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Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
Mca   When To Distrust The Trust   V3
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Mca When To Distrust The Trust V3

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  • An aboriginal trust can be drafted for success or failure. Each aboriginal community is different. Precedents cannot be relied on to cut corners or save on legal costs. Where that happens, trusts fail due to an inability to meet the community’s needs and goals over time and implementation difficulties. Aboriginal trusts reflect the unique objectives of each community with respect to economic development, social projects and other matters. These objectives change over time, and trusts must be drafted to provide flexibility in order to remain relevant to communities. Trusts fail when they are drafted without regard to the objectives of communities over time, when they are difficult to implement or create conflict in the community. Given the diverse range of interests affected by the trust agreement, the instrument must be drafted by experts in trust and aboriginal law, with input from tax lawyers and knowledge of relevant governance models.
  • When improperly drafted, trusts can be overly restrictive on FNs, requiring that the comply with certain common law and statutory rules and relinquishing determination of some matters to the discretion of the BC courts. For example, at common law, if a trust does not provide an amendment power , the beneficiaries of a trust may vary the terms of the trust if they have legal capacity and are the only persons entitled to the trust property. However, in Aboriginal trusts, the trust is framed to also benefit unborn persons, minors and adults lacking capacity. If proper amendment terms are not included in the argeement, the FN may be required to apply to the court for variation pursuant to the Trust and Settlement Variation Act, such that the court and not the FN decides whether a variation is acceptable. In at least one case, the Provincial Public Guardian and Trustee opposed a FN’s variation application, and the court rejected the application. See McLeod Lake Indian Band Trust Agreement (Re), 2010 BCSC 1158. Similarly, at common law, if a trust does not provide for a successor trustee, such a successor is appointed pursuant to provincial legislation. In cases in which hereditary chiefs or other traditional models are used, provincial legislation may not provide an adequate successorship model. For example, in Gitga'at Development Corp. et al v. Hill et al, 2007 BCCA 158, when two Hereditary Chiefs died, the shares they held in trust did not pass to the new Hereditary Chiefs.
  • Trusts are designed such that the trust capital and income may be used for certain defined purposes, such as economic development purposes, community projects or social purposes. Each time the community requires funds for one of the purposes, it must request them from the trustee, who is obligated to ensure that the request conforms with the stated purposes and that the process (BCR, community approval) required for the approval of the request has been followed. Ensuring that trust property is used for the purpose outlined in the trust document inevitably requires a trustee to say “no” at some point. The trustee can therefore perform a positive role as a gatekeeper and add checks-and-balances to a community’s governance model. The existence of a trustee can also result in adversarial relations between band councils and trustees or communities and trustees. The separation of power between council and the trustees creates a risk of dissension, especially if the trustees control more capital than the democratically-elected council. This can be especially true where the trustees are community members, in which case the trust structure can inadvertently create a second council. Disagreement within the community as to the terms of the trust or the decisions of the trustees can result in division within the community and law suits. See Prophet River FN Band v. Rath (BC Supreme Court, Vancouver Registry, 2010) where the community is claiming that the Chief and Council, and others, breached their duties in setting up a community trust, including by chief and council accepting $800,000 payment while the remaining community members received only $800/month.
  • Trusts are designed such that the trust capital and income may be used for certain defined purposes, such as economic development purposes, community projects or social purposes. Each time the community requires funds for one of the purposes, it must request them from the trustee, who is obligated to ensure that the request conforms with the stated purposes and that the process (BCR, community approval) required for the approval of the request has been followed. Ensuring that trust property is used for the purpose outlined in the trust document inevitably requires a trustee to say “no” at some point. The trustee can therefore perform a positive role as a gatekeeper and add checks-and-balances to a community’s governance model. The existence of a trustee can also result in adversarial relations between band councils and trustees or communities and trustees. The separation of power between council and the trustees creates a risk of dissension, especially if the trustees control more capital than the democratically-elected council. This can be especially true where the trustees are community members, in which case the trust structure can inadvertently create a second council. Disagreement within the community as to the terms of the trust or the decisions of the trustees can result in division within the community and law suits. See Prophet River FN Band v. Rath (BC Supreme Court, Vancouver Registry, 2010) where the community is claiming that the Chief and Council, and others, breached their duties in setting up a community trust, including by chief and council accepting $800,000 payment while the remaining community members received only $800/month.
  • Transcript

    • 1.  
    • 2. FNs’ Business Revenue: When you Should Distrust the Trust National Aboriginal Business Opportunities Conference Osoyoos, BC September 14-15, 2010 Facilitator: Merle Alexander [email_address] W: +16046414935 C:+16043158569
    • 3. Overview <ul><li>Introductory Comments </li></ul><ul><li>Trust primer in the FNs context </li></ul><ul><li>Advantages to using a trust for FNs </li></ul><ul><li>Disadvantages to using a trust for FNs </li></ul><ul><li>An innovative solution: not-for-profit society </li></ul><ul><li>Questions </li></ul>
    • 4. Introductory Comments <ul><li>FN Trusts have at minimum three drivers: </li></ul><ul><li>(1) Paternal Crown Fiduciary relationship; </li></ul><ul><li>(2) Preservation of Property for Future Generations; and, </li></ul><ul><li>(3) Revenue Flow-Through Potential. </li></ul><ul><li>As anything, there are positive and negative, advantages and disadvantages to any instrument or vehicle designed with such purposes. </li></ul><ul><li>A well-drafted trust instrument can achieve all three purposes and facilitate community real investment. </li></ul>
    • 5. Introductory Comments <ul><li>FNs have key intended uses for property or monies held in a trust. </li></ul><ul><li>Purposes are socio-economic, community investment and cultural preservation oriented. </li></ul><ul><li>Too often the trust instrument is not drafted to allow for the FNs intended uses and only the interest, not principal, is available. </li></ul><ul><li>These types of trust hand cuff the FN in a key settlement. </li></ul><ul><li>These types of trusts do not respect the FNs right to self determine. </li></ul>
    • 6. Trust Primer <ul><li>In a trust, the trustee holds property for the benefit of other persons known as beneficiaries </li></ul><ul><li>Trusts can be used to operate businesses directly or to hold investment assets such as units in a limited partnership </li></ul><ul><li>It is popular vehicle due to its: </li></ul><ul><li>flexibility in managing assets; </li></ul><ul><li>allocating distributions; and, </li></ul><ul><li>accounting for the different interests among beneficiaries. </li></ul>
    • 7. Trust Primer (cont.) <ul><li>Trustees are fiduciaries and are held to a very high standard of responsibility </li></ul><ul><li>Trustees can be held personally liable to the beneficiaries </li></ul><ul><li>Trusts are taxable entities </li></ul>
    • 8. FN Trusts <ul><li>Examples of FN trusts: </li></ul><ul><li> Gwaii Trust Society </li></ul>
    • 9. Trust Advantages <ul><li>Trust have the advantage of isolating the business or investment assets from the FN </li></ul><ul><li>Trusts can mandate forms of investment which ensure long term capital growth </li></ul><ul><li>Trusts can provide for centralized control of all long-term investment and distribution decisions for all the business activities of a FN </li></ul>
    • 10. Trust Advantages (cont.) <ul><li>FNs’ trusts are commonly structured to ensure that all income is taxed: </li></ul><ul><li>in the tax-exempt FN or, </li></ul><ul><li>in the case of distributions, in the hands of primarily tax-exempt beneficiaries (i.e., Status Indians) </li></ul><ul><li>Income from FNs businesses or investments owned by the trust flow into the trust structure where they are either reinvested into new or existing businesses or distributed to the FN for its community needs </li></ul><ul><ul><li>These decisions are based on the discretion given to the trustees based on guidelines described in the trusts </li></ul></ul>
    • 11. FNs’ Use of Trusts <ul><li>In some structures, the trust allows FN leadership to apply for payments from the trustees. </li></ul><ul><ul><li>The trustees then review the application and ensure that the request complies with the terms of the trust. </li></ul></ul><ul><li>Trusts are also drafted to provide for certain restrictions on uses of trust funds (i.e., member distributions or loans). </li></ul><ul><li>Trusts may allow the leadership to appoint the trustees or alternatively, a process, such as an election or referendum, may be developed to allow FN members, Elders or Family Heads to appoint trustees. </li></ul>
    • 12. FNs’ Use of Trusts (cont.) <ul><li>Some FNs use a business corporation or a society as the trustee. </li></ul><ul><ul><li>This structure has the advantage of providing limited liability protection to the individuals serving as the directors. </li></ul></ul><ul><ul><li>This also allows a board of directors consisting of both community citizens and business/investment appointees from outside the community to collaborate and provide expertise relating to decisions governing the business and investment activities of the trust . </li></ul></ul>
    • 13. FNs’ Use of Trusts (cont.) <ul><li>Trusts are also used to allow FNs to effect a separation of governance duties from business and investment activities. </li></ul><ul><li>The power to appoint the directors of the corporate trustee can be placed in the hands of a different group (i.e., Family Heads, Clans, etc.) other than the FN’s leadership. </li></ul>
    • 14. Disadvantages - Why Trusts Fail <ul><li>Poor legal drafting: </li></ul><ul><ul><li>inappropriate reliance on precedents; </li></ul></ul><ul><ul><li>failure to consult the First Nation effectively to identify current and future needs; and, </li></ul></ul><ul><ul><li>the drafter lacks expertise in trust and tax law and/or fails to understand FNs governance models </li></ul></ul>
    • 15. Disadvantages – Why Trusts Fail (cont.) <ul><li>Examples of trusts not serving the FN because of drafting </li></ul><ul><ul><li>Faulty Amending Provision Necessitating Trust Variation </li></ul></ul><ul><ul><ul><li>McLeod Lake Indian Band Trust Agreement (Re), 2010 BCSC 1158 </li></ul></ul></ul><ul><ul><li>Difficulties With Respect to Successorship </li></ul></ul><ul><ul><ul><li>Gitga&apos;at Development Corp. et al v. Hill et al, 2007 BCCA 158 </li></ul></ul></ul>
    • 16. Disadvantages – Why Trusts Fail (cont.) <ul><ul><li>Trusts are taxable </li></ul></ul><ul><ul><li>In order to ensure that no trust is actually payable, FN trusts can be structured in complicated ways </li></ul></ul><ul><ul><li>The structure, particularly with respect to distributions, can make such trusts: </li></ul></ul><ul><ul><ul><li>difficult to understand </li></ul></ul></ul><ul><ul><ul><li>difficult to administer </li></ul></ul></ul>
    • 17. Disadvantages – Why Trusts Fail (cont.) <ul><li>Potential divisiveness of trust structure </li></ul><ul><ul><li>relationship between Band Council and Trustees </li></ul></ul><ul><ul><li>community disagreement and/or lack of understanding with respect to terms of trust and decisions made by Trustees </li></ul></ul>
    • 18. Why Consider a Society? <ul><li>Many problems which create complexity in a trust can be resolved relatively easily using a society </li></ul><ul><ul><li>a society will generally be tax-exempt eliminating the need for complex structuring such as distributions and loan-backs </li></ul></ul><ul><ul><li>there is limited liability protection for directors </li></ul></ul><ul><ul><li>the governance model is generally easier for both the directors and the members of the FN to understand </li></ul></ul>
    • 19. Why Consider a Society? (cont.) <ul><li>Drafting errors that cause the most dramatic problems with trusts can be virtually eliminated </li></ul><ul><li>Ownership by the society of businesses, property and other ventures is more straight-forward </li></ul>
    • 20. Why Consider a Society? (cont.) <ul><li>Arguably more effective ability of society members to oversee directors and ensure responsiveness to community concerns </li></ul><ul><ul><li>members can remove directors for any reason (requires a 75% vote in favour) </li></ul></ul><ul><ul><ul><li>by contrast, a court application is required to remove a trustee and the threshold is very high – malfeasance/fraud </li></ul></ul></ul><ul><ul><li>members control all amendments to the Constitution and Bylaws </li></ul></ul>
    • 21. Societies – Not a Magic Bullet <ul><li>Problems can still arise </li></ul><ul><ul><li>failure to communicate with members </li></ul></ul><ul><ul><li>failure to act in an accountable way </li></ul></ul><ul><li>The only answer is adherence to rigorous governance standards and education/training/understanding of the legal and community requirements </li></ul>
    • 22. Closing Comments <ul><li>Trusts too commonly have a paternalistic hierarchy between Trustees and beneficiaries. </li></ul><ul><li>FN should consult their appropriate community, departments and professional advisor in the careful drafting of Trust instruments. </li></ul><ul><li>Consideration of corporate or societies as the trustee itself or society alone should also be considered. </li></ul><ul><li>Use of a society can be tremendously less expensive than the process of drafting a detailed trust document. </li></ul><ul><li>If in doubt, ask us. </li></ul>
    • 23. &nbsp;

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