Skip to content

How Does a Blind Trust Work, and Do You Need One?

Bigstock-Elder-Couple-With-Bills-3557267A blind trust is exactly what it sounds like: a type of trust where grantor and the person who will benefit from the trust don’t know what’s in it or how it’s being managed and they have no control over it.

In a blind trust, a third-party trustee is the only person who has control of the trust and its assets, and they’re not talking. The grantor can make changes, if it’s a revocable trust, but if it’s irrevocable, the trust may not be modified or terminated.

Investopedia’s recent article, “How to Establish a Blind Trust,” explains that this arrangement makes works well to eliminate any real or perceived conflicts of interest.

Blind trusts are common in politics but also can be useful in other situations that require eliminating 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 then 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.

Is a blind trust something you should consider? Ask yourself if you are ready to give up complete control about the assets and how they are being managed. If the blind trust is irrevocable, you won’t be able to change your mind. Your estate planning attorney should discuss this in great detail before you go forward. There may be other types of trusts that will work better, depending upon your situation.

Reference: Investopedia (March 1, 2019) “How to Establish a Blind Trust”