What you need to know about a blind trust

On Behalf of | Oct 25, 2024 | Estate Planning |

If you’re a businessperson, politician or someone who sits on the board of a charitable organization, then you have to be careful to avoid conflicts of interest. This can make it difficult to manage your finances in a way that shields you from real or perceived impropriety. Although that can be stressful to think about, there are ways to use the estate planning process to help you avoid ethical dilemmas.

One option is to use a blind trust. You may be somewhat familiar with this trust type after hearing of recent politicians using them, but what, exactly, do they entail? Let’s take a closer look so you can determine if a blind trust is right for you.

Blind trust basics

The first step in determining whether a blind trust is right for you is to understand how blind trusts operate. To start, these trusts can either be revocable or irrevocable, but in both types, the ultimate goal is to shield the trust’s creator from knowing how estate funds are invested and what income is generated from them. So, although the trust’s creator knows which funds are initially placed into the trust, which may have its own issues when it comes to conflicts of interests, the trustee, that being the person responsible for managing the trust, is free to make decisions that they believe are in the estate and the beneficiary’s best interests.

The advantages of a blind trust

A blind trust has several advantages. Amongst them are:

  • Elimination of real and perceived conflicts of interests.
  • Removal of the need to disclose certain assets.
  • Maintenance of impartiality in your business role.
  • Protection of the creator’s personal assets from creditors who can recover debts owed from the trust.
  • Increase your privacy as it relates to your wealth.

Although blind trusts often benefit a smaller group of individuals, primarily those whose public policy or business decisions may impact their own personal finances, they can be a great way to provide protection.

Are there disadvantages?

There are a few that you should consider before establishing one of these trusts. This includes:

  • Having to choose an individual that you completely trust to properly manage the trust’s assets and investments.
  • Difficulty in changing the terms of the trust once it’s created.
  • Facing the real possibility of trust mismanagement.
  • Having to deal with the expense of paying a professional trustee to manage the trust’s assets.
  • Losing control of a significant part of your wealth.

Some of these disadvantages can be mitigated through careful consideration, though, so don’t let them completely dissuade you from considering this estate planning option.

Are there alternatives to a blind trust?

There are some alternatives you can use, like a living trust that allows you to retain control over your assets during your lifetime, but these options aren’t going to shield you from conflicts of interest like a blind trust can. Therefore, it’s best to discuss your estate planning options with your attorney to get an accurate indication of which trust type will help you meet your goals.

You have a large menu of options to choose from when it comes to establishing your estate plan. To protect your interests as fully as possible, you need to know what each option entails, as well as their advantages and disadvantages. We therefore encourage you to continue reading up on your options so that you can make the fully informed decision that’s right for you.