Before we discuss what a blind trust is and how to establish one, it is important to note that each state may differ in how they define what one is. Furthermore, that definition may change. After you gain an understanding of what a blind trust is and choose to establish one, you should contact an attorney to ensure that it is properly applied to your specific situation and location.
What is a Blind Trust?
A blind trust is created by the owner, the trustor, and given to someone else, the trustee. Once the blind trust is established, the trustee has complete control of the trust. A trust is simply a transfer of property or assets from one party to another.
The person establishing a trust is often referred to as the settlor, the trustor, or the grantor. As long as the trust is in place, the trustee can manage the property or assets however they deem fit. There can be no communication between the trustor and trustee regarding how the assets are to be managed.
Why Would Someone Establish a Blind Trust?
People establish blind trusts to prevent a conflict of interest. For example, imagine if a woman owns a business (a private asset), and her company makes bicycles. During her career—and while she still owns the company—she decides to run for office. She wins and becomes a member of Congress.
Ultimately, she may find herself in a position where she will need to vote on an issue that may directly impact her bicycle business. As a Congresswoman, she represents the interests of the people who elected her. She has an ethical obligation to not act as a business owner.
This doesn’t just apply to politicians. It can and does extend to people who serve as a member of a board of directors. You may be retired after having a distinguished career, and you get offered a position on such a board. Along the same lines as the Congresswoman, as a member of the board, you must act in the best interest of the company’s shareholders. But what if you have shares in the company?
Your stake in the company can be put into a blind trust. This will eliminate the conflict of interest because only the trustee will know the impact of the decisions you make and how they will translate to your shares.
ElDiery & ElDeiry, P.A.
Trusts can be established by an individual and their attorney. You may choose to create one because you want to give someone the ability to manage your money. This can be done as part of your estate planning, and your trustee can distribute your assets for you.
At ElDeiry & Eldeiry, P.A. we can help you create the estate plan that fits your needs and wishes. Choose an attorney who will treat your estate with the diligence and attention it deserves. If you need to establish an estate or modify an existing one, contact us online or by phone at (954) 670-2800.
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