What is a Blind Trust?
With the inauguration of Donald Trump as the 45th President of the United States, questions have been raised about his involvement with his businesses while acting as President. A public official, such as the President, can impact businesses such as through taxation, regulation, and other policy decisions. Concerns are raised when a public official has extensive business relationships because the possibility of a conflict of interest may arise. For example, a public official that has extensive investments in the oil industry may make decisions that affect their investments but are not in the best interests of the country or industry. Most public officials elect to either divest themselves of their business interests upon entering office, or placing the business assets in a blind trust.
A blind trust is a trust that the settlor (the person establishing the trust) is blind to, or has no knowledge or involvement in the assets of the trust. The trust beneficiaries- including the settlor- have no knowledge of the holdings of the trust and have no right to intervene in the handling of the trust’s assets. The trustees of the blind trust have full discretion over the assets of the trust.
One main issue with a blind trust is that the settlor of the trust, when he/she establishes the trust, has knowledge of the assets going into the blind trust. Even if the trustee sells or buys some assets in the blind trust, the settlor still has knowledge of the assets initially put into the trust, and thus can still be subject to conflict of interest issues. Most politicians still use a blind trust to show they are trying to separate their public service decisions from their personal assets.
Federal Ethics Blind Trusts
One method to avoid the above issue is a blind trust that starts to divest from assets that could pose a conflict of interest. In this type of blind trust, called a qualified blind trust, the conflict of interest issue that the settlor knows the assets in the blind trust- since the settlor put those assets into the trust- is reduced, since the trustee begins to sell off assets that may pose a conflict of interest soon after the qualified blind trust is established. Any new assets acquired by the trustee would not be disclosed to the public official/settlor since at that point, the trust is blind and the settlor is not informed of the purchases and sales made by the trustee.
A blind trust can be a proper and effective method to demonstrate that a public official is making proper decisions in their role as public official and not for their own pecuniary benefit. To discuss blind trusts or other estate planning matters, please contact Benjamin Long of Schmidt & Long.