What is a blind trust and how does it work for lottery winners?

Written by J. Hirby and Fact Checked by The Law Dictionary Staff  

There are quite a few stories in the world of lotteries in the United States that describe unfortunate cases of winners who strike it rich only to lose their jackpot dollars to poor money management skills, scammers or dubious relatives that magically appear out of nowhere. The problems typically begin when the winners are identified by the lottery commissions and the media.

Blind trusts are legal asset management structures that can help lottery winners control their money earned and maintain a certain level of privacy. In 2010, the $261.6 million Powerball Lottery jackpot went unclaimed for a month until an attorney showed up to claim the prize on behalf of his anonymous client. In this case, the lawyer was the trustee carrying out a money management instruction for a grantor and beneficiary who wanted to keep his or her identity a secret.

Setting Up a Blind Trust

A blind trust is essentially a deed that describes an agreement that falls under the category of irrevocable living trusts. As in other trusts, there is trust grantor, a trustee or administrator, and a beneficiary. When blind trusts are constructed for purposes other than to manage lottery winnings, the beneficiary is not be able to access the assets held by the trust.

Some state lotteries encourage jackpot winners to deposit their prize money into a trust, though not necessarily a blind trust. For example, winners of the multi-state Powerball Lottery in the United States are not required to disclose their names as long are residents of, and purchased their tickets in, in Delaware, Kansas, Maryland, North Dakota, or Ohio. In other states, however, lottery winners must provide their names and the cities where they live in.

Although a state lottery commission may require disclosure of name and place of residence from jackpot winners, blind trusts may still be set up to offer some level of asset protection. The trust must be constructed according to statutory provisions and rules of procedure; the grantor will also be the beneficiary, but these parties will not be identified and will remain anonymous throughout the term of the blind trust.

The winning lottery ticket can be deposited into the trust as an anonymous donation. The trustee will have full discretionary powers to manage the prize money as they see fit; for this reason is essential to retain a reliable trust management company or a law firm with a few partners and associates. The distribution of funds is established when the trust is established and cannot be changed, which means that lottery winners must exercise caution when selecting this method to claim their jackpots.

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