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Blind trusts: Why are they used?

Over the last year, the term "blind trust" has become a common phrase used by many new outlets and talking heads. Often, it is discussed in the context of President Trump and his numerous business interests. So, what exactly is a blind trust, and how are they used?

In general, a blind trust is a financial planning tool that allows an individual to benefit from some type of business holding while avoiding conflicts of interest. If, for instance, you were an elected official and also a business owner, some members of the public may have concerns that your political choices could be motivated by your business interests rather than the needs or wants of the people who elected you. Since elected officials often create the laws that govern how businesses may operate, including their own, many of them choose to place their business interests out of their reach in a blind trust, so that they can benefit from the interests without directly controlling them.

A blind trust removes something from an individual's direct ownership, and also removes it from that person's control, so that they may benefit from the asset but not control the asset. The theory behind a blind trust is that a conflict of interest cannot exist if the beneficiary does not know how the asset is being invested or used. A blind trust also generally implies that an individual's stake in a business must be liquidated before placing it in a trust. Depending on the nature of your situation, there may be regulations about who is allowed to act as trustee of your assets. Many offices are restricted from naming immediate family members as trustees, implying that this close a relationship may create de facto ownership of the assets.

Whatever your trust needs may be, it is important to educate yourself on exactly which trust truly serves your best interests. With proper legal guidance from an experienced attorney, you can create the perfect trust for your circumstances, preserving your assets and protecting your rights.

Source: findlaw, "What Is a Blind Trust?," accessed March 17, 2017

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