Kim Alexander Fullerton Barrister & Solicitor

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 & Solicitor2

First Nation Trusts Three 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 3

Structure of First Nation Trusts Factors that can influence type of Trust Agreement: Amount of $ Uses of the Trust Property Decision making Costs to administer the Trust Chief and Council believe that the Corporate Trust Model is best for Georgina Island Kim Alexander Fullerton Barrister & Solicitor 4

Corporate Trust The 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 5

Corporate Trust The 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 6

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

Key Questions for Developing a Trust What 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 Inflation How long should the Trust Last? Demographics – How many Members will you have in 50 or 100 years? Kim Alexander Fullerton Barrister & Solicitor 8

How long should the Trust Last? No right or wrong answer Many First Nation Trusts are set up to last for 100 years Hard to know what the needs of GIFN will be in 100 years When the Trust ends it can always be rolled into a new Trust Perhaps a shorter period might make sense, say 50 years? Kim Alexander Fullerton Barrister & Solicitor 9

Uses of Trust Property Corporate Trust Annual Payment can be structured in different ways Annual 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 4% Makes long term planning easier Kim Alexander Fullerton Barrister & Solicitor 10

Plan One 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 11

Personal Cash Distribution (PCD) Three Main Questions: 1)How Much? 2)Who Gets It? 3)When? Kim Alexander Fullerton Barrister & Solicitor 12

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 13

Who Gets the PCD? Not as easy as it looks Generally must be both a member and alive on the day of the vote to get PCD You 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 14

When? Mainly about minors (members under 18 at time of vote) Can simply pay members when they turn 18 Could pick a later age, like 21 or 25 Can link it to graduation from high school Or 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 15

Initial Uses of Trust Capital Often 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 16

Purpose The fundamental purposes for the Trust must be determined Specific 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 17

Land Purchase Need to have mechanism in place to permit GIFN to access funds from the Trust to buy the land May 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 land Need to have ongoing dialogue with members about where to purchase land Kim Alexander Fullerton Barrister & Solicitor 18

Investing Investment provisions dictated by the purpose, plan and time horizon Have 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 19

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 & Solicitor 20

Reporting The operation of the Trust should be open and transparent Regular reporting requirements Regular meetings with Council and members If people know what is going on, they feel more comfortable Kim Alexander Fullerton Barrister & Solicitor 21

Annual Operating Expenditures What 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 22

ACCOUNTING OF THE COMPENSATION (10K) COMPENSATION$ 85,000,000 LOAN FUNDING covered NET 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%)$ 3,120,000 Kim Alexander Fullerton Barrister & Solicitor 23

ACCOUNTING OF THE COMPENSATION (20K) COMPENSATION$ 85,000,000 LOAN FUNDING covered NET 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 24

Next Steps Chief 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 25

Questions? Kim Alexander Fullerton Barrister & Solicitor 26