Established in 2019 to provide lasting, protected, and non-taxable benefits to NNI shareholders and their families.
ANCSA Settlement Trusts became allowable in 1988, when Congress amended the Alaska Native Claims Settlement Act to let ANCSA corporations establish trusts that manage and distribute money, or hold corporate lands, to promote the health, education, and welfare of beneficiaries while preserving Native heritage and culture.
Assets and land placed in a settlement trust are protected and cannot be alienated or transferred from Native control. Together with the 2017 Tax Act and the Alaska Native Settlement Trust Eligibility Act, these laws make contributions to a trust tax-deductible for the corporation, make distributions non-taxable for shareholders, and ensure distributions are not counted as income against federal assistance programs like Medicaid or SNAP.
Permanence and long-term shareholder benefits
Significant tax advantages for both shareholders and the corporation
Protection from creditors
The original $200,000 portfolio has grown to just over $316,000 without any additional contributions. Both the NNI investment portfolio and the NNI Trust portfolio are managed by Merrill Lynch.
The NNI Board of Directors unanimously resolved to establish a Settlement Trust, for the tax savings on contributions, the long-term protection of assets, and because shareholder distributions from the Trust would be non-taxable.
Guided by corporate legal counsel, NNI mailed information and proxies to every shareholder and called a special meeting. On November 30, 2019, every shareholder vote was in favor of establishing the Trust.
The board chose to contribute $200,000 of NNI's investment portfolio, plus $1,000 in cash for administrative costs. Contributing intact investments rather than cash reduced NNI's taxes, and the investments are not taxable to the Trust as long as they are held for at least a year. The board, now also the Board of Trustees, agreed to keep these investments to grow and eventually generate income for beneficiaries.
The board made its first cash contribution of more than $100,000 from ANCSA 7(i) income: part held for death benefit assistance, part for administrative expenses, and the bulk paid as a distribution to shareholders. The board continues to contribute 7(i) income every year for administrative expenses, death assistance, and beneficiary distributions every other year.
The board resolved to also contribute the monthly dividend income from the corporation's investment portfolio, allowing distributions in the years when 7(i) income is not used.
The first distribution funded by portfolio dividends was paid, using funds accumulated over just over two years.
The NNI Board takes pride in having established and funded the Settlement Trust within a three-month period. All contributed funds go to shareholder benefits, except those used for administrative expenses and Trust income taxes.
A trust organized under ANCSA and Alaska law to provide benefits to the shareholders of an Alaska Native Corporation. Its purpose is to promote the health, education, and welfare of shareholders (its beneficiaries) and to preserve Native heritage and culture by making distributions to them.
The trustees, who must be individuals appointed by the ANCSA corporation. For NNI, the Board of Directors also serves as the Board of Trustees.
Trustees owe a fiduciary duty to all beneficiaries. They must act in good faith, as a prudent person would, using reasonable care, skill, and caution in the best interest of the beneficiaries. They may delegate certain administrative functions, but not their basic fiduciary responsibility.
NNI and the Trust are closely affiliated but are separate legal entities. NNI contributes assets, and its shareholders are the beneficiaries. The Trust owns its own assets, files its own tax returns, and pays its own taxes, and the trustees make independent decisions about distributions and management. The Trust is not liable for NNI's debts, and NNI is not liable for the Trust's.
NNI also provides administrative services to the Trust: identifying and communicating with beneficiaries and accounting for Trust assets and distributions.
No. By law, a settlement trust cannot operate as a business. It may only own and manage passive investments, such as marketable securities, cash, and minority interests in companies. It also cannot transfer land received from the corporation, except back to the corporation.
Only for limited purposes. The trustees may appoint an independent trustee, someone who is not a shareholder, director, employee, or officer, who may amend the terms only as needed to keep the Trust qualified as an Alaska Native Settlement Trust under ANCSA. Beneficiaries must be notified of any amendment.
The Trust could last forever. It may be terminated if its value falls below $50,000, at the trustees' discretion. If it ends, all assets except land received from NNI are distributed to the beneficiaries after its debts are paid.
Settlement trusts can provide scholarships, burial assistance, cash distributions, and Elders' benefits. The NNI Trust currently provides death assistance of $2,000 per deceased shareholder and beneficiary distributions.
Distributions are approved by the trustees, not by a shareholder vote. They may be paid pro rata, in proportion to the shares each beneficiary owns, so 200 shares receives twice as much as 100 shares; or per capita, the same amount to every beneficiary regardless of shares.
The trustees may also create separate funds for specific purposes, such as an Elders' Fund for beneficiaries who reach a certain age, or an Education Fund for those pursuing college or professional education.
No. A settlement trust does not have to distribute any particular share of its annual income unless the Settlement Trust Agreement requires it.
No. You cannot sell your interest in the Trust or give it away directly. Your beneficial interest is tied to your NNI shares: if you gift your shares as permitted by ANCSA, or when your shares are inherited, the new shareholder also becomes the Trust beneficiary. The interest cannot be inherited separately from the shares.
In general, no. Distributions from the Trust are not taxable to beneficiaries, and whether they are taxable does not depend on NNI's earnings.
The corporation pays about 30% tax on its net income, while the Trust is taxed at 0% or 10% depending on the type of income. Contributions to the Trust are tax-deductible for NNI and taxable to the Trust, so the total taxes paid are expected to be significantly lower. Over time, distributions from the Trust should be larger than if dividends were paid directly by the corporation.
The NNI Board of Directors. Shareholder approval is only required if the board contributes all or substantially all of the corporation's assets. Contributions cannot violate ANCSA or the Settlement Trust Agreement, and state law prohibits any transfer that would violate the board's fiduciary duties, such as one that left the corporation insolvent.
Assets contributed to the Trust are no longer available to NNI to use or distribute, and NNI no longer earns income on them. Distributions from the Trust are expected to replace some or all of the corporation's dividends to shareholders. The board weighs these impacts when deciding what to contribute.
Under ANCSA, no, and state law prohibits most creditor actions involving a beneficial interest in a trust. Exceptions for child support, and possibly IRS claims, apply to the same degree they apply to ANCSA shares.
The Trust generally can only be sued for its own debts, not those of its beneficiaries. It is not yet settled whether a distribution could be seized by a beneficiary's creditor before it is paid out.
Only for claims that existed before the assets were placed in the Trust. A corporation cannot use a trust to avoid paying existing creditors, but claims that arise after assets are transferred cannot be recovered from the Trust.
ANCSA land in a settlement trust has the same protections it would have if owned by the corporation, as long as it is not developed, leased, or sold to third parties, and it cannot be seized by a creditor unless that protection is waived in writing. One added advantage is that land in a settlement trust cannot be sold to third parties.