One type of trust offers a layer of separation between the person who created the trust and how the investments held in the trust are managed. The trust’s beneficiaries are also unable to access information regarding the investments, says the article “What is a Blind Trust?” from U.S. News & World Report.
The roles involved in a blind trust are the settlor—the person who creates the trust, the trustee—the person who manages the trust—and beneficiaries—those who receive the assets in a trust.
Blind trusts, typically created to avoid conflicts of interest, are where the settlor gives an independent trustee complete discretion over the assets in the trust to manage, invest and maintain them as the trustee determines.
This is quite different from most trusts, where the owner of the trust knows about investments and how they are managed. Beneficiaries often have insight into the holdings and the knowledge that they will eventually inherit the assets. In a blind trust, neither the beneficiaries nor the trust’s creator knows how funds are being used or what assets are held.
Blind trusts can be revocable or irrevocable. If the trust is revocable (also known as a living trust), the settlor can dissolve the trust at any time.
If the trust is irrevocable, it remains intact until the beneficiaries inherit the entire assets, although there are some exceptions.
In some instances, irrevocable trusts are used to move assets out of an estate. Settlors lose control over the holdings and may not terminate the trust or change the terms.
Blind trusts can be used in estate planning if the settlor wants to limit the beneficiaries’ knowledge of the trust assets and their ability to interfere with the management of the trust.
People who win massive lump sums in a lottery might use a blind trust because some states allow lottery winners to preserve their anonymity using this type of trust. They draft and sign a trust and appoint a trustee, then fund the trust by donating the winning ticket to the trust prior to claiming the prize. By remaining anonymous, winners have some protection from unscrupulous people who prey on lottery winners.
One drawback to a blind trust is the lack of knowledge about how investments are being handled. The blind trust also poses the issue of less accountability by the trustee, since beneficiaries have no right to inspect whether or not assets are being managed properly.
Do you need a blind trust? Speak with an experienced estate planning attorney to discuss whether or not your estate would benefit from a blind trust. If you want to separate yourself from investment decisions or would rather beneficiaries don’t know about the holdings, it might make sense. However, if you have no concerns about privacy or conflict of interests, other types of trusts may make more sense.
Reference: U.S. News & World Report (June 1, 2023) “What is a Blind Trust?”
