How Does a Blind Trust Work? in White Plains, New York
Sounds crazy: you’re going to take all your assets and put them in a special kind of trust called a blind trust, where you won’t have any idea of what is happening to your assets and you won’t have any control over them.
When you put it that way, yes, a blind trust is not logical, according to Investopedia in the article “How to Establish a Blind Trust.” A blind trust has a very specific function: to eliminate any real or perceived conflicts of interest. If you are in a position where you are not supposed to have investments in a certain company or even in an investment sector, taking the assets out of your control and establishing a blind trust is a viable solution.
There will be a third-party trustee, an individual or an institution, that has full control of the trust assets and does not communicate with the grantor or beneficiary about what is being bought and sold within the trust.
A blind trust can be revocable. That means the grantor or creator of the trust can change it later. It also can be irrevocable, meaning it can’t be modified or terminated. That decision needs to be made with great care. Talk with an estate planning attorney about what is best for you.
Blind trusts are most commonly used in the political community, but this vehicle can also be quite valuable in other situations.
To avoid any conflicts of interest, a blind trust may be used by retiring or retired business owners and executives who keep large amounts of company stock and may be interested in politics, charitable work, or board membership that requires them to act objectively.
A blind trust also may be a good idea when a person suddenly comes into a large, unexpected sum of money and wants to keep the matter private (e.g., lottery winners).
Creating a blind trust requires an attorney to draft a document that the creator signs to give full power of attorney over the trust assets to an independent, third-party trustee. An experienced trust attorney is the best professional to handle this, because there are state and federal laws governing the creation of blind trusts.
When you draft the trust, you can provide input like what the investment objective of the trust will be. However, after that, you stop communicating with the trustee and have no further information on how the trust’s assets are being handled.
You also must select the right trustee. It should be someone who’s honest and investment savvy, and if you’re trying to separate yourself from your investments, it should be a person with whom you’re not close.
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