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Facing questions about the transparency of his investments and tax returns, Republican president candidate, Mitt Romney, has responded with two words: blind trust.
A popular tool with politicians and government officials who want to stave off potential conflicts of interest and presumably keep the public’s attention off of their wealth (particularly in a down economy), blind trusts are established to prevent the trust beneficiaries from knowing exactly where their money is and what it’s doing. This is supposed to prevent them from using the powers of their political or governmental office to influence the performance of their investments.
The best way to judge the credibility of a blind trust is to look at the following:
Who is running the trust? Is the Trustee a friend or relative of the trust beneficiary? If so, there’s definitely more room for abuse.
What was initially invested into the trust? More often than not, people get rich in specific fields or by starting specific kinds of companies. Though their investments become “blind”, there’s a good chance that they are going to forge ahead in similar directions as they had before.
What kind of reporting is being delivered to the trust beneficiary? The nature and detail of the reports (i.e. how much is being made in capital gains, dividends or interest), can provide strong clues as to what is happening inside the trust.
In a nutshell, blind trusts are designed to minimize conflicts of interest and abuses of power. While they may be the ideal solution for political candidates and certain government officials, they are not necessary for the average investor.