A trust is a legal device that permits an owner of funds of property to make transfers of those assets. Trusts also allow an individual to have that property, which is referred to as trust assets, managed on behalf of another individual, known as the beneficiary.
It is important to note that trust laws vary by state. In general, a trust is an efficient way for individuals to transfer their assets in a way they can manage and control them. For example, the trust creator may place certain conditions on the trust property, which must be fulfilled before the property is transferred to a beneficiary.
There are many different types of trusts available for individuals to use. Express trusts are trusts which are created intentionally and deliberately.
In an express trust, the creator of the trust distributes the property or funds to the trustee, who then holds the property “in trust.” This means that the trustee holds legal title to the trust property.
There are two types of express trusts, a lifetime or inter vivos trust and a testamentary trust. A lifetime trust is set up during the lifetime of the individual who created the trust, known as the settlor.
What is a Trustee?
A trustee is an individual who holds legal title to the property transferred from the settlor. It is important to note that the trustee does not own the property.
Instead, the trustee has a fiduciary duty to fulfill the obligations to the beneficiaries imposed by the trust. A fiduciary duty is an obligation to act in the interest of another individual.
The trustee is obligated to work only to benefit the beneficiary or beneficiaries and follow the rules which are provided by the trust.
What is a Blind Trust?
Generally, a trust is a fiduciary relationship created when an individual, the settlor or trustor, gives another individual, the trustee, the right to control their property or assets for the benefit of a third party, called the beneficiary. Essentially, the trust’s purpose is to provide legal protection over the settlor’s assets and ensure that the property is distributed to the proper beneficiary and in accordance with the settlor’s directions.
Among numerous other duties, the trustee is primarily responsible for managing the trust and overseeing any transactions. There are numerous available types of trusts, such as:
- Charitable trusts;
- Land trusts, or
- Blind trusts.
Blind trusts are trusts arranged in such a way that the beneficiaries will not have any knowledge regarding the property or assets contained in the trust. In addition, with a blind trust, the trustees and those individuals who hold power of attorney are given all control over the trust.
In other words, these individuals are in charge of making all the decisions related to the trust and will have absolute knowledge about the contents.
Who Needs a Blind Trust?
The main reason that individuals want to create blind trusts is to keep their financial activities a secret. In some cases, the contents of a trust may create conflicts of interest or issues for a trustee or the settlor.
For example, a beneficiary may have a problem with how a trustee invests the trust assets. A blind trust allows the minimization of these disputes and the risks of these potential disputes arising because it shields the trust holdings from the beneficiaries.
Individuals with high public visibility, including politicians or celebrities, may also wish to keep their financial activity and assets private. Creating a blind trust allows them to do this.
A blind trust can also help the individual prevent the public from examining their assets. It also, as noted above, reduces the possibility of any conflict of interest claims.
This privacy function may be especially important when any funds provided by the government are used in a private capacity. Blind trusts may also be a good option when an individual suddenly receives great wealth, such as winning the lottery or inheriting a large amount of money.
A blind trust may be used as a protective measure to provide an individual means of privacy and anonymity. It may also help individuals keep their personal information secret from the public. A financial executive may also create a blind trust to keep their trading activities discrete for legal business purposes.
How Can I Create a Blind Trust?
The most important element for setting up a blind trust is the permission document which gives power of attorney to a designated individual, typically the trustee; for an individual to create any trust, the trust property is required to be assigned to a third party trustee through a legal instrument that the grantor signs.
In addition, the trust must be valid. Generally, several requirements must be met to form a valid trust, including:
- The trustor or settlor must have the legal capacity and intent to form the trust itself in addition to the relationship with the appointed trustee;
- The trust documents are required to contain a title or description which easily identifies the assets or property which are being held in the trust;
- The settlor is required to specifically identify the beneficiaries of the trust or, at least, describe how those recipients will be chosen;
- Once the trust is created and the trustee is selected, the settlor is required to drive legal title to the assets and property in the trust to the trustee; and
- The settlor is required to have a valid purpose for creating the trust.
This list provides a general description of what may be required to form a basic trust. However, numerous other specific state and federal laws may be complied with when forming the actual blind trust.
For example, in a blind trust, a settlor will not have any further contact with the trustee once legal title to the trust property is delivered. A settlor will not receive any information regarding the trust’s activity.
Because of this, a settlor must select a trustee who is:
- Honest; and
- Knowledgeable about managing finances.
An attorney or a financial advisor may be a safe choice when determining who to appoint as a trustee to oversee a blind trust. They will have the knowledge and experience needed to ensure that all requirements are met.
Do I Need to Hire a Lawyer for Help with a Blind Trust?
Generally, the laws that govern trust and estate issues may be difficult to understand. Understanding these complex laws is only more difficult when attempting to apply their meanings to trust documents because issues as small as grammar or a typographical error may ultimately destroy the trust’s intent or the wishes of the settlor.
Therefore, it may be helpful to consult with a local trust lawyer near you to either administer your blind trust or assist you with setting up your blind trust. Having your attorney review your trust documents and answer your questions can make a huge difference between whether your trust is successfully or unsuccessfully executed.
Also, if you have any disputes or legal conflicts involving a trust, the guidance of an attorney is indispensable. Your attorney can provide much-needed representation in court in order to resolve the dispute. Compensation may be awarded in cases where there is a violation of legal rights.