Blind trust

WHAT IS A BLIND TRUST AND HOW DOES IT WORK?

A “blind trust” is a fiduciary agreement in which the beneficiary of the trust is not allowed to control, manage, or even know about the assets within the trust.

In such cases, the designated trustee has complete freedom to manage the blind trust. It is subject to certain wealth management rules set by the beneficiary.

The obvious questions that come to mind are: “Why would a person need a trust that he does not control? What is the purpose of such a trust?”

A blind trust ensures that its beneficiaries are not aware of the assets of the trust. Therefore it cannot be accused of a conflict of interest in relation to them.

This is especially important for politicians, government officials, government officials, or others in positions of responsibility. These people may have the power to channel public funds to the private sector.

If such a person is known to have certain assets in the private sector, allegations of bias may arise if any public funds are used for companies in which he is an investor.

However, if such a person is unaware of any specific assets in the trust, then the conflict of interest statement is inappropriate.

Regulation of blind trusts in the United States

Taking the United States as an example, Section 208 of Chapter 18 of the United States Code and other relevant laws stipulates that government officials and employees should avoid conflicts of interest in the performance of their duties.

Federal rules have been adopted to regulate the status of a “blind trust”, recognized to delineate the beneficiaries of the trust from conflicts of interest.

In order for a blind trust to be recognized, the trustee must not be affiliated with, related to, or subject to the control or influence of the beneficiary.

In addition, the trustee must not be a current or former advisor, partner, accountant, attorney, or relative of the beneficiary.

Of course, the beneficiary will be aware of the assets that were originally placed in the blind trust, thereby continuing a potential conflict of interest until such assets are replaced or substantially reduced.

As long as the original assets of a qualified blind trust are not replaced or reduced below the $ 1,000.00 threshold, there is a potential for a conflict of interest to arise pursuant to Chapter 5 of the US Code of Federal Regulations.

Accordingly, the activity of the trustee should be directed towards replacing or reducing the original assets as soon as possible in order to implement a qualified blind trust.

The effectiveness of blind trusts is still questioned by some, as the beneficiary can choose his trustee and set rules for managing the investment.

However, a blind trust creates a “wall” between the beneficiary and assets that may interfere with the performance of his duties. It is currently recognized as the best way to avoid conflicts of interest in relation to investments made by government officials.