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Explaining what blind trust is with sausages

Lots of talk about blind trusts these days, mainly because Mitt Romney is deflecting any hint of potential conflicts of interest in his investments by saying his finances had been held in a blind trust since he was elected governor of Massachusetts in 2002.

So what exactly is a blind trust? Well, it’s a bit like a sausage factory. We know what goes into a sausage factory: pigs, maybe chickens or turkeys. Maybe even veggies and soy. We know what comes out of a sausage factory: sausages. Hopefully delicious ones.

But we have no idea what goes on inside the factory.

And, quite frankly, we don’t want to know. We leave the details to Mr. Drummond the sausage maker, and we trust him to do whatever he thinks best and crank out delicious sausages for us. End of story.

Same goes for a blind trust.

We know what goes in: money, and any other investments that we might have. We know what comes out: cash money, whether it’s a payout to someone, a chunk or retirement income, whatever.

But we have no idea what’s going on in there.

We don’t want to know: we leave the details to our trustee, Mrs. Wong. We trust her to take our money and our investments and do whatever she thinks best in order to create a nice fat chunk of cash for us. End of story.

There are two key components to the blind trust: the blindness and the trusting.

People who have a blind trust have no idea what the trustee is doing in there: they don’t know what she’s buying or selling or anything. That way they have cover, they can stand up, hand on heart and say they didn’t know she invested in Enron, WorldCom and with Bernie Madoff.

Which brings us to the "trusting" part of the trust. You have to trust that your trustee will do the right thing and invest your money properly and well. You’re trusting that she won’t invest in Enron, WorldCom and Bernie Madoff –- because with a blind trust, you won’t know until it’s way too late.

So when choosing a trustee for your blind trust, choose wisely. Or you could be left badly in need of a drink.

About the author

Paddy Hirsch is a Senior Editor at Marketplace and the creator and host of the Marketplace Whiteboard. Follow Paddy on Twitter @paddyhirsch and on facebook at www.facebook.com/paddyhirsch101

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