Managing your estate can be a complex process and, if you don’t follow the correct procedures, this can lead to further complications down the track. To avoid will and estate disputes in future, it is essential to ensure that you have made reliable arrangements. Blind trusts are one area that can add the complexity of estate planning.
In order to understand the intricacies of a blind trust, first it’s essential to know what exactly a trust is and how they function.
Typically, the three core parties involved in a trust agreement are known as the trustor, trustee and beneficiaries. A trustee is enlisted to manage the trustors’ assets, with the beneficiaries gaining the benefits of this arrangement.
A trust is formed when a trustor enters into a legal agreement with the trustee, transferring full control of certain assets to this individual. The trustors’ assets form an account, which is then managed by the trustee as outlined in the trust agreements’ terms.
This agreement includes the trustors’ designation of beneficiaries or, in other terms, the individuals who will directly benefit from the trusts’ assets. Essentially, the trustee is a third-party acting in alignment with the trustors’ wishes and managing the operations of the trust on behalf of the beneficiaries.
So, What’s A Blind Trust?
A blind trust is when the beneficiary, as nominated by the trustor, has no knowledge of how the assets of the trust are being managed. In such cases, in fact, the only individual who has control and awareness of these assets and how they’re being operated is the trustee.
Once having entered into a blind trust agreement, the trustee inherits the power to manage all included assets however they see fit. There are no restrictions as to whether they can buy or sell them; however, the trustor and beneficiaries must not have any involvement in these processes or access to information regarding the state of the trusts’ assets.
There is a diverse range of investment types that an individual can choose to contribute to a blind trust. These include cash, real estate and private companies. Once the trust agreement has been finalised, the trustee is required to convert these assets into new forms to ensure that the trustor has no knowledge of how they’re invested.
For many the idea of handing full control of certain personal assets over to a trustee may sound unsettling. This raises the question, what drives trustors to enter into a blind trust?
When is a Blind Trust Required?
A blind trust is typically formed in instances where there’s a potential conflict of interest between the trustors’ profession and personal assets. For this reason, it’s not uncommon for those who are in a position of corporate power or have been elected into politics to form a blind trust.
A conflict of interest may arise when an individual owns a large number of shares in a company, but is also in a position within the business where they could have access to insider information. It’s likely that their role will require them to act objectively and, as such, by forming a blind trust they can show that they’re working to establish impartiality.
A blind trust can remove certain investment restrictions the trustor would need to be in compliance with if they were managing these assets personally, and allows for them to avoid potentially harmful insider trading acquisitions.
The trustor sets requirements for how their assets are to be managed, but has no direct and ongoing involvement that could potentially hinder their ability to act in good faith in their profession.
How Can You Set Up A Blind Trust?
When establishing a blind trust, it’s likely that you’ll require expert guidance to ensure that the correct procedure is followed. By gaining professional assistance, you’ll also be able to make certain that all of your desired requirements regarding the management of the trust assets are clearly and accurately defined in the final agreement.
Typically, when forming a blind trust a trustor will complete the following process:
- Gather required documentation, for instance, certificates or other formal records that prove the trustors’ ownership of relevant assets.
- Appoint a reliable person to become trustee of the blind trust. The trustee will receive power of attorney over all assets in the agreement, so it’s crucial that the nominated individual is someone you believe will act in your best interest. It would also be beneficial to ensure that they have a sound understanding of how to manage the type of assets in the blind trust. As the purpose of the agreement is to distance the trustor from certain investments, it’s suggested that they don’t select a trustee with whom they have too close of a personal relationship.
- Create the blind trust agreement. During this stage, you may find you require the assistance of an attorney.
- Finalise and sign the trust. When doing this, it’s also essential to ensure that you have it notarised.
- At this point, you’ll be required to officially transfer all relevant assets into the blind trust.
Once having completed the formal process of establishing a blind trust, the trustee will gain control over all included assets and investments.
The final trust can be revocable or irrevocable, as per the terms detailed in the trust agreement. In a revocable blind trust the trustor has the authority to alter the agreements’ terms, whereas those that are irrevocable cannot be modified or terminated.
For more information regarding blind trusts, please do not hesitate to contact our professional team of estate lawyers today. At Hentys we’re also experienced in settling will and inheritance disputes, and follow a strict ‘No Win No Fee’ policy.