The

Qualified

Trust

Program

U.S. Office of Government Ethics

www.usoge.gov
This booklet provides an

overview of the quali

fied trust program. It

contains answers to some

questions frequently asked by

employees who are considering creating a trust because of

potential conflicts of interest.

This booklet does not cover

every issue that may arise, and

it is not a substitute for counseling. For specific advice

about your situation, you

should contact your agency’s

Designated Agency Ethics

Official (DAEO).
1

The Qualified Trust Program

Entering Government service may raise issues that you did

not have to think about when you worked in the private

sector. For example, certain financial holdings, like

stocks, might create conflicts of interest. Potential conflicts of

interest arise when a Government employee’s official duties

would affect his financial interests or affiliations. There are

a number of ways to resolve a potential conflict of interest.

Usually, the conflicting interest can be divested or the employee

can simply avoid becoming involved in the Government matter

that would affect his financial interest. Sometimes, an employee

can get a waiver of the conflict of interest.

Another way to address conflicts of interest is to put your

assets in a special trust that is created according to

guidelines established by Congress. This type of trust is

generally known as a qualified trust. When you establish a

qualified trust, you give up the management of your assets to an

independent trustee, who makes investment decisions for your

benefit without your knowledge. In this situation, any potential

conflicts of interest are resolved because you are not involved in

managing, or have any knowledge of, your assets.
2

What are the advantages of

establishing a qualified trust?

Aqualified trust allows you to avoid conflicts of interest

while alleviating the responsibility of managing your

assets during Government service. By turning over the

management of your assets to an independent trustee, a qualified

trust generally will allow you to be fully invested in the market

without worrying about conflicts of interest.

In addition, a qualified trust may help you avoid undue public and

media scrutiny. The qualified trust program has gained wide

public acceptance since it was created almost 30 years ago.
3

Is establishing a qualified trust

always the best option?

Aqualified trust might not be appropriate when other less

 costly and less complicated solutions, like obtaining a

waiver or divesting an asset, are available. Qualified

trusts are generally not good alternatives for employees with

only a few moderate holdings or whose Government duties are

narrowly focused on a specific industry sector. For example, a

Government employee who works for an agency that regulates

banks might find it easier and more cost-effective to divest his

holdings in bank stocks rather than create a qualified trust.

Conversely, an employee whose duties may affect a wide variety

of industry sectors, such as an employee of the Department of

Defense, may find that a qualified trust is useful.

A person who is uncomfortable with turning over all investment

decisions to someone else might not find a qualified trust a

feasible solution.
4

Are all types of qualified trusts

the same?

There are two different types of qualified trusts. One or the

other may be more appropriate for your financial situation.

A blind trust requires you to relinquish control of your

assets to an independent trustee, who manages the assets in the

trust without your knowledge. Any asset initially placed in the

trust continues to pose a potential conflict of interest until it has

been sold or reduced to a value less than $1,000. The new assets

purchased by the trustee will not be disclosed to you, so they will

not pose a conflict. This type of trust works well for an employee

who does not have assets that pose an immediate conflict and has a

portfolio that holds a relatively few, large holdings.

A diversified trust holds a portfolio of marketable securities that is

so diversified that it does not pose a conflict of interest because no

specific action can significantly impact the overall value of the

portfolio. No single asset in the trust may be more than 5% of the

total portfolio, and no more than 20% of the portfolio may be

concentrated in any particular economic geographic or industrial

sector. An asset that poses a significant conflict with your duties

also cannot be put in the initial trust portfolio. A diversified trust

generally is suitable for employees who hold a large number of

individual stocks and bonds.

In the case of either a blind or diversified trust, you may choose to

place all or just some of your assets in the trust. Of course, assets

not in the trust must be monitored for potential conflicts of interest.

In addition, in some cases an employee may create a “hybrid” trust

–- a single qualified trust that has both a “blind” portfolio and a

“diversified” portfolio.
5

Who can be the trustee of my

qualified trust?

The trustee of your trust must be completely independent

and must be approved by the Director of the Office of

Government Ethics (OGE).

An independent trustee cannot be affiliated with, associated with,

related to or subject to the control or influence of anyone who has

a beneficial interest in the trust. The trustee cannot be a current

or former investment advisor, partner, accountant, attorney,

relative or any other individual. OGE regulations require that the

trustee be a financial institution, such as a bank or trust company.

Generally, a financial institution will be considered independent

if you or your family has no relationship with it other than savings, checking or other types of similar accounts.

Once you have decided to establish a trust, you will need to find

an institution to serve as independent trustee. When interviewing

a trustee, you may communicate your overall investment objectives for the portfolio, but you may not communicate specific

directions about how to construct or manage the portfolio.

Once the trust is certified by OGE, communication between you

and the trustee is very limited. For example, you and the trustee

are prohibited from discussing asset management, trust holdings

or trust administration. Of course, you are permitted to request

cash distributions, and you will receive periodic reports about the

overall performance of your trust.
6

If my current investment advisor can’t

serve as my independent trustee, how

can I find an appropriate trustee?

Any trust company or large financial institution with a trust

department should be able to help you create a qualified

trust. You may want to contact several of these organizations to compare portfolio management, costs and other pertinent

information. Also, it is very important that the company you

choose be considered independent. If you need further information

about selecting an appropriate trustee, OGE will be glad to assist

you.
7

How do I establish a blind or

diversified trust?

First, you should talk to your DAEO to discuss the appropri-

 ate action to resolve any potential conflict of interest. If a

 qualified trust is your preferred method for resolving the

conflict, you should then contact OGE. OGE will work with you

or your representative to set up the trust.
8

Where can I find more information about

the qualified trust program?

OGE has detailed information about the qualified trust

program on its website (www.usoge.gov). Included on

the website are model trust agreements that will be used

in the administration of the trust.

You also may want to look at OGE’s regulations on qualified

trusts at 5 C.F.R. § 2634, Subpart D, which can be reviewed on

the OGE website. For further information, you may contact

OGE at 202-482-9300.