There is a lot that goes into the formation of a Settlement Trust!
You have questions. We have answers!
The CIRI Board of Directors dividend policy remains the same: the total dividend payment in any given year is equal to 3.5% of total shareholders’ equity, calculated as of Dec. 31 of the prior year. Distributions from the Settlement Trust have replaced CIRI’s quarterly dividends, except the payments are now made through distributions from the Settlement Trust instead of directly by CIRI. In most cases, Settlement Trust distributions are be tax-free to beneficiaries.
No. Payments are processed in the same manner as they have been (for example, by mail or direct deposit using address or account information on file with the CIRI Shareholder Relations department).
Under present law, distributions by the CIRI Settlement Trust are typically not taxable to the beneficiaries and do not have to be reported on their individual tax returns. Accordingly, shareholders do not receive an IRS Form 1099 for distributions received from the Settlement Trust and do not have to report those amounts on their tax returns.
Is the first $2,000 received from the CIRI Settlement Trust be excluded when determining eligibility for federal and state assistance programs?
It is not clear if cash distributions from a settlement trust are excluded in the same way that the first $2,000 of cash distributions from an ANC are excluded. CIRI and other ANCs believe they should be. Proposed legislation would raise the excluded amount from $2,000 to $5,000, provide for periodic adjustments for inflation and clarify that distributions from a settlement trust would be excluded in the same manner.
Yes. By law, CIRI must continue to make 7(j) payments to at-large shareholders and village corporations directly, and at-large shareholders will continue to receive an IRS Form 1099, which reports that income to the IRS.
This decision is up to the CIRI Board of Directors, but currently CIRI contributes cash or marketable securities to the CIRI Settlement Trust to fund distributions.
The Trustees will decide what benefits will be administered by the Trust. Distributions from the Trust have replaced all of CIRI’s dividends and Elders’ Trust payments. Other benefits may include burial assistance, training and internships, cultural activities and other programs that are consistent with the Trust’s purpose of promoting the health, education and welfare of the beneficiaries and preserving the heritage and culture of Alaska Native people.
CIRI shareholders elect CIRI Board members and, by law, the CIRI Board must appoint the Trustees. To this extent, CIRI shareholders are able to voice their desires for programs to be funded from the Trust.
No. CIRI maintains its mission of promoting the economic and social well-being and Alaska Native heritage of our shareholders, now and into the future, through prudent stewardship of the company’s resources, while furthering self-sufficiency among CIRI shareholders and their families.
CIRI utilizes multiple tools to reduce its tax liability. However, as the company grows, it faces increased taxes. the CIRI Settlement Trust is an additional tool that the corporation is effectively using to reduce tax liability. One major advantage of the Settlement Trust over other methods is that the Trust may reduce shareholders’ tax liability in addition to the corporation’s.
What if the federal tax law changed and CIRI can’t use the Trust? Are the tax benefits in perpetuity?
The tax benefits from the CIRI Settlement Trust for shareholders and the corporation under the current tax law are designed to last forever. While federal tax law could change, CIRI believes it is unlikely that the Settlement Trust provision would be eliminated. CIRI constantly evaluates the appropriate course of action to reduce its tax liability.
With the formation of the CIRI Settlement Trust, does CIRI still have access to cash for potential investments?
CIRI utilizes several methods to access capital for projects or investments when needed, including stock and marketable securities accounts and bank financing. Those tools are still available to the corporation to access capital quickly if needed.
The Trust would be a separate legal entity. In the unlikely situation that CIRI were to “end,” the Trust and its assets are not be liable for CIRI’s debts and obligations, if any. The Trustees would continue to be responsible for managing the Trust to promote the health, education and welfare of the Trust beneficiaries, and to preserve the heritage and culture of Alaska Native people.
No. The CIRI Foundation continues to provide scholarships, grants and to fund other programs and services in fulfillment of its mission.
If the Trust ceases to exist, dividends would revert to being paid to shareholders directly from CIRI, as determined by the CIRI Board of Directors.
Yes. many of the ANCs as well as many village corporations, have created settlement trusts.
Yes. In 2003, CIRI shareholders voted to authorize the establishment and funding of an irrevocable settlement trust to provide Elders’ benefits to eligible original shareholders. In accordance with the vote, CIRI initially funded the CIRI Elders’ Settlement Trust with a $16 million contribution. When the CIRI Elders’ Settlement Trust was established, it was anticipated that eligible Elders would receive quarterly distributions of $450 until 2023. However, due to the 2008 global economic downturn on investments and the fact that shareholders are living longer than anticipated, the available funding to make Elders’ payments will run out in 2019. The CIRI Board of Directors has approved providing the necessary funding to cover any shortfall through year-end 2019, thereby ensuring that all eligible Elders will receive full payments in 2019, but a long-term solution is needed. The Settlement Trust could be the solution.
CIRI and the CIRI Settlement Trust are separate legal entities but closely affiliated:
- The Settlement Trust was created as approved by a majority of the voting shares present or represented by proxy at the 2019 Annual Meeting of Shareholders.
- The Settlement Trust is governed by a Trust Agreement.
- CIRI, as the “Settlor,” created the Settlement Trust and contributes assets to fund the Settlement Trust.
- A Board of Trustees, comprised of the chairperson, vice chairperson, secretary, assistant secretary, treasurer, assistant treasurer and chair emeritus of the CIRI Board of Directors manage the Settlement Trust.
- The Trustees make their own independent decisions regarding distributions and management of the Settlement Trust.
- The Settlement Trust owns its own assets, has its own financial statements, files its own tax returns and pays its own taxes.
- The Settlement Trust and its assets are not be liable for CIRI’s debts and obligations, and CIRI is not be liable for the Settlement Trust’s debts and obligations.
- CIRI provides administrative support services to the Settlement Trust.
Trustees owe a fiduciary duty to all beneficiaries. Alaska law and the Trust Agreement require each Trustee to act in good faith, as a prudent person would, using reasonable care, skill, and caution in the best interests of the beneficiaries of any fund created by the Settlement Trust.
In investing Settlement Trust assets, the Trustees are required to invest the assets as a prudent investor would. The Trustees have access to CIRI personnel and can hire accountants, advisors, attorneys, financial consultants, managers, agents and assistants as necessary to accomplish the purposes of the Settlement Trust, and certain administrative functions, such as record-keeping and paying distributions authorized by the Trustees, may be delegated. However, the Trustees maintain ultimate control over the Settlement Trust and cannot delegate to a third party the basic fiduciary responsibility for overseeing the Settlement Trust.
Assets contributed to the Settlement Trust will no longer be available to CIRI. CIRI is not be able to use the contributed assets to invest in new businesses or opportunities, or as collateral for loans. After CIRI contributes assets to the Settlement Trust, CIRI is not be able to distribute these assets to its shareholders and will not receive earnings on the assets. The CIRI Board will take these impacts into account when it decides whether to contribute assets to the Settlement Trust, and what assets to contribute.
No, the Trust Agreement specifies that no Trustee shall be compensated for service as a Trustee.
While the decision to establish the Settlement Trust was made by shareholders, by law the CIRI Board must appoint the Trustees.
The beneficiaries of the Settlement Trust are individuals who are CIRI shareholders or are Natives or descendants of Natives, as those terms are defined by ANCSA.
A settlement trust can provide a broad range of benefits to its beneficiaries, including, but not limited to, shareholder distributions. For example, distributions from the Settlement Trust have replaced CIRI’s dividends and future Elders’ Trust payments. Trust distributions are not be taxable in most circumstances, whereas CIRI dividends were generally taxable to shareholders. Other benefits may include, but would not be limited to, burial assistance, training and internships, cultural programs and other activities.
The Trustees decide what benefits will be administered by the Settlement Trust. The Trust Agreement permits the Trustees, in their absolute discretion, to pay any income and principal of the Settlement Trust to the beneficiaries of the Settlement Trust, either per capita (equally among the beneficiaries, regardless of CIRI shareholder status) or pro rata (according to the type and number of CIRI shares owned). The Trust Agreement also authorizes the Trustees to adopt other programs that are consistent with the Settlement Trust’s purpose of promoting the health, education and welfare of the beneficiaries and preserving the heritage and culture of Alaska Native people – including defining the programs’ purposes and beneficiaries – and to modify or terminate benefit programs.
Nothing. Under the terms of the Trust Agreement, individuals who own CIRI stock are beneficiaries of the Settlement Trust.
Yes, when CIRI shares are transferred (for example, through stock gifting or inheritance), the transferred stock will automatically include interest in the Settlement Trust.
No, a shareholder cannot sell his or her interest in the Settlement Trust. A shareholder may only transfer his or her interest in the Settlement Trust by transferring his or her CIRI shares as permitted by ANCSA. For example, once shares are gifted to or inherited by someone, the recipient would become a CIRI shareholder and a Settlement Trust beneficiary. If a shareholder gives away all of his or her CIRI shares, he or she will cease to be a CIRI shareholder and also will cease to be a Settlement Trust beneficiary.
The CIRI Settlement Trust is making the Elders’ payments that were previously paid out of the CIRI Elders’ Settlement Trust and have maintained the previous level of payments and the eligibility requirements of the CIRI Elders’ Settlement Trust; original shareholders who are 65 years of age or older, own at least one share of CIRI stock and are alive on the distribution date of record are eligible to receive $450 quarterly Elders’ payments, assuming adequate Settlement Trust funding.
No, a settlement trust does not have to distribute any of its annual income unless required by the trust agreement.
No. All distributions are at the discretion of the Trustees of the Settlement Trust.
Does the CIRI Settlement Trust disqualify a beneficiary from federal needs-based eligibility programs such as food stamps?
It is clear from ANCSA that the beneficiary’s interest in a settlement trust is not to be counted in determining eligibility. However, it is not clear whether cash distributions from a settlement trust can be excluded in the same way that the first $2,000 of cash distributions from an ANC are excluded.
A beneficiary’s interest in a settlement trust and distributions from a trust are subject to creditor action (including without limitation, levy attachment, pledge, lien, judgement execution, assignment, and the insolvency and bankruptcy laws) only to the extent that Settlement Common Stock and the distributions thereon are subject to such creditor action under section 1606(h) of ANSCA.
Generally, a settlement trust can be sued only for its own debts and not those of the shareholder-beneficiaries. However, a beneficiary’s interest in a settlement trust and the distributions of a settlement trust are subject to creditor action (including without limitation, levy attachment, pledge, lien, judgement execution, assignment, and the insolvency and bankruptcy laws) only to the extent that Settlement Common Stock and the distributions thereon are subject to such creditor action under section 1606(h) of ANCSA.
The Settlement Trust could last forever, but is authorized to be terminated by the Trustees if the value of the Trust is less than $50,000.
Contributions to the Settlement Trust are tax deductible for CIRI and taxable to the Settlement Trust. The Settlement Trust will be taxed at a very favorable rate of ten percent on ordinary income, such as interest income, and zero percent on capital gains and dividends. By contrast, ANCs are normally taxed at a rate of twenty-one percent, unless they have the ability to offset their taxable income. This alone produces a significant tax savings on income earned by a settlement trust versus income earned by CIRI.
Under present law, distributions by the Settlement Trust are not taxable to the beneficiaries in most circumstances and would not have to be reported on their individual tax returns. By contrast, previous dividends and other distributions and benefits paid by CIRI were normally fully taxable to CIRI shareholders.
Does the amount of CIRI’s earnings affect the taxability of distributions made from the CIRI Settlement Trust to the Trust’s beneficiaries?
CIRI provides administrative services for the Settlement Trust to account for Settlement Trust assets and distributions and identify and communicate with beneficiaries.
The financial statements of the Settlement Trust are audited each year and an annual report reporting on the Trust’s financial performance is provided to beneficiaries annually. The Board of Trustees communicates other important information to beneficiaries in coordination with CIRI.
This is up to the CIRI Board of Directors. Settlement trusts can be funded in a variety of ways: one-time deposits similar to an endowment or an annual contribution, and with various types of assets, including cash, marketable securities and certain lands. Currently, CIRI contributes cash or marketable securities to the Settlement Trust to fund distributions and other benefits. With certain exceptions, once assets are moved from CIRI to the Settlement Trust, they cannot be returned to the Company and are protected from creditors of the Company.
Yes. CIRI may not contribute any assets to the Settlement Trust that violate ANCSA or the Trust Agreement. State law prohibits a transfer of assets to the Settlement Trust that would violate the Board’s fiduciary duties, such as a transfer that renders CIRI insolvent. The Trust is prohibited from operating as a business, engaging in commercial harvest operations of contributed timber, selling real estate interests received from CIRI and receiving a conveyance of subsurface lands from CIRI. Under ANSCA, shareholder approval is required before CIRI can transfer all or substantially all its assets to the Settlement Trust.
No. Once funds or assets are contributed to the Settlement Trust they may be invested and managed only by the Settlement Trust for the generation and distribution of benefits to the Settlement Trust’s beneficiaries.
With limited exceptions, if a creditor’s claim arises against CIRI after assets are transferred to the Settlement Trust, the Trust is not liable for that claim.
Can ANCSA land placed in the CIRI Settlement Trust be seized by CIRI’s creditors or subjected to bankruptcy?
In general, the Settlement Trust must answer only for its own debts. CIRI’s debts and obligations that arise after assets are conveyed to the Settlement Trust cannot be recovered from the Trust. Moreover, ANCSA land in the Settlement Trust has all the same protections that land would have if owned by CIRI itself. These protections automatically apply to ANCSA land so long as the land is not developed, leased or sold to third parties. Additionally, ANCSA land cannot be seized by a creditor unless CIRI or the Settlement Trust waives in writing its protection from such seizures. ANCSA land in the Settlement Trust cannot be sold or otherwise transferred, unless it is transferred back to CIRI.
The Trustees may make any amendment to the Settlement Trust to the extent they determine such amendment is in the best interest of the Settlement Trust and the beneficiaries; however, the Trustees will have no authority to amend Article 3 (Transfers to Trust) or Article 9 (Fiduciary Powers) of the Settlement Trust. If any such amendment is determined to violate or is inconsistent with the purpose or intent of ANCSA or Title 13 of the Alaska Statutes, such amendment will be deemed void to the extent of such violation or inconsistency and the unamended provisions of the Settlement Trust will remain in full force and effect.