How to Set Up a Blind Trust

A blind trust is a legal arrangement in which assets are managed by a trustee without the owner’s input or knowledge. This type of trust can be helpful for individuals who want to avoid conflicts of interest, such as politicians or executives, by separating themselves from the direct oversight of their investments. In a blind trust, the trustee has full authority to manage the assets, with the beneficiary receiving no updates on transactions or asset details. Setting up a blind trust typically involves appointing a trustee, drafting the trust agreement and transferring assets into the trust, ensuring the owner has no direct involvement in the decision-making process.

Consider working with a financial advisor for help creating or updating an estate plan.

What Is a Blind Trust?

A blind trust is designed to create a complete separation between the owner of the assets and their management. Once established, the trustee is responsible for overseeing all aspects of the trust, from making investments to handling income and disbursements.

The key aspect of a blind trust is that the beneficiary relinquishes all control and information regarding the trust’s activities. This helps maintain impartiality in situations where conflicts of interest may arise.

Typically, the trustee is a financial professional or institution that has a fiduciary duty to act in the best interests of the trust beneficiary. They decide whether to buy, sell or hold assets – all without any input or influence from the owner.

This arrangement is particularly useful for individuals in public roles, such as government officials or corporate executives, who want to avoid any appearance of using their position for personal financial gain. By keeping the owner in the dark about the trust’s activities, blind trusts effectively shield them from decisions that might create ethical or legal complications, ensuring objectivity in financial matters.

How to Set Up a Blind Trust

Once you decide to use a blind trust to store your assets, you’ll need to set up your trust.

States establish the laws governing blind trusts, so the exact steps and requirements will vary depending on where you live. Be sure to check local laws before you set up your blind trust.

In general, though, there are a few basic steps to set up a blind trust.

Gather proper documentation. Compile the paperwork for the assets that you want to place in the blind trust. This could mean share certificates for stocks, bonds or real estate property deeds. If you want to put an asset in the trust, you must provide documentation proving ownership.
Appoint a trustee. The trustee will have complete control over the assets you put into the trust. Because the trust is blind, you won’t know what the beneficiary is doing or make any adjustments. So it’s important to ensure this person is trustworthy and has a solid understanding of personal finance and investing. However, since the purpose of a blind trust is to separate yourself from your investments, it is not generally advised that you choose someone with whom you have too close of a personal relationship.
Draft a trust agreement. Collaborate with a legal expert to create a trust agreement detailing the conditions of your blind trust. This document should not only specify the assets included and the duration of the trust but also the trustee’s specific roles and responsibilities.
Transfer assets into the trust. After the trust agreement has been drafted, you must fund the trust, so the next step involves moving assets into the trust. These assets may include financial investments, real estate holdings, or any other property requiring management.
Relinquish control. The trust beneficiary must officially relinquish all control over the assets. This means they cannot have any say in how the assets are managed. Nor will they receive detailed updates from the trustee regarding any activity concerning the trust.
Establish reporting terms. Although the beneficiary does not receive detailed updates, the trust agreement may require periodic reports with limited information, such as overall performance. This helps ensure transparency without breaching the separation between the owner and the trust’s management.
Formalize the trust. Finally, execute the trust agreement. Ensure all parties sign the document and then have it notarized to make the blind trust legally binding. From there, the trustee can begin managing the assets as stipulated.

The person forming the blind trust generally reserves the right to terminate it at any time. Upon termination of the trust, the beneficiary regains control of the assets.

How Much Does It Cost to Set Up a Blind Trust?

A couple inquire how much it costs to set up a blind trust.

Setting up a blind trust can be expensive; in fact, it can cost thousands of dollars.

Establishing a blind trust often requires the help of a financial professional. Therefore, you will have to pay any associated fees.

In addition to the set-up costs, a blind trust can have other significant fees.

Trustee fees
Filing fees
Maintenance costs
Investment management costs
Administrative costs
Taxes
Auditing and compliance fees

Many of these costs will be ongoing, rather than just initial startup costs. It’s crucial to account for these additional expenses when determining whether a blind trust is worth your time and money.

Reasons to Use a Blind Trust

The most common use of a blind trust is to avoid conflicts of interest when a prominent leader 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 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 the 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. You may know what you transferred into the trust upon formation. However, 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 allows lottery winners to 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.

Limitations and Risks of Blind Trusts

Blind trusts can serve specific purposes, but they also come with limitations that are important to weigh before creating one.

First, blind trusts do not eliminate every potential conflict of interest. Even though the beneficiary cannot direct the trustee, they still know which assets were originally placed in the trust. That knowledge can still create assumptions about how changes in policy, regulation or market conditions might affect their holdings.

Blind trusts also require a high level of confidence in the trustee. Because beneficiaries have no involvement in day-to-day management, they must rely entirely on the trustee’s judgment and compliance with the terms of the trust agreement. Selecting a trustee without the needed experience or discipline can increase the risk of poor decisions or mismanagement.

Administrative costs can also be significant. Ongoing trustee fees, legal reviews and reporting requirements may make blind trusts impractical for people who do not have substantial assets or a clear need for a formal separation from their investments.

Another limitation involves transparency rules for certain public roles. In some states or federal positions, financial disclosure laws may still require reporting of the assets placed into a blind trust, even though the beneficiary loses control of them. This can undermine the privacy benefits for which blind trusts are known.

Lastly, blind trusts can be less flexible than other types of trusts. Because beneficiaries give up control over investment strategy and decisions, the trust may not evolve in the way the beneficiary would prefer.

This lack of flexibility is part of the design, but it may be a drawback for individuals who want more involvement in their financial strategy.

Bottom Line

A folder marked "Trust Documents" appears in front of other filing cabinet folders.

A blind trust allows certain individuals 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 oversee the assets for as long as they are in the trust. However, you still 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 financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. You can have a free introductory call with your advisor matches to decide which one you feel 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.