Through a blind trust, a person can assign the control of assets to a trustee. When an individual places assets in a blind trust, the control of the assets comes under the control of a trustee. While assets remain in a blind trust, the trustee cannot communicate with the owner information about purchases, sales or the value of the trust. Blind trusts can serve to resolve conflict of interest issues, protect the identity of asset owners or control the distribution of assets awarded to inheritors.
Conflict of Interest
Politicians, such as members of the U.S. Congress, use blind trusts as a way of removing themselves from the control, administration and decision-making of certain types of assets. Elected officials choose blind trusts in order to remove the appearance of conflict of interest involved while serving as policymakers. For example, if a Congressman owns stock in a oil company, he might place his shares in a blind trust to prevent any appearance of impropriety when dealing with laws relating to the oil industry. While serving in public office, a politician's spouse or children may also choose to place their assets in a blind trust, to protect the politician from conflict of issue accusations.
Corporate executives that own stock in the companies they oversee often place their stocks in a blind trust. The Securities and Exchange Commission (SEC) can restrict trading activities, including purchases and sales, of corporate directors and officers. The SEC places such restrictions on corporate executives to prevent them from unfairly profiting on a company's stock, due to inside information unknown by other investors. Through a blind trust, a trustee can control the price at which stock in the trust is sold and bought and the time for transactions.
Lottery winners often choose to place their winnings in a blind trust. A blind trust can help protect their identities and can help secure the services of professionals in the administration of funds. For example, the Virginia Lottery reported that the winner of a $52 million lottery in 2004 elected to deposit the winnings in blind trust, which an attorney administered. Lottery rules can vary from state to state. States that allow blind trusts for the deposit of winnings require the terms of a trust to meet lottery guidelines.
Certain individuals may choose to use blind trusts for the distribution of assets when they die. For example, according to WPRI Television in Rhode Island, former Congressman Patrick Kennedy received assets through multiple blind trusts created by his father, Senator Edward Kennedy. Reasons for using blind trusts for estate planning can vary. At least one blind trust inherited by Congressman Kennedy was established by his father while Patrick served in the U.S. Congress. This protected him from claims of conflict of interest associated with the nature of the assets. Other people may choose to blind trusts as a way to prevent beneficiaries from gaining complete control of assets after receiving their inheritances. Through a blind trust, a trustee can control the distribution its assets, according to the wishes of the person who created the trust.
- Kerr, Hendershot and Cannon: Gift Tax Planning
- WPRI News; Patrick Kennedy Inherits Dad's Millions; Ted Nesi; August 2010
- Virginia Lottery; $52 Million Mega Millions Prize Claimed in Ohio; September 2004
- California Lottery: Estate Planning and Forms
- Financial Planning; Flying Blind; Gavin Morrissey; August 2006
- Congressional Research Service; The Use of Blind Trusts By Federal Officials; September 2005