how they’re being managed. Instead, a third-party trustee has full control of the trust assets and doesn’t communicate with the grantor or beneficiary about the dealings of the trust. This trust can be revocable (the grantor can change it) or irrevocable (the trust can’t be modified or terminated).
Investopedia’s recent article, “How to Establish a Blind Trust,” explains that this arrangement makes perfect sense. A blind trust is designed to eliminate any real or perceived conflicts of interest.
Blind trusts are common in politics but also can be useful in other situations, such as to avoid any conflicts of interest. Retiring or retired business owners and executives who retain large amounts of company stock may be interested in politics, charitable work, or board membership that requires them to act objectively.
Creating a blind trust entails having an established estate planning attorney drawing up a document that the grantor signs to give full power of attorney over the trust assets to an independent, third-party trustee.
While drafting the trust, you can provide input like what the investment objective of the trust will be. You stop all communication with the trustee and have no further knowledge of how the trust’s assets are being handled.
Selecting the right trustee is important. You want a person who’s honest and investment savvy. If you’re trying to separate yourself from your investments, you also need someone with whom you don’t have a close relationship.
Blind trusts create a level of separation between the grantor’s assets and professional or political activities that helps to decrease or eliminate real or perceived conflicts of interest and accusations of wrongdoing.
Some people who receive a windfall (such as winning the lottery) can also use them to maintain their financial privacy.
If you’re considering a blind trust, carefully think about whether the benefits of independence and the removal of oversight outweigh the drawbacks of loss of control and information, especially if the blind trust will be irrevocable. Speak with a knowledgeable estate planning attorney.
Reference: Investopedia (March 1, 2019) “How to Establish a Blind Trust”