Just How Blind Are Blind Trusts, Anyway?

As Mitt Romney has faced questions about his investments and tax returns, the likely Republican presidential nominee has responded with two words of explanation: blind trust.

Romney keeps most of his wealth in a blind trust designed to prevent him from knowing exactly where his money is and what it's doing. It's a long tradition for presidents and candidates, though anyone can set one up if he wants to.

But it turns out that not all blind trusts are equally blind. Some are cast into complete and utter darkness. Others are more nearsighted.

Ken Gross, an ethics lawyer with the law firm Skadden Arps in Washington, D.C., has helped presidential candidates set up blind trusts. He says blind trusts are complicated, expensive and generally a pain.

"Most people who have any kind of wealth are interested in how it's managed," Gross says. "And blind trusts, because they are blind, you don't know what's going on with your money."

But a blind trust does have one crucial advantage for a politician: It becomes an easy answer to any conflict-of-interest question. Mitt Romney used it in the Republican primary debates earlier this year.

"My investments are not made by me," he said at the time. "My investments for the last 10 years have been in a blind trust, managed by a trustee."

Of course, there's an easy response from a less wealthy opponent. In fact, there's a video going around of Mitt Romney from 1994, when he was challenging another very rich candidate with a blind trust: Ted Kennedy.

"The blind trust is an age-old ruse, if you will," Romney said. "Which is to say, you can always tell a blind trust what it can and cannot do."

So which one is it? Blind or not blind? Well, all trusts are not created equal.

Federal election rules require fairly tight ones. State rules, not so much.

I called up a trust lawyer, Colby Wallace, with Bernstein Shur in Portland, Maine. I asked him how you can tell how blind a trust really is.

His advice: First look at the person who runs the trust, the person who's supposed to keep all the investments secret. If the person is a friend or relative, it looks bad.

Second, look at what went into the trust at the very beginning. Rich people get rich in specific fields or by starting specific companies, Gross says. "And just because it becomes part of a blind trust doesn't erase it from your memory."

The third way to evaluate a trust is to look at what kind of reporting the trust makes back to the politician. If the candidate gets fairly detailed reports about how much he has made in capital gains, dividends or interest, he may be able to figure out what's going on inside the trust.

But Wallace says that once you get up to the presidential level, with federal laws, this can't happen easily.

So what does it all mean for Mitt Romney?

His blind trust is run by a longtime financial adviser, who might know his likes and dislikes. If Romney were elected president, the campaign has already conceded that he would need to have a stricter blind trust with an outside firm running the money, instead of a close adviser.

The many rules mean a lot of work for people like Gross, who consults on blind trusts. But he still tells his clients he doesn't like blind trusts much.

He recommends that politicians without a ton of investments simply put their money into plain-vanilla index funds and bonds. Then tell everyone where the money is.

That's the route President Obama has taken, judging from his 2011 financial disclosure form (PDF): His investments are primarily in index funds from Vanguard and U.S. Treasury bills and notes.

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