Many people under intense public scrutiny, such as politicians, judges and high-powered business people, use blind trusts to avoid the perception of conflicts of interest when it comes to their personal financial dealings. A type of living trust, it allows individuals to store assets in a way in which the beneficiary has no control over them. This lessens the possibility that the individual’s actions will impact their own net worth. Consider working with a financial advisor as you create or update an estate plan.
How to Set Up a Blind Trust
Once you decide to use a blind trust to store your assets, you’ll need to set it up. States establish the laws governing blind trusts, so the exact steps and requirements will vary depending on which state you live in. Make sure you check local laws before you set up your blind trust. In general though, the steps to set up a blind trust are as follows:
- Gather the documentation for the assets that you want put into the blind trust. This could mean certificates of stock ownership, bonds or real estate deeds. If you want to put an asset in the trust, you’ll need to have documentation proving ownership.
- Appoint a trustee. This is the person who will have total control over the assets you are putting into the trust. Because the trust is blind, you won’t be able to find out what the beneficiary is doing or make any adjustments. This means you want to make sure this person is trustworthy and has a general understanding of personal finance and investing. However, since the purpose of a blind trust is to separate yourself from your investments, you won’t want to pick someone with whom you have too close of a personal relationship.
- Create the trust agreement. Though in theory you can do this yourself, creating a blind trust is a complex process. Get the help of an attorney unless you happen to be an expert.
- Sign the trust and have it notarized, taking care to follow any recording laws that your state has.
- Officially transfer the relevant assets into the trust.
The person forming the blind trust generally reserves the right to terminate it whenever he or she wants. When the trust is terminated, the beneficiary will regain control of the assets.
How Much Does It Cost to Set Up a Blind Trust?
Setting up a blind trust can be expensive. It can cost thousands of dollars. Establishing a blind trust often requires the help of a financial professional and you’ll have to pay any associated fees.
In addition to the set-up costs, a blind trust can have significant maintenance costs. This means that you’ll be paying some costs as long as you have the trust, so the total cost of the trust is not just what you pay to set it up. If you’re considering setting up a blind trust, make sure it is worth the time and money.
Reasons to Use a Blind Trust
The most common use for a blind trust is the one described above: to avoid conflicts of interest when a prominent business person ends up running for public office. For instance, let’s say you spent most of your professional life working at an oil and natural gas company. As part of your compensation you probably received incentive stock options or other equity in the company.
Now let’s say you win a race for the United States Senate. In your new role as a senator, you could be in a position to pass legislation that impacts your former company, including the price of shares you are holding. By putting your assets into a blind trust, you can no longer make financial decisions that are impacted by your decisions as a senator or vice versa. Sure, you still know what was put into the trust in the first place, but you can’t decide to sell the shares based on what you do in the Senate.
People who suddenly come into a lot of money, especially from an unexpected source like a lottery win, can also use blind trusts as a way to maintain their financial privacy. A blind trust lets lottery winners remain anonymous, which can be important for someone who suddenly comes into a large amount of money. If multiple people have a claim to the prize, a blind trust can also make disputes easier to solve.
A blind trust provides a way for people to avoid financial conflicts of interest when they enter into public office or another high-profile position. The exact rules of setting up a blind trust vary by state. Regardless of which state you’re in, you’ll always need to provide documentation for the assets going into the trust and appoint a trustee to mind the assets for as long as they are in the trust. You retain the ability to terminate the trust and take back control of the assets at any time.
Financial Planning Tips
- Whether you are looking to set up a blind trust or want broader financial advice, it may make sense to find a financial advisor to guide you. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Blind trusts are not the only type of trust. During the estate planning process, you may want to consider setting up a living trust. This makes things easier for your family after you die by avoiding the probate process.
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