Throughout his presidential campaign, Donald Trump was confronted by questions about how he would handle his business dealings and any potential conflicts of interest in the event he were elected. His business – a privately held international conglomerate of about 500 business entities known as the Trump Organization – has dealings in the U.S. and abroad, ranging from construction and real estate to golf courses, hotels and even a winery. (For more, see The Companies Donald Trump Owns.)

Now, with Trump’s surprise victory in the bag, the questions are no longer hypothetical. How does this president-elect avoid major conflicts of interest as he steps into office. According to Michael Cohen, an attorney for Trump and the Trump Organization, the answer lies in a blind trust, with Trump’s three oldest children at the helm.

Blind Trust Basics

Trusts are legal structures used to protect assets. Blind trusts are a type of trust, and are often used when wealthy individuals are elected to public office – a situation in which their investments could potentially lead to conflicts of interest with regulatory issues or the exercise of political power.

Under a blind trust, the trustees (which can be individuals or an institution) are given total discretion through power of attorney over how to use and invest the assets in the trust. At the same time, the trust beneficiary (the person who owns the assets) has no knowledge of the holdings and goings-on of the trust – at least theoretically. Since the beneficiary, in all likelihood, has some awareness of the investment mix going into the trust, most blind trusts aren’t truly “blind” and don’t guarantee impartiality. Instead, they are more of a demonstration that there’s been an effort to avoid conflicts of interest.

President Lyndon Johnson is recognized as being the first elected official in the U.S. to use a blind trust. Johnson and his wife, Lady Bird, owned a Texas television station (KTBC), an asset heavily regulated by the federal government, and one that seemed certain to cause conflicts of interest (his biographies later noted that despite the blind trust, Johnson continued to quietly manage his broadcasting business).

In 1978 – less than a decade after Johnson vacated the White House – thanks to the Ethics in Government Act, blind trusts became a formal option for executive-branch officers (the President, Vice President, Cabinet members and a few others) who wished to avoid conflicts of interest. The act requires that trusts have no restrictions on the sale or transfer of deeds, that trustees are independent of the official, and that the official cannot receive information regarding the assets, except for quarterly updates on cash value and profit/loss that he or she would need to file a tax return.

Setting Up a Blind Trust

While the law doesn’t require federal officials to use blind trusts, it does regulate how they are established and maintained. According to a Congressional Research Service (CRS) report, a blind trust must be set up in such a way that “the official will have no control over, will receive no communications about, and will (eventually as existing assets are sold and new ones obtained by the trustee) have no knowledge of the identity of the specific assets held in the trust.” Blind trusts must also be pre-approved for ethics purposes: There are uniform statutory requirements for blind trusts, and federal officials who use them must receive prior approval from their supervisory ethics office regarding the planned trustee and the trust instrument.

Because blind trusts are bound by state and federal laws, they are drawn up with an attorney’s assistance. The beneficiary will name the trustee and decide the investment objectives of the trust – be it growth, income or capital preservation – and also decide if it will be set up as a revocable trust, meaning the beneficiary can change it later if he or she chooses, or as an irrevocable trust, in which case the trust can’t be modified or terminated. The latter tends to carry the most weight as far as conflict avoidance is concerned.

After that, a qualified attorney will do the heavy lifting, ensuring the trust follows all state and federal laws, and meets the requirements of the official’s supervisory ethics office. Finally, the document must be signed, notarized and, depending on the state’s trust recording laws, reported to the state. Once the trust is in force, the beneficiary should, ideally, cease communications with the trustee and receive no further information about how the trust’s assets are being handled. (See also: How to Establish a Blind Trust.)

Trump’s Blind Trust Plan

If Trump sets up a blind trust for his business dealings, he would be the beneficiary (as sole owner of the Trump Organization) and his camp has indicated he would name his three oldest adult children – Donald Jr., Ivanka and Eric – as trustees, with full discretion over Trump Sr.’s assets. According to attorney Michael Cohen, Trump is confident in his children’s ability to run the company. “They’re really intelligent. They’re really qualified. That’s why he really didn’t run in 2012, because they were younger by four years,” said Cohen. “And they didn’t have, I guess, the experience, maturity that he felt he wanted to leave a $10 billion company to. Now he does. He’s very comfortable with them at the helm and the people that will surround them.”

Under the legal definition, a blind trust “is a trust in which the beneficiaries are unaware of the trust’s specific assets, and in which a fiduciary third party has discretion over all management of the trust assets.” In other words, “The trust company [trustees] holds stocks, bonds, real estate and other income-generating property in trust for the politician-beneficiary, but the politician lacks knowledge of what stocks or bonds or real estate or other investments are in the trust.” To avoid further suspicion regarding potential conflicts of interest, it is generally recommended that the trustee be a person or entity whom the beneficiary is not close to and with whom there will be little contact (there are trust companies to serve in this regard).

Because Trump couldn’t possibly be unaware of his trust’s specific assets (he’s sole owner of his businesses, after all), and his children are – well, his children – some think it might be a stretch for Cohen’s blind trust to be a realistic solution to avoiding conflicts of interest while Trump is in office. “Turning the business over to his kids will free up his time, but it does nothing to resolve conflicts of interest,” said Kenneth Gross, a political law and ethics expert at Skadden, Arps, Slate, Meagher & Flom. “A creator of a blind trust is tagged with the knowledge of the assets put into the trust, and in terms of conflicts, his children’s interest are co-extensive with his self-interest.”

The Bottom Line

Federal law does not prohibit presidents from conducting private business while in office. In fact, it gives them (and vice presidents) more leeway than other officials: Members of Congress and lower-ranking executive branch officials are subject to strict conflict-of-interest rules that don't apply to the president and vice president.

Cohen acknowledges that Trump may have a hard time satisfying critics who question his ability to separate his business from politics. “Will we be able to appease everybody? The answer is no,” said Cohen. “But everything will be done legally. He’s not interested in the company anymore. He’s interested in fixing America. He wants to make America great again.”



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