What is a blind trust? Blind trusts are not trusts for people who cannot see, and they are not asset protection trusts. Blind trusts are primarily for politicians and government officials.
I. What Is a Blind Trust?
Like any trust, a grantor establishes a blind trust by funding or transferring assets into the trust and placing them in the care of a trustee. The trustee then manages and invests the assets in the trust for the benefit of the beneficiaries. The trust may provide for distributions to the grantor as a beneficiary as well as to other beneficiaries. A blind trust may be revocable or irrevocable – that is, the grantor may retain the ability to amend or to terminate the trust. On these points, blind trusts are similar to many other forms of trusts.
The key rule of blind trusts is that the grantor, who typically is a beneficiary of a blind trust, has no right to learn about how the trustee invests and manages the trust’s assets. That is, the grantor is “blind” to the trust’s investments. This requires a great deal of faith in the trustee.
II. Purpose of a Blind Trust
Why would a grantor give up the right to monitor how the trustee manages trust assets?
Blind trusts are primarily used by wealthy politicians and government officials, including judges. Federal law and most states require many such officials to publicly disclose their assets or financial interests. However, federal law and some state laws provide an exception to the disclosure requirement for assets held in blind trusts. The U.S. Office of Government Ethics certifies whether a blind trust is “qualified” and therefore eliminates the requirement for federal officials to disclose their assets.
In theory, government officials will not experience conflicts of interest or act in a biased manner so as to favor their own investments if they do not know what those investments are.