A trust is a legal structure used to safeguard assets. Revocable trusts and blind trusts serve distinctly different functions. Trust law is very state-specific; those with questions about setting up a particular trust should enlist a local legal professional or an online drafting service.
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Basics of Trusts
All trusts share certain basic characteristics. The creator of the trust, who becomes known legally as the "settlor", places his assets in the trust and picks a trustee to manage the assets. The entire trust then operates for the benefit of one or more other parties, known as beneficiaries. The settlor provides instructions for how the trust is to be managed by the trustee in the language of the trust document.
A revocable trust, also typically known as an inter vivos trust, is a trust the settlor creates during his lifetime and retains the power to revoke, or end, and take back any remaining assets. However, if he doesn't revoke the trust, when the settlor dies, the revocable trust becomes an irrevocable trust and is incapable of being revoked or modified. Settlors have the option of creating an irrevocable trust during their lifetimes, but most settlors like the ability to later modify a trust if circumstances change. Revocable trusts can be an important estate planning tool, since they have the potential to allow a transfer of assets outside of the probate process.
In a blind trust, a settlor transfers assets to a third party who has complete discretion in how to use or invest the assets. In the typical blind trust, the settlor is also the beneficiary; thus, the trustee is managing the assets for the benefit of the settlor. However, the settlor/beneficiary can't give any instructions to the trustee about what to invest in; he has absolutely no knowledge of how the assets are invested or what they're being used for.
Blind Trust Use
The primary use of a blind trust is by politicians and other public figures to avoid the appearance of a conflict of interest. Politicians who choose their own investments may be open to accusations of making political decisions on the basis of their own self-interest. By placing the assets in a blind trust, the politician can benefit from his assets without being responsible for how and when they increase in value.
References & Resources
- U.S. Legal: Blind Trust Law & Legal Definition
- Creighton Law: What Is a Revocable Inter Vivos Trust?
- "Wills, Trusts and Estates (Seventh Edition)"; Jesse Dukeminier, Robert H. Sitkoff, James M. Lindgren and Stanley M. Johanson; 2005
- Senate Ethics Committee: Memorandum on Qualified Blind Trusts