What is a blind trust, and how does a qualified trust work?

What does the regulation say a qualified trust is for?

The Office of Government Ethics rules on qualified trusts are in subpart D of 5 CFR part 2634. The overview says that the Ethics in Government Act of 1978 created two types of qualified trusts, the qualified blind trust and the qualified diversified trust, that employees may use to reduce real or apparent conflicts of interest. The primary purpose of an executive branch qualified trust, it says, is to give an independent trustee and any other designated fiduciary the sole responsibility to administer the trust and manage its assets without participation by, or the knowledge of, any interested party or representative of an interested party. That includes the duty to decide when and to what extent the original assets are sold, and what the proceeds are reinvested in.

The regulation states the reasoning in plain words: because the requirements assure true blindness, employees with a qualified trust cannot be influenced in the performance of their official duties by their financial interests in the trust assets, and their official actions should be free from collateral attack arising from real or apparent conflicts of interest.

What makes a trust "qualified"?

The definitions section is specific. A qualified blind trust is a trust in which the interested party has a beneficial interest and which:

1. is certified by the Director of the Office of Government Ethics;
2. has a portfolio as specified in the regulation (paragraph (a) of section 2634.406);
3. follows the model trust document prepared by the Office of Government Ethics; and
4. has an independent trustee as defined in the regulation.

A qualified diversified trust has the same four features, except that its portfolio is the one specified in paragraph (b) of section 2634.406. We did not read that section, so we do not describe how the two portfolios differ. The definitions add that a "qualified trust" means a trust described in the Act and the regulation and certified by the Director.

What are the two safeguards?

The overview names two characteristics that assure blindness: the independence of the trustee, and the restriction on communications between the independent trustee and the interested parties. To serve as trustee, an entity must meet the strict independence requirements of the Act and the regulation, and the communication limits reinforce that independence.

Is every trust called "blind" a qualified blind trust?

By the regulation's definition, only a trust certified by the Director and meeting the other requirements is a qualified blind trust. A trust that a news story, a campaign or a family calls "blind" may not have been certified, and from a filing alone you cannot tell. The word to look for on an official record is "qualified", together with a certification.

How do trusts figure in transaction reports?

For executive branch officials, the periodic transaction rule, 5 CFR 2634.309, says the following need not be reported as transactions: transactions of excepted investment funds and transactions involving holdings of trusts and investment funds described in section 2634.312(b) and (c). We did not open that section, so this article does not say which trusts it covers.

What about Congress?

Everything above comes from the executive branch rules published by the Office of Government Ethics. We did not verify how the House or Senate treats blind trusts, and the House form we read, the periodic transaction report instructions, lists exclusions without a general trust exception. For members of Congress, check the chamber's own ethics guidance and the member's filings.

What should a reader check?

If a filing or a news story mentions a trust, three questions help. First, is it described as certified by the Director of the Office of Government Ethics? The regulation's definitions require certification for both kinds of qualified trust. Second, does it follow the model trust document that the Office prepared, and does it have an independent trustee as the regulation defines one? Those are conditions of the definition, not extras. Third, whose rules apply? The text above is the executive-branch regulation. For a member of Congress, the chamber's own ethics guidance and the member's filings are the place to look.

None of these questions is answered by a list of trades. A periodic transaction report shows a transaction; it does not show whether the asset sat in a qualified trust. The regulation relies on structure, the independent trustee and the limit on communications, not on the label.

What this does not tell you

A qualified trust does not mean the official has no financial interest: the interested party keeps a beneficial interest in the trust, which is why it is called a trust "in which the interested party has a beneficial interest". It also does not mean nothing is disclosed or that no one can check: certification, the model document and the independent trustee are the structure. And a trade by a trustee does not show what the official wanted. OQRO does not describe any holder's trust arrangements as good or bad. For members' own disclosures see the politician trades page and the STOCK Act guide.