What is a Blind Trust?

There seems to be a lot of misunderstanding on what exactly is a Blind Trust.

In the context of politicians, it's really pretty simple. Although I'm oversimplifying a bit, let's use Frist as an example. He is the Beneficiary of the trust. To avoid a conflict of interest in public life he puts all his stocks into a "blind trust" with Kirk Scobey as the trustee. Of course Frist knows what assets he put into his trust, but once the trust is created Frist should know nothing further about the contents of the trust. The trustee's job is to manage those assets to benefit the Beneficiary -- who must remain 'blind' as to the assets in the trust.

The trust now owns the stocks, not Frist -- this is an important concept. If all of Frist HCA stock was placed in the blind trust, Frist is no longer a stockholder in the company. 'Placing the stock in the trust' means that ownership of the stock is expressly transferred from Frist to the "Frist Family Blind Trust" or whatever. Once the blind trust owns the stocks, Frist should have no say in how they are handled.

The trustee has the discretion to manage the trust assets and to buy and sell those assets as the trustee deems appropriate. All tax liability belongs to the trust which files a tax return each year, signed by the trustee, not the beneficiary.

Frist, as beneficiary, consistent with the terms of the trust, gets only the income from the trust (or not if the terms suggest all income is to be reinvested) that is accounted for on Frist's tax return by a simple 1099 from the "Frist Family Blind Trust" or whatever. Frist should have no idea exactly how this trust income was generated.

The point of the blind trust is to completely shield the beneficiary from the contents of the trust so he has no conflicts of interest.

So, while Frist knew that HCA stock was in the trust at it's inception, he shouldn't know the current status of those stocks. For instance, the trustee could have immediately sold all the HCA stock and bought Google. If the trust is really a blind trust, Frist would have no way of knowing this.

So when we learn that Frist has been, in fact, managing his trust assets from the start with constant updates from the trustee on assets, and directing the trustee how to handle those assets, it is clear that this is not, by any measure or definition, a blind trust. Frist is acting as a trustee.

If there are federal laws that require blind trusts (versus only Senate Rules) then Frist has clearly violated this law and should be subject to prosecution. If it is the Senate Rules that require such trusts, then he should be subject to discipline for violating those rules.

Correction: My tax attorney informs that an income beneficiary receives a K-1, not a 1099. No substantive change. The K-1 no more reveals the contents of the trust than would a 1099.