land claim settlement trust an introduction may 19, 2011

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

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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


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


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


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

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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?


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


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


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


Uses of Trust PropertyObviously must match with the

purpose and planCorporate Trusts are relatively

straightforward– Trustee receives, invests and makes annual payment to FN


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


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


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


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

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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


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


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


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?


land claim settlement trust an introduction may 19, 2011

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