Blind trust estate planning tool


Gregory S. DuPont Nov. 15, 2022

Trusts are typically established to help out loved ones, or a chosen charity, after the trustmaker passes away. However, there are some instances in which someone may want to create a trust they can use during their lifetime for their own needs.

A blind trust can be used during your lifetime and is a great fit for those that have privacy concerns and want to prevent future conflicts of interest. Blind trusts can be an effective tool for complying with laws that prohibit insider activities. Anonymity is another common use for a blind trust. Lottery winners often use them for this purpose.

How a Blind Trust Works

The phrase “blind trust” originates from the idea that the person who creates the trust (trustmaker or grantor) remains uninformed about how the trust's money and property are managed. The trustmaker can establish general guidelines for the trust, such as investment goals, before its creation. However, once it is established, whoever manages the trust assets (the trustee) has complete discretion over them and has no contact with the trustmaker.

In a blind trust, the beneficiary also doesn't know what goes on with the trust. This is often because the trustmaker and beneficiary are the same person. They created the trust using their own money and property. But somebody else manages it for them without letting them have any knowledge or control of what's going on.

Blind Trust vs Nonblind Trust

There are several ways that blind trusts differ from normal trusts. The most notable is that in a nonblind trust, the person who creates the trust has discretion over money and property within the said trust. Often, they will give explicit instructions to the trustee. For example, such as when distributions should be made and to whom. Usually, the trustmaker and trustee will consult each other when making decisions. Although sometimes, they are the same person. The beneficiary of a blind trust is not privy to the trustee's actions. But with a nonblind trust, the beneficiary may be able to talk to the trustee and stay updated on activities.

Revocable vs Irrevocable Blind Trust

A blind trust can be revocable or irrevocable. With a revocable trust, the trustmaker has the power to change it or terminate it and take back control at any time. An irrevocable trust cannot be changed or taken back once it's been made. The act of putting money and property into an irrevocable blind trust means giving up all control permanently.

Blind Trusts in Pop Culture

If you've seen the TV show Billions, you might be familiar with a blind trust. Remember Chuck Rhoades? For anyone who hasn't seen it, Chuck is a New York prosecutor who's known for his unblemished record of winning insider trading cases. He put his investments in a blind trust managed by his father. He did this to prove to the public that his financial holdings wouldn't influence his decisions as a public figure.

This tactic is used by real-life politicians as well. No state requires public figures to use a blind trust during their time in office. Yet, most states and the federal governments have laws that require government employees to disclose when their public duties may affect their financial interests. These regulations are put into place to maintain faith in public institutions, helping to defend against legislative self-dealing, or the perception of it.

Blind trusts are a way to circumnavigate real or assumed conflicts of interest. A public individual can put their money and assets that might generate a conflict of interest into a blind trust. They can then give the cash and property to an independent trustee. The authority figure can then say they do not know how their choices in office will affect their economic interests. They do this because they have no oversight over those interests.

Twelve states have laws that manage blind trusts. Federal ethics laws also contain guidance about:

  • what can be classified as a blind trust; and

  • how it should operate to stay within the law.

How Company Executives Can Benefit from Blind Trusts

Though they are often associated with government officials, blind trusts can also be relevant to corporate officers, directors, and shareholders. If these individuals own shares in the company they work for and have access to insider information, it may call into question whether their actions are motivated by what is best for the company (as required by law) or what is best for them.

Corporate insiders are restricted from selling company shares for as long as they are affiliated with the company, yet, there is usually a "window period" where trading is allowed. If an insider sets up a blind trust during this window period, the trustee has the freedom to sell stock without breaking insider trading laws.

How Lottery Winners Can Benefit from Blind Trusts

While politicians and company insiders can use blind trusts to avoid conflicts of interest, lottery winners can also benefit from blind trusts. Lottery winners, or people receiving a financial windfall, might establish this type of trust for another purpose: privacy surrounding their finances.

Let's say you win the $1 billion Powerball lottery. As excited as you are to receive that check, you decide you want to remain anonymous. Perhaps you’re worried about thieves, scammers, or simply friends and family asking for money. While it might seem like a given that winners should get to choose whether they want their names publicized, not all states allow anonymity.

If you live in one of those states, you can use a blind trust to protect your identity. However, “blind” trust is a bit of a misnomer in this situation. In this case, you would want to create a regular trust in someone else’s name. You remain in control of the trust and its money and property, but the general public cannot see that it's linked to you.

How to Create a Blind Trust with a Lawyer

Creating blind trust is not easy. Depending on its use, you may have to follow specific federal and state laws, including rules about disclosures, conflicts of interest, who can be the trustee, and what kind of communication is allowed between the trustee and beneficiary.

A blind trust can be an excellent way to protect your privacy and prevent conflicts of interest, but only if it is set up correctly. An experienced estate planning attorney can help you set up a blind trust that meets your needs and complies with the law. Call us today at 614-389-9711 to schedule a consultation.

Want to learn more about trusts and estate planning? Download our Consumer’s Guide to Estate Planning in Ohio.