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Land Claim Settlement Trust An Introduction May 19, 2011. Kim Alexander Fullerton Barrister & Solicitor 256 River Side Drive Oakville, ON L6K 3M9 905-849-1700. How is a Trust Established?. It is a legal relationship between Settlor (FN pays money into Trust) - PowerPoint PPT Presentation
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Land Claim Settlement TrustAn Introduction
May 19, 2011
Kim Alexander FullertonBarrister & Solicitor256 River Side Drive
Oakville, ON L6K 3M9905-849-1700
How is a Trust Established?
It is a legal relationship betweenSettlor (FN pays money into Trust)Trustee(s) (holds the money for the benefit of
FN)Beneficiary (FN & its Members)
Members must approve the Trust Agreement as part of the Land Claim Settlement Referendum
Kim Alexander Fullerton Barrister & Solicitor 2
Trust Set UpFirst Nation must be the Settlor
If First Nation not seen as Settlor it can affect the taxation of the Trust
Beneficiary – First Nation, as represented by its Chief and Council and all members of the First Nation on a collective and undivided basis
Kim Alexander Fullerton Barrister & Solicitor3
First Nation Trusts
Three primary types of First Nation Trusts
1) Corporate Trust2) Community Trust with Member
Trustees3) Hybrid, some combination of the
first twoKim Alexander Fullerton Barrister & Solicitor
4
Structure of First Nation TrustsFactors that can influence type of Trust
Agreement:Amount of $Uses of the Trust PropertyDecision makingCosts to administer the Trust
Chief and Council believe that the Corporate Trust Model is best for Georgina Island
Kim Alexander Fullerton Barrister & Solicitor5
Corporate TrustThe role of the Trust is to
Receive the $Invest the $Make an annual payment to the First
Nation
The Capital is generally not spent (except for clearly stated purposes like purchasing land)Rather it is invested to generate income
which is used to make the annual payment to the FN
Kim Alexander Fullerton Barrister & Solicitor6
Corporate TrustThe Corporate Trustee generally has
no role in determining how funds are spent in the community
The decision to determine how to spend the annual payment is left to the community – which will need to be addressed separately
Kim Alexander Fullerton Barrister & Solicitor7
Band Settlement
Account
Trust Account
Initial Uses
Capital
Investment
Annual Payment
First Nation Responsibility
Trustee Responsibility
Corporate Trust
Community decides what to do with funds
Uses & decision making need to be addressed by the First Nation• Another Trust• S. 83 Expenditure By-law• Financial Policy
Key Questions for Developing a TrustHow long should the Trust Last?What is the Purpose of the Trust?How can the Trust Property be expended?Which Trust Company to use?How should the investment of the funds be
handled?Personal Cash Distributions to Members (PCD)Impact of InflationDemographics – How many Members will you
have in 50 or 100 years? Kim Alexander Fullerton Barrister & Solicitor
9
Key Questions for Developing a Trust
What are the Tax Consequences?What are the accountability and reporting
requirements of the Trust?What conflicts may arise and how will they be
addressed?
Kim Alexander Fullerton Barrister & Solicitor10
Key Questions for Building a Trust
No right or wrong answersNo “one size fits all”Each First Nation is unique – Trust needs to
be designed to fit the First Nation’s purpose and the plan
Take the appropriate time, energy and resources to develop the plan and the Trust Agreement
Kim Alexander Fullerton Barrister & Solicitor11
PurposeThe fundamental purposes for the
Trust must be determinedSpecific Claim Settlement TrustThe Settlement Agreement with Canada
will allow Georgina Island to buy land and add it to reserve
Once the purposes for the Trust are established then a plan needs to be put in place
Kim Alexander Fullerton Barrister & Solicitor12
PlanOne of the first questions or decisions that
will need to be made is “will the capital be spent and if so how much and on what?”The more utilized upfront means less will be
available to invest and generate income in the long term
The more spent upfront on a PCD provides an immediate benefit to the current generation, but less benefits to future generations
Need to determine what is the appropriate balance for the community
Kim Alexander Fullerton Barrister & Solicitor13
Uses of Trust PropertyObviously must match with the
purpose and planCorporate Trusts are relatively
straightforward– Trustee receives, invests and makes annual payment to FN
Kim Alexander Fullerton Barrister & Solicitor14
Uses of Trust Property
The decisions for a Corporate Trust center aroundThe amount of the annual payment to FNWho decides how the annual payment is spentCan the Trust Property be used as security for
loansAmount of PCD
Kim Alexander Fullerton Barrister & Solicitor15
Uses of Trust PropertyCorporate TrustAnnual Payment can be structured in
different waysAnnual Income
Fluctuates yearly based on rate of return Long term planning more difficult Need to address growth of the Trust Property
Smoothing Mechanism Set minimum amount Percentage of Trust Property - 2% to 5% Makes long term planning easier
Kim Alexander Fullerton Barrister & Solicitor16
Uses of Trust PropertyCorporate TrustHow the annual payment is used by the
First Nation will be addressedWhat are the Authorized usesWho and how are decisions madewhat are the rulesHow are conflicts to be addressed
Can be set out in a separate documentSection 83 Expenditure By-lawFinancial Policy
Kim Alexander Fullerton Barrister & Solicitor17
InvestingEnsure get qualified adviceInvestment provisions dictated by the purpose,
plan and time horizonHave specific provisions in the Trust
Agreement to address investing the Trust Property which, at a minimum:Requires the Trustee and the FN to obtain qualified
adviceRequires the development of an Investment PolicyClearly provides for who can be retained to do the
investing Kim Alexander Fullerton Barrister & Solicitor
18
Taxation
A FN Trust is neither an Indian nor a First Nation and must pay tax on any retained income in the Trust at the end of every year
Get qualified advice, there are ways to avoid paying tax
While taxation is important, it should not be the overriding factor in determining the plan for the Trust
Kim Alexander Fullerton Barrister & Solicitor19
ReportingThe operation of the Trust should be
open and transparentRegular reporting requirementsRegular meetings with Council and
membersIf people know what is going on, they
feel more comfortable
Kim Alexander Fullerton Barrister & Solicitor20
Annual Operating ExpendituresWhat is it going to cost to implement
the Trust?Need controls in the Trust Agreement
on such expendituresBudgetary processAnnual Expenditure should not exceed 1%
of the value of the trust property
Kim Alexander Fullerton Barrister & Solicitor21
ConclusionTake the necessary time and thought in
developing the plan and Trust Agreement
Be clear on the plan to be followedAllow ample time for community
consultationUse qualified expertsHave an adequate budget for
development of the TrustKim Alexander Fullerton Barrister & Solicitor22
Questions?
Kim Alexander Fullerton Barrister & Solicitor23