What is a Blind Trust in New York?

A blind trust is a financial arrangement in which the trustmaker (grantor) transfers money and property to a trustee, who manages the assets without the trustmaker's knowledge or input. The trustmaker is not informed about the specific holdings, transactions, or investment decisions made by the trustee. The purpose of a blind trust is to create a barrier between the trustmaker and their assets, preventing them from making decisions based on inside knowledge or personal interests.

Blind trusts are appropriate in situations where avoiding potential conflicts of interest is a concern. For example, in cases of public officials and politicians who seek to prevent the appearance of using confidential information to promote their own financial interests, placing the assets in a blind trust allow these politicians to demonstrate that their decision-making (such as voting for a particular policy) is not influenced by personal financial gain. In the same way, blind trusts are also used by company executives to minimize the possibility of insider trading. By placing their assets in a blind trust, the company executives can demonstrate that they are not making investment decisions based on inside information, as they have no knowledge of the specific holdings or transactions within the trust.

How Blind Trusts Work

In a blind trust, the trustmaker (grantor) remains uninformed about the management of the trust's money and property. Once the trustmaker establishes the blind trust and transfers assets into it, they relinquish control and knowledge of the trust's holdings and activities. The trustmaker does not receive any information about the specific assets held within the trust, the investment decisions made by the trustee, or the performance of the trust's investments. The trustmaker may receive general reports on the overall value of the trust's assets, but these reports do not provide any specific details about the holdings or transactions.

The trustee has full discretion to handle the trust's holdings without communicating with the trustmaker. The trustee, who is typically a professional financial institution or individual with investment expertise, assumes complete control over the management of the trust's assets. The trustee makes all investment decisions, including buying, selling, and trading securities, without consulting or informing the trustmaker. The trustee is bound by the terms of the trust agreement and has a fiduciary duty to act in the best interests of the trust's beneficiaries. The trustee is prohibited from disclosing any information about the trust's holdings or activities to the trustmaker, maintaining the "blind" nature of the arrangement. This separation of knowledge and control helps to prevent the trustmaker from making decisions or taking actions that could be influenced by the trust's holdings.

The beneficiary also has no knowledge of the trust's activities. In most blind trust arrangements, the beneficiary of the trust is also kept uninformed about the specific holdings and activities of the trust. Like the trustmaker, the beneficiary does not receive any detailed information about the assets held within the trust or the investment decisions made by the trustee. This lack of knowledge helps to maintain the integrity of the blind trust and prevents the beneficiary from making decisions or taking actions based on the trust's holdings. The beneficiary may receive distributions from the trust, as outlined in the trust agreement, but they are not privy to the specific sources of those distributions or the overall composition of the trust's assets.

In most cases, the trustmaker is also the primary beneficiary of a blind trust. The trust contains the trustmaker-beneficiary's personal money and property. The trustmaker transfers their personal assets, such as cash, securities, and real estate, into the blind trust. These assets become the property of the trust, and the trustmaker-beneficiary no longer has direct control or knowledge of them. The trust agreement outlines the terms under which the trustmaker-beneficiary can receive distributions from the trust, such as a regular income stream or specific triggering events.Blind Trust vs. Nonblind Trust

Revocable vs. Irrevocable Blind Trust

In a revocable blind trust, the trustmaker retains the right to amend or revoke the trust agreement at any time during their lifetime. The trustmaker can change the terms of the trust, such as modifying the beneficiaries, changing the trustee, altering the distribution schedule, or adjusting the investment guidelines. The trustmaker may also choose to terminate the trust entirely, effectively dissolving the blind trust arrangement. This flexibility allows the trustmaker to adapt the trust to changing circumstances or preferences, providing a degree of control over the trust's existence and terms.

If the trustmaker decides to terminate a revocable blind trust, they can regain direct control and ownership of the assets that were held within the trust. Upon termination, the trustee is required to transfer the trust's assets back to the trustmaker, who then assumes full responsibility for managing and controlling the accounts and property. This ability to reclaim control of the assets may be advantageous if the trustmaker's circumstances change, such as no longer holding a public office or facing a conflict of interest. However, it is important to note that terminating a blind trust and regaining control of the assets may have tax implications and could potentially reintroduce the issues the blind trust was designed to address, such as conflicts of interest or public scrutiny.

In an irrevocable blind trust, the trustmaker relinquishes the right to amend or revoke the trust agreement once it has been established. The terms of the trust, including the beneficiaries, distribution schedule, and investment guidelines, cannot be changed by the trustmaker after the trust has been created. When establishing an irrevocable blind trust, the trustmaker must be prepared to permanently surrender control and ownership of the assets transferred into the trust. Once the assets are placed in the trust, the trustmaker no longer has any direct control over their management or disposition. The trustee assumes full responsibility for managing the trust's assets in accordance with the terms of the trust agreement and their fiduciary duties. The trustmaker cannot reclaim ownership of the assets or terminate the trust, even if their circumstances change or they no longer wish to maintain the blind trust arrangement. This permanent loss of control is a significant consideration for trustmakers when deciding between a revocable and irrevocable blind trust, as it can have long-term implications for their financial situation and estate planning goals.

Establishing a blind trust can be a complex process that may involve both federal and state laws. The creation and administration of blind trusts are governed by a combination of federal and state laws, depending on the jurisdiction and the specific purpose of the trust. At the federal level, the Ethics in Government Act and related regulations set forth standards for qualifying blind trusts used by public officials to avoid conflicts of interest. Individual states may have their own laws and regulations concerning blind trusts, particularly those used by state-level public officials or company executives for insider trading. Navigating the complex web of federal and state laws requires a thorough understanding of the legal framework surrounding blind trusts and how these laws apply to a specific individual's situation.

Given the complexity of the laws and regulations surrounding blind trusts, it is essential to work with an experienced estate planning attorney like us when creating and administering these arrangements. We can provide valuable guidance on the appropriate structure, terms, and provisions of the trust agreement based on the trustmaker's specific needs and circumstances. Should you need assistance, the Law Offices of Albert Goodwin is here for you. You can call us at 212-233-1233 or send us an email at [email protected]. Our office is located in Midtown, Manhattan.