What Is a Blind Trust?

A blind trust is a type of trust fund that's designed to mask the assets therein from the person or persons designated to receive the proceeds. Most often associated with politicians, blind trusts theoretically sever any link between a person and control over his or her assets in order to avoid potential conflicts of interest.

Let's say, for example, that Mitt has accumulated a sizable estate of $250 million. He's done so by founding and running a successful private equity company. After two decades of doing so, he wants to give back to society by serving in the government. He accordingly decides to run for President of the United States.

But there's one problem: because of the size of his estate, it holds a vast array of assets, some of which are situated in China. Thus, to avoid allegations that he may go soft on China as a result of these holdings, Mitt transfers his estate into a blind trust, designating his tax lawyer as the trustee to make any and all decisions about how the assets are invested from that point forward. By doing so, Mitt can now claim that he has no incentive to mold his potential policies as president around his personal holdings, as the latter are now under the control of a third party.

Generally speaking, a blind trust is no different than any other type of trust. It requires a settlor to fund the trust -- in the example above, Mitt, a trustee who takes legal possession of the assets and agrees to administer them on behalf of a third party, and the identification of a beneficiary who will receive any income and benefits from the trust. These are simple devices that can be created with as little as a transfer of property and a verbal agreement between a settlor and a trustee in which the latter agrees to hold and administer the assets on behalf of the designated beneficiaries.

What's different about blind trusts in particular is the level of discretion handed over to the trustee and the identity of the various parties. As Legal Zoom explains :

In short, blind trusts serve a narrowly defined function of giving politicians an effective way to sidestep allegations that their personal finances will influence decisions they make on behalf of their constituencies. As such, these aren't used as frequently as trusts meant to shelter a person's assets from estate taxes or creditors. But for someone who needs one, and after consulting with an accountant or tax attorney, blind trusts can play a vital role in allowing the person to navigate the potential chasm between private wealth and public life.

How one Seattle couple secured a $60K Social Security bonus -- and you can too

A Seattle couple recently discovered some little-known Social Security secrets that can boost many retirees' income by as much as $60,000. They were shocked by how easy it was to actually take advantage of these loopholes. And although it may seem too good to be true, it's 100% real. In fact, one MarketWatch reporter argues that if more Americans used them, the government would have to shell out an extra $10 billion... every year! So once you learn how to take advantage of these loopholes, you could retire confidently with the peace of mind we're all after, even if you're woefully unprepared. Simply click here to receive your free copy of our new report that details how you can take advantage of these strategies.

The article What Is a Blind Trust? originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.