Understanding blind trusts: what they are, who needs them and how to set one up
The concept of “blind trusts” may be off many people’s radar until election season, when the topic often surfaces during campaigns. Politicians with sizeable assets, or who formerly worked in corporate investments, will often set up blind trusts to divide themselves from their business interests and maintain impartiality in their political decisions. Similarly, corporate executives often set up blind trusts to keep themselves from making business decisions based on personal interest. Blind trusts can be complicated, and require an experienced estate attorney to fully understand and construct. Here is an overview of when and how blind trusts can be useful.
What Is a Blind Trust?
A trust is a fiduciary arrangement that gives control of an individual’s assets or property to a chosen trustee (or trustees). A blind trust is just what it sounds like: it’s a trust that removes the beneficiary from the management of the assets or property named in the trust, thus keeping them “blind” to what is going on with their assets. An individual who places their assets in a blind trust can still be the beneficiary of those assets, but is ceding control over day-to-day management and decision-making to their appointed trustee(s).
When are Blind Trusts Used
A blind trust is typically set up to avoid a conflict of interest. For instance, the President of the United States, or an executive paid in company stock, would set up a blind trust to avoid suspicions of compromising policy positions in self-interest, or of insider trading. Lottery winners also sometimes set up blind trusts as a form of privacy protection. As this Fortune article states, almost every recent president has had at least one blind trust.
Issues With Blind Trusts
Blind trusts are often enacted by elected officials before assuming office to dispel concerns that his or her investments could influence their decisions on policy or regulatory issues. However, this protection has limitations: handing off assets to a blind trustee doesn’t affect the official’s previous understanding of their assets and the factors that influence them. Still, it’s a step most politicians take as a good faith gesture towards impartiality.
In a blind trust, the trustor picks the trustee, so they usually pick someone they can be sure will manage their funds in accordance with their preferences. That said, according to Legal Zoom, the beneficiary cannot give any instructions to the trustee as to how to manage the account. And while stocks and bonds can be transferred directly to a blind trust, trustors who have business interests and non-liquid assets will have to liquidate these assets before they are transferred. In other words, business owners will have to sell their business.
How to Establish a Blind Trust
While specific regulations vary by state, all blind trusts will be established via these general steps:
- Conduct a thorough review of trust laws in the state where the trust will be established.
- Compile documentation on all assets that will be included in the new trust.
- Choose a responsible trustee. Note that in some states, family members cannot be trustees.
- Retain an attorney to draft a trust agreement, specifying an expiration date for the trust and how assets should be dispersed.
- Review, sign and notarize the agreement.
- Transfer assets. In some states, you may also have to report the trust to the state.
Blind trusts are complicated, can vary by state and if corporate or governmental politics are involved, they often carry additional legal requirements. An estate planning attorney experienced in setting up blind trusts is an essential asset in understanding the process, deciding if a blind trust is right for you, and executing the necessary legal procedures. The attorneys at Anselmo Lindberg and Associates have decades of experience helping clients set up blind trusts. Contact us today to talk through your options.