Questions And Answers About The PVIL Shareholder Trust
PVIL’s Board has developed a Settlement Trust to provide a permanent source of long term distributions to PVIL’s Shareholders. This trust, known as The PVIL Shareholder Trust, was approved by PVIL’s Shareholders at the 2015 Annual Meeting on October 17, 2015. Below are some of the more commonly asked questions about The PVIL Shareholder Trust.
- Exactly what is a Settlement Trust? A Settlement Trust is a trust organized under ANCSA and Alaska law to provide certain benefits to the shareholders of a specific Native Corporation.
- How many Settlement Trusts been established by ANCSA corporations? As of March 31, 2015, about 25 settlement trusts have been established by Alaska Native Corporations. In the aggregate, these trusts hold about $350 million in assets. Not every Native Corporation has established a settlement trust, but those that have established trusts have placed substantial assets in them.
- What benefits are provided through the PVIL Trust? The Trustees can make three types of cash distributions to PVIL’s shareholders once the Trust’s assets reach $5 million. First, the Trustees in their discretion can distribute up to 10% of the Trust’s annual income to provide an elder’s benefit to PVIL shareholders aged 65 or older. Second, the Trustees in their discretion can distribute up to 10% of the Trust’s annual income to provide educational benefits to PVIL’s shareholders. Third, the Trustees in their discretion can distribute the annual income that is not used to provide an elder’s benefit or educational benefits to all of the shareholders proportionate upon the number of shares of PVIL stock each shareholder owns. The distributed cash will be earned from investment of the assets placed in the Trust by PVIL. Distributions of the Trust’s principal are prohibited, which will hopefully allow the Trust to grow to benefit future generations of PVIL shareholders.
- Who are the Trustee(s) of PVIL’s Trust and how will they be selected? PVIL’s Directors are the Trustees of the PVIL Trust. PVIL’s Shareholders will elect the Trustees when they elect PVIL’s Directors. When a person is elected to the PVIL Board, that person automatically becomes a Trustee.
- What will be contributed to PVIL’s Trust? Contributions will be made in the discretion of PVIL’s Board, primarily from PVIL’s future profits. Once assets are placed in the Trust, the assets cannot go back to PVIL.
- How long will the PVIL’s Trust last? The PVIL Distribution will last until the Beneficiaries and the Trustees jointly take action to terminate the Trust. Under the Trust Agreement, the first such action can be taken after 10 years, and thereafter only at ten-year intervals.
- Is there any requirement that the PVIL Trust distribute a certain percentage of its annual income after the Trust assets reach $5 million? No. The Trust Agreement provides that the Trustees will decide each year how much of the income of the Trust will be distributed, just as PVIL’s Directors presently decide how much of PVIL’s income will be distributed each year as a dividend. This applies both to any elder’s distribution and to any distributions to all Shareholders proportionate on the shares held.
- Can PVIL’s future creditors go after the assets of the PVIL Trust to satisfy PVIL’s debts? If a creditor’s claim arises against PVIL after the assets are transferred to the PVIL’s Trust, then the PVIL’s Trust is not liable for that claim.
- May the creditors of a Shareholder sue the PVIL Trust to recover a Shareholder’s debt? The Settlement Trust can be sued for its own debts, not those of the shareholder-beneficiaries. Certain creditors (such as the IRS and the Child Support Division) do have the same ability to reach settlement trust distributions after distributions have been declared that those same creditors already have to reach PVIL distributions.
- Will use of a settlement trust disqualify a beneficiary from federal needs-based eligibility programs (such as food stamps)? Distributions from the PVIL trust should be subject to the same rules as are applicable to PVIL’s own distributions. That is, the first $2,000 of cash distributions can be excluded from the recipient’s income when determining eligibility for needs based federal programs. This includes food stamps and educational assistance.
- What Are the Tax Rules Related to the PVIL Trust? PVIL’s Trust will make a special tax election, which permits the trust to be taxed at very favorable rates of 10% on ordinary income such as interest income and 0% on capital gains and dividends. By contrast, ANCSA corporations are normally taxed at rates of about 40% (unless they have NOLs). This alone produces a huge tax savings on income earned by a settlement trust versus income earned by a Native Corporation. Shareholders also receive an important tax break by this election, which is that distributions of after tax income are not taxable to the shareholder/beneficiaries and do not even have to be reported on their individual tax returns. By contrast, distributions of after tax income by a Native Corporation are normally taxable at rates of between 0% and 15%. PVIL has been able to make tax free distributions to its Shareholders pursuant to a provision known as the Alaska Native Fund (“ANF”), but PVIL’s ability to make these ANF distributions will be exhausted in the next year or so. This means that future distributions by PVIL will be taxable.
- Are there limitations as to the investments of the PVIL Trust? Yes. ANCSA provides that a Settlement Trust cannot “operate as a business” and prohibits the trust from receiving certain assets (primarily assets subject to the 7(i) revenue sharing obligations). Beyond that, all assets of the Settlement Trust would need to be invested under what is known as the “prudent person” rule.
- How does a Shareholder receive shares in the Trust? Every PVIL Shareholder will automatically own the same number of trust units as that shareholder owns PVIL shares. Thus if you own 100 voting PVIL shares, you will own 100 voting units in the Trust. When PVIL shares are transferred, such as through a gift of shares or upon the death of a Shareholder, the same number of Trust Units will automatically be transferred to the same person who receives the PVIL shares.