Blind Trust – Definition

Cite this article as:"Blind Trust – Definition," in The Business Professor, updated October 22, 2019, last accessed May 26, 2020, https://thebusinessprofessor.com/lesson/blind-trust-definition/.

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Blind Trust Definition

A blind trust is a type of trust in which the beneficiaries of the trust are not aware of the holdings of the trust; instead, the trustees have full knowledge or discretion over the holdings of the trust. Also, the grantor or trustor has no control over activities undertaken within the trust and has no right to intervene in how the holdings of the trusts are handled. Regardless of this, the trustor has the right to terminate the trust since the trust was initiated by him. In a blind trust, the trustees gives no report to the trustor neither do they provide any information to the trust beneficiaries.

A Little More on What is a Blind Trust

In a blind trust, the trustees are given power of attorney over the holdings of the trust, that is, they exercise full discretion over the assets. Blind trustors also have no access or control over the holdings of the trust. Blind trusts are often used by influential individuals who have been given a political appointment or elected into political office. The need for a blind trust arises for such individuals to avoid being put in a difficult position because of their investmnet holdings, they then entrust their investmnet holdings to trustees.

In blind trusts, the beneficiaries have no knowledge of the trust holdings and how they are managed. The trustor however can exercise the right to terminate a bind trust. He can also set rules on which the blind trust will be run or managed but might not receive any reports from the trustee.

Options Outside the Blind Trust

Blind trusts are often used by politicians who have enormous wealth and need to avoid conflict of interest with the position the hold. To set up a blind trust, a huge amount of money is required and it is also expensive to manage or operate. Due to the expensive nature of blind trusts, there are other options for wealthy politicians outside blind trust which includes the conversion of all investmnet holdings to cash and sale of specific investments. However, any of these methods have tax implications which many wealthy politicians try to avoid, hence, a blind trust remains the perfect option for most of them.

Reference for “Blind Trust”

https://www.investopedia.com/terms/b/blindtrust.asp

https://en.wikipedia.org/wiki/Blind_trust

https://www.forbes.com/…/whats-a-blind-trust-anyway-and-why-wont-it-work-for-pre…

https://www.npr.org/sections/money/2012/07/…/just-how-blind-are-blind-trusts-anyway

https://www.businessinsider.com/blind-trust-explainer-theresa-may-philp-may-paradis…

Academics research on “Blind Trust”

The political economy of trust, Korczynski, M. (2000). The political economy of trust. Journal of Management Studies37(1), no-no. There has been a considerable rise in discourses concerning trust from a range of academic disciplines and perspectives. Unfortunately, many of these literatures have talked past, rather than to, each other. This paper develops an analysis of trust in economic activity through a dialogue between the disciplines of economics and sociology. It outlines the relationship of trust to economic co–operation and identifies a number of types of trust. The potential benefits of these different types of trust to advanced capitalist economies are identified. Consideration is given to the processes of trust creation and destruction in market economies. Particular emphasis here is on how far trust can be symbiotic with, or contradictory to, power and the market. With an analysis of the key properties of individual agents which make them more or less prone to trusting behaviour, the paper is then able to identify the critical factors likely to underlie high–trust and low–trust economies. This has important public policy implications given the potential benefits which trust can have for advanced economies.

Market, hierarchy, and trust: The knowledge economy and the future of capitalism, Adler, P. S. (2001). Market, hierarchy, and trust: The knowledge economy and the future of capitalism. Organization science12(2), 215-234. Adler, P. S. (2001). Market, hierarchy, and trust: The knowledge economy and the future of capitalism. Organization science12(2), 215-234. Recent conceptualizations of trends in the structure of U.S. industry have focused on the relative importance of markets, hierarchies, and hybrid intermediate forms. This paper advances the discussion by distinguishing three ideal-typical forms of organization and their corresponding coordination mechanisms: market/price, hierarchy/authority, and community/trust. Different institutions combine the three forms/mechanisms in different proportions. Economic and organizational theory have shown that, compared to trust, price and authority are relatively ineffective means of dealing with knowledge-based assets. Therefore, as knowledge becomes increasingly important in our economy, we should expect high-trust institutional forms to proliferate. A review of trends in employment relations, interdivisional relations, and interfirm relations finds evidence suggesting that the effect of growing knowledge-intensity may indeed be a trend toward greater reliance on trust. There is also reason to believe that the form of trust most effective in this context is a distinctively modern kind—“reflective trust”—as opposed to traditionalistic, “blind” trust. Such a trend to reflective trust appears to threaten the privileges of currently dominant social actors, and these actors’ resistance, in combination with the complex interdependencies between price, authority, and trust mechanisms, imparts a halting character to the trend. But the momentum of this trend nevertheless appears to be self-reinforcing, which suggests that it may ultimately challenge the foundations of our capitalist form of society while simultaneously creating the foundations of a new, postcapitalist form.

20 Trust, institutions, agency: towards a neoinstitutional theory of trust, Mollering, G. (2006). 20 Trust, institutions, agency: towards a neoinstitutional theory of trust. Handbook of trust research355.

 

Trust after the global financial meltdown, Werhane, P., Hartman, L., Archer, C., Bevan, D., & Clark, K. (2011). Trust after the global financial meltdown. Business and society review116(4), 403-433. Over the last decade, and culminating in the 2008 global financial meltdown, there has been an erosion of trust and a concomitant rise of distrust in domestic companies, multinational enterprises, and political economies. In response to this attrition, this article presents three arguments. First, we suggest that trust is the “glue” of any viable political economy, and we propose that the stakes of violating public trust are particularly high in light of the asymmetry between trust and distrust. Second, we identify a constellation of key barriers to overcoming distrust that companies face in the current environment: (1) corporate mind‐sets that promote a preoccupation with quantification, hierarchical leadership models, and “blind trust” in authority; (2) the anonymity of core stakeholders; (3) the agency of the media as a driver of the political economy; and (4) firm‐centric models of stakeholder relationships. Third, we argue that, notwithstanding these challenges, these phenomena are not fatal and can be addressed through a holistic transformation in corporate culture. Such a transformation might include a shift to collaborative leadership models and replacing authority models with responsibility, a “names and faces” approach to stakeholders through cases and stories, more egalitarian communication exchanges with external stakeholders, and a reprioritization of the firm as a vital element among others within a system rather than the central core of a network. We conclude that the value of trust at the individual, institutional, national, and global levels cannot be overstated. Without a reinvigoration of trust in our political economies, at all levels, the future of an economically vibrant planet is indeed bleak.

Managing the risks of corporate political donations: A Utilitarian perspective, Leong, S., Hazelton, J., & Townley, C. (2013). Managing the risks of corporate political donations: A Utilitarian perspective. Journal of Business Ethics118(2), 429-445. This paper applies a utilitarian analysis to corporate political donations. Unlike the more common rights-based analyses, it is argued that the optimal policy is the one that best satisfies society’s rational preferences concerning donor influence, adequate financing, donor pressure and the cost of maintaining and enforcing the democratic system. This analysis suggests that a ban is best if it would be generally observed and sufficient financing from other sources is available, otherwise a donation cap is a better option. Further, lobbyists should be banned from donating small gifts and drafting bills for candidates. The impact of disclosure and other risk management mechanisms are also considered.

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