People set up trusts for the benefit of a trust-maker’s loved ones. Or, they could leave assets to a charitable organization, or a third party. Thus, the trust distributes money and property to the beneficiaries upon the trust-maker’s death. However, situations arise in which a person sets up a trust for use during their lifetime. They do this for their own benefit to maintain privacy or avoid a potential conflict of interest. In such cases, consider a blind trust.
State and federal laws fail to require the use of blind trusts. However, some use them as an effective tool to comply with laws that prohibit insider activities. Thus, lottery winners sometimes use blind trusts to remain anonymous.
Blind Trusts Work
The “blind” part of a blind trust refers to the idea that the trust-maker, or grantor (i.e., the person who establishes the trust), remains in the dark about how the trust’s money and property are managed. Although they may lay out general parameters for the trust such as investment goals prior to creating it, once the trust is formally established, the trustee (the person designated to control the trust assets) has full discretion to handle the trust’s holdings and has no communication with the trust-maker.
The beneficiary of a blind trust also has no knowledge of what goes on with the trust. However, in most cases, the trust-maker is also the beneficiary. That is, the trust contains their personal money and property, and the trustee manages that money and property for the benefit of the trust-maker-beneficiary—the trust-maker-beneficiary just has no knowledge of, or control over, the activities of the trust.
Blind Trust versus Nonblind Trust
A blind trust differs from a normal trust in several ways. The biggest difference is that in a nonblind trust, the trust-maker has discretion over trust money and property. Often, they give explicit instructions to the trustee about how to run the trust, such as when and how to make distributions to a beneficiary. Usually, the trust-maker and trustee consult each other, and in some cases are the same person. And, while the beneficiary may be at the trustee’s mercy as far as receiving trust distributions from a blind trust, with a nonblind trust, the beneficiary may be in contact with the trustee and be aware of trust activities.
Revocable versus Irrevocable Blind Trust
Blind trusts can be irrevocable or revocable. A trust-maker has the authority to modify or terminate a revocable trust and take back control of the accounts and property upon termination. An irrevocable trust cannot be modified or terminated by the trust-maker. In other words, once the trust-maker places money and property in an irrevocable blind trust, the trust-maker permanently gives up control over that money and property.
Don’t Go Blind into a Blind Trust—Talk to a Lawyer
Establishing a blind trust can be complex. You may need to comply with federal and state laws, including rules related to conflicts and disclosures, reporting requirements, who may serve as trustee, and allowable communications between the trustee and beneficiary.
About Skvarna Law Firm in Glendora and Upland, California
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