Most often, a blind trust is used when the beneficiary of the trust is in a position where he/she cannot or should not be involved in investment decisions because of the possibility of a conflict of interest. Blind trusts are used quite frequently by those who hold elected office. A blind trust is a trust in which the fiduciaries who make all the investment decisions have full discretion over the assets, and the trust beneficiaries have no knowledge of the holdings of the trust and no right to intervene in their handling, including any investment decisions. Another reason for a blind trust is, as Hawkwind points out, is an attempt to disguise the name of the beneficiary of the trust.

But the concept of a blind trust to avoid taxation on any form of income, including gambling winnings won't work. The IRS is standing right there, before the winnings are distributed, requiring that the proper amount of taxes be witheld prior to any distribution. The same thing even happens in Las Vegas casinos. There's a lower limit, I think, but for any winnings of a significant amount, the proper amount of taxes are required to be witheld by the casino before any distribution to the winner.

The young rancher/winner chose the lump sum distribution. So the first step was for the lottery to calculate the present value of his winnings. I don't know what discount rate they used to make the calculation, but the effect was that his winnings as a lump sum were calculated to be about $120 million instead of the $232 million had he agreed to take his payments as 30 annual payments of about $7.75 million.

The taxes the winner would pay on either payment approach would be required by the IRS to be deducted prior to the winnings being distributed to the winner. Again in this case, his lump sum award was about $120 million, which was then reduced by the maximum tax rate of 35% to the $89 million he's going to get "after taxes". Even if he chose to take 30 annual payments, the taxes would be witheld prior to him receiving his annual distribution. That approach raises another risk to the winner: choosing the annual payments means that he would pay federal taxes at the rate in effect during the year of each distribution. So, if the maximum tax rate were to increase from the 35% it is currently, the winner would pay whatever rate was in effect that year.

Given the amount of our national debt, it seems to me that the chances of the maximum federal tax rate increasing rather than decreasing is pretty high. Given that the maximum tax rate is near a historical low, his choice to take the lump sum seems to be a sound one.

Once he gets the after-tax proceeds of his winnings, that would be the time he might choose to use an investment vehicle such as a blind trust. Given the high number of lottery winners who somehow seem to fritter away some pretty sizeable amounts of money, the young fellow might be wise to set up a trust with a major bank or trust company which would handle the invrstment of the money, and also its distribution. Having a knowledgeable trustee standing betwen the winner and his money would protect him from the onslaught of both goofy investment ideas as well as appeals for money from hundreds of "charity cases" who will appeal to him for a handout.