Community Engagement July 9 2011 Kim Alexander Fullerton Barrister amp Solicitor How is a Trust Established It is a legal relationship between Settlor FN pays money into Trust Trustees holds the money for the benefit of FN ID: 223219
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Coldwater Claim Settlement TrustCommunity EngagementJuly 9, 2011
Kim Alexander Fullerton
Barrister & SolicitorSlide2
How is a Trust Established?It is a legal relationship between
Settlor (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 (vote)
Kim Alexander Fullerton Barrister & Solicitor
2Slide3
First Nation TrustsThree primary types of First Nation Trusts
1) Corporate Trust
2) Community Trust with Member Trustees
3) Hybrid, some combination of the first two
Kim Alexander Fullerton Barrister & Solicitor
3Slide4
Structure of First Nation TrustsFactors that can influence type of Trust Agreement:
Amount of $
Uses of the Trust Property
Decision makingCosts to administer the Trust
Chief and Council believe that the Corporate Trust Model is best for Georgina Island
Kim Alexander Fullerton Barrister & Solicitor
4Slide5
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 & Solicitor
5Slide6
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 & Solicitor
6Slide7
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
NationSlide8
Key Questions for Developing a TrustWhat is the Purpose of the Trust?How can the Trust Property be expended?
How should the investment of the funds be handled?
Personal Cash Distributions to Members (PCD)
Impact of InflationHow long should the Trust Last?Demographics – How many Members will you have in 50 or 100 years?
Kim Alexander Fullerton Barrister & Solicitor
8Slide9
How long should the Trust Last?No right or wrong answerMany First Nation Trusts are set up to last for 100 yearsHard to know what the needs of GIFN will be in 100 yearsWhen the Trust ends it can always be rolled into a new TrustPerhaps a shorter period might make sense, say 50 years?
Kim Alexander Fullerton Barrister & Solicitor
9Slide10
Uses of Trust PropertyCorporate Trust
Annual Payment can be structured in different ways
Annual Income
Fluctuates yearly based on rate of returnLong term planning more difficultNeed to address growth of the Trust PropertySmoothing Mechanism
Set minimum amountPercentage of Trust Property - 2% to 4%Makes long term planning easier
Kim Alexander Fullerton Barrister & Solicitor
10Slide11
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 & Solicitor
11Slide12
Personal Cash Distribution (PCD)Three Main Questions:
1) How Much?
2) Who Gets It?
3) When?Kim Alexander Fullerton Barrister & Solicitor
12Slide13
How Much?You have about 700 members, so:$1,000 payment will cost $700,000$2,000 payment will cost $1.4 million$5,000 payment will cost $3.5 million$10,000 payment will cost $7 million$20,000 payment will cost $14 million
You need to find the right balance of immediate benefit versus long term benefits
Kim Alexander Fullerton Barrister & Solicitor
13Slide14
Who Gets the PCD?Not as easy as it looksGenerally must be both a member and alive on the day of the vote to get PCDYou have control of your own membership (not Indian Affairs)What about people that have applied for membership and not yet been added?What happens if someone dies after the vote but before the PCD is paid?
Kim Alexander Fullerton Barrister & Solicitor
14Slide15
When?Mainly about minors (members under 18 at time of vote)Can simply pay members when they turn 18Could pick a later age, like 21 or 25Can link it to graduation from high schoolOr both, such as “when turn 21 or graduate from high school, which ever occurs first”
Again, what to do with PCD of a minor who dies before receiving it?
Kim Alexander Fullerton Barrister & Solicitor
15Slide16
Initial Uses of Trust CapitalOften a First Nation will decide to spend some of the capital from the trust right away on important projects to improve the community like schools, daycare, community centres, recreational facilities, transportation, etc, upon recommendation from the membership.Kim Alexander Fullerton Barrister & Solicitor
16Slide17
PurposeThe fundamental purposes for the Trust must be determinedSpecific Claim Settlement Trust, so it must be for the “long term benefit of GIFN”
The Settlement Agreement with Canada will allow Georgina Island to buy land and add it to reserve
GIFN can purchase up to 3,000 acres of land and create up to 3 new reserves in the next 30 years should the First Nation choose to
Kim Alexander Fullerton Barrister & Solicitor
17Slide18
Land PurchaseNeed to have mechanism in place to permit GIFN to access funds from the Trust to buy the landMay be wise to have band owned corporation or an agent acting on behalf of the band to purchase the lands (price might go up otherwise)Need projections of what land in the area costs and some sort of limits should be placed on how much of the Trust capital can be spent on landNeed to have ongoing dialogue with members about where to purchase land
Kim Alexander Fullerton Barrister & Solicitor
18Slide19
InvestingInvestment 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 advice
Requires the development of an Investment Policy
Clearly provides for who can be retained to do the investing Kim Alexander Fullerton Barrister & Solicitor
19Slide20
TaxationA 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 & Solicitor
20Slide21
ReportingThe operation of the Trust should be open and transparentRegular reporting requirements
Regular meetings with Council and members
If people know what is going on, they feel more comfortable
Kim Alexander Fullerton Barrister & Solicitor
21Slide22
Annual Operating ExpendituresWhat is it going to cost to implement the Trust?Need controls in the Trust Agreement on such expenditures
Budgetary process
Annual Expenditure should not exceed 1% of the value of the trust property
Kim Alexander Fullerton Barrister & Solicitor
22Slide23
ACCOUNTING OF THE COMPENSATION (10K)COMPENSATION $ 85,000,000LOAN FUNDING coveredNET PAYMENT $ 85,000,000
PERSONAL CASH DISTRIBUTION ($10,000) $ 7,000,000
COMMUNITY DEVELOPMENT $ ?TOTAL $ 7,000,000 NET AMOUNT IN TRUST $ 78,000,000
MINUMUM ANNUAL INCOME (4%) $ 3,120,000Kim Alexander Fullerton Barrister & Solicitor
23Slide24
ACCOUNTING OF THE COMPENSATION (20K)COMPENSATION $ 85,000,000LOAN FUNDING coveredNET PAYMENT $ 85,000,000
PERSONAL CASH DISTRIBUTION ($20,000) $ 14,000,000
COMMUNITY DEVELOPMENT $ ?TOTAL $ 14,000,000 NET AMOUNT IN TRUST $ 71,000,000
MINUMUM ANNUAL INCOME (4%) $ 2,840,000
Kim Alexander Fullerton Barrister & Solicitor
24Slide25
Next StepsChief and Council will take the information that is being gathered from the membership and prepare a draft Trust Agreement for your consideration
We should have it ready by August or September
Everyone will have the opportunity to review the draft TA and provide input
It will be part of the referendum or vote
Kim Alexander Fullerton Barrister & Solicitor
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Questions?Kim Alexander Fullerton Barrister & Solicitor
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