There’s a lot of talk about blind trusts in the news, along with a lot of conflicting and incorrect information. So here’s how a real deal blind trust works.
First piece of business: A trust is just an arrangement where one person manages assets (like money and investments) for another person.
Next, let’s define the players. The trustor (sometimes called the settlor or the grantor) is the person who creates the trust, and fills it with assets. The trustee is the person who manages the assets in the trust. Trustees have a fiduciary duty – meaning a legal obligation – to act in good faith, and in the best interests of the beneficiary. The beneficiary is the person who receives all the benefits (like income) from the trust. The trustor and the beneficiary are the same person with a blind trust.
In a blind trust, the trustee has total control over the holdings in the trust, and can manage them however he sees fit: sell them, reinvest them, whatever he wants as long as he’s acting in the best interest of the beneficiary.
Here’s where the blind part comes in. The trustor/beneficiary has no idea what assets are in the trust at any given time. He’s not allowed to tell the trustee what to do, or even offer guidance and suggestions. Other than the right to terminate the trust whenever he wants to, the trustor/beneficiary has no control over the trust or the assets held in it. Plus, he gets no information from the trustee about the holdings or their performance.