Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Tuesday, September 27, 2005

"I can see, I can see" -- Blind Trust Failure

A person may be unable to own certain assets outright if ownership would cause impermissible conflicts of interest.  For example, the President, a governor, a mayor, or other political figure may own stocks, bonds, real property, and other investments.  While carrying out the official’s duties, there would be a tremendous likelihood that conflicts of interest would arise between the person’s investments and political decisions.  Likewise, a corporate officer may also be placed in similar conflict of interest situation.  To eliminate these conflicts, the person places the assets in trust, names an independent third party as trustee, and indicates that the person as no control over the management of the assets and no authority to inquire about the exact nature of the trust investments while the person remains in office.  This type of arrangement is often called a blind trust.

Senate Majority Leader Bill Frist created such a trust (currently valued at between $7 and $35 million) but recent reports indicate that Senator Frist's vision was still quite good.  Here is an excerpt from Documents: Frist knew contents of blind trust, CNN.com, Sept. 26, 2005:

[Senator Frist] received regular updates of transfers of assets to his blind trusts and sales of assets. He also was able to initiate a stock sale of a hospital chain founded by his family with perfect timing. Shortly after the sale this summer, the stock price dived.

* * * Frist now faces dual investigations by the U.S. attorney for the Southern District of New York and the Securities and Exchange Commission into his stock sales.


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