A blind trust is a special type of trust that allows you to remain anonymous. It is a legal framework giving a “trustee” control over trust assets. A blind trust can help you avoid conflicts of interest or maintain your financial privacy. They can also help you comply with insider trading laws or remain anonymous after winning the lottery. Let’s answer the question, “What is a Blind Trust?” and find out when you might need one.

What Is a Blind Trust?

The “blind” part of a blind trust refers to the idea that you (the trustmaker or grantor who establishes the trust) remain in the dark about how the trustee manages your trust’s money and property. However, you may choose the trustee (the person designated to control the trust assets) for your trust. You can set up the trust terms while drawing up your trust agreement with your estate planning and asset protection attorney.

Although the trust may lay out general parameters such as investment goals, once the trust is formally established, you no longer remain in control. Instead, the trustee has full discretion to handle the trust’s holdings and has no communication with you. 

The beneficiary of a blind trust receives the benefits of the trust according to the trust’s terms. When you are the trustmaker, you can also be the beneficiary!

The trust contains your financial holdings and property. The trustee manages that money and property for your benefit as the trustmaker and beneficiary.

However, as the trustmaker-beneficiary, you have no knowledge of, or control over, the activities of the trust. 

Blind Trust vs a Normal Trust

A blind trust differs from a normal trust in several ways. The biggest difference is that in a normal trust, you have discretion over trust money and property. Often, you may give explicit instructions to the trustee about how to run the trust, such as when and how to make distributions to a beneficiary.

Usually, you would consult with the trustee and be aware of trust activities regarding your personal assets in the trust. However, with a blind trust, you may be at the trustee’s mercy as far as receiving trust distributions from a blind trust.

Revocable vs Irrevocable Blind Trust

Blind trusts can be irrevocable or revocable. With a revocable trust, you have the authority to modify or terminate the trust and take back control of the accounts and property upon termination.

On the other hand, you cannot easily modify or terminate an irrevocable trust. In other words, once you place money and property in an irrevocable blind trust, you permanently give up control over that money and property. Your trustee may still distribute to you as a beneficiary if you name yourself as a beneficiary.

Qualified Blind Trust: A Tactic for Government Officials and Public Figures

Viewers of the television show Billions may be familiar with blind trusts, thanks to the character Chuck Rhoades. For anyone who has not seen the show, Chuck is a New York prosecutor known for his flawless record of winning insider trading cases.

Chuck put his investments in a blind trust managed by his father. This action showed the public that he will not let his personal financial holdings influence his actions as a public figure.

Real-life politicians employ this tactic as well. While no state requires public figures to use a blind trust while in office, most states and the federal government have laws that require government employees to recuse themselves and disclose when their public duties may affect their financial interests.

Ethics in Government

The Ethics in Government Act of 1978 prevents future corruption after the Watergate scandal. Many states have put similar laws into effect for their own officials, whether they were appointed or elected. According to federal law, government officials must make their financial holdings public.

An exception exists if you place holdings in a blind trust. But to qualify as a blind trust, you and anyone else who is a beneficiary must meet these requirements:

• Do not let a trustee include you, affiliate with you, or be related to you.
• You must allow the trustee to sell or transfer assets without interfering.
• You must not advise or communicate with the trustee about the trust.
• If you’re a government official, your supervising office must approve the trust and your choice of trustee.

These laws are intended to maintain trust in public institutions, helping to defend against legislative self-dealing, or the perception of it. 

Blind trusts are a workaround to real or perceived conflicts of interest. For example, let’s say a public figure knows that there are potential conflicts with their business interests and politics. They may put their investment income into a blind trust with an independent trustee. The official can then claim that they do not know how their actions in office will affect their private financial interests. They have no control over those interests. 

A dozen states have laws that regulate blind trusts. 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

Blind trusts are not just for government officials. 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 sell corporate stock for their own interests. 

The Securities Act restricts the sale of shares owned by corporate insiders for as long as they are affiliated with the company. Publicly traded companies usually only allow insiders to trade company stock during “window periods.”

You can set up a blind trust during a window period as a mechanism for avoiding these trading limitations. You can give guidelines for selling company stock to the trustee of the insider’s blind trust. The trustee is then free to execute this plan without running afoul of insider trading laws. 

Blind Trusts and Lottery Winners

While politicians and company insiders may use a blind trust to avoid conflicts of interest, a lottery winner or person who receives a financial windfall may use this type of trust for a different reason: financial privacy. 

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

Establishing a blind trust can be complex. Depending on its use, there may be federal and state laws to comply with, including rules related to conflicts and disclosures, reporting requirements, who may serve as trustee, and allowable communications between the trustee and beneficiary. 

Individuals set up blind trusts for very specific reasons, and for them to function, they must be carefully set up. 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. 

So get started with your trust plans. Contact our experienced estate planning attorneys at Vail Gardner Law to schedule an appointment.