Definition
The term blind trust refers to an arrangement whereby the executors have complete discretion over the assets of a beneficiary. Blind trusts are oftentimes used by politicians to remove any potential for a conflict of interest.
Explanation
A blind trust allows the trustees, or fiduciaries, to have complete power over the account's assets. In addition, the trust's beneficiary has no knowledge of the account's holdings, or has any say in where the funds will be invested. Since the beneficiary has no knowledge of the trust's investments, they cannot be accused of a conflict of interest. Politicians, and other persons in positions where a conflict of interest could arise, oftentimes place their assets in a blind trust to remove the possibility of being accused of creating policy that favors a company, industry, or even a country.
Unlike other trusts, the settlor (the party funding the trust) is typically the beneficiary too. Since both the beneficiary and settlor has no idea how the funds in the trust are being invested, they are relying on the fiduciary responsibility a trustee has to their clients as well as their professional code of ethics.
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