ABOU THE PVIL SHAREHOLDER TRUST 1 October 22, 2015.
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Transcript of ABOU THE PVIL SHAREHOLDER TRUST 1 October 22, 2015.
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ABOU THE PVIL SHAREHOLDER TRUST
1
October 22, 2015
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OVERVIEW
• PVIL Shareholders voted overwhelmingly on 10/17/2015 to approve the PVIL Shareholder Trust as a Settlement Trust under ANCSA
• A Trust Agreement between Paug-Vik and the initial Trustees of the Trust establishes the Trust and the rules under which the Trust will operate
• PVIL’s shareholders are the Beneficiaries of the Trust, that is, the persons who will receive benefits from the Trust
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OVERVIEW
• Transfers into the Trust will be made from Paug-Vik’s future profits, as determined by Paug-Vik’s Board • The Paug-Vik existing directors are the initial
Trustees of the Trust• New Paug-Vik Directors automatically
become Trustees when they become Paug-Vik Directors
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OTHER KEY TERMS
Contributions: What is placed in the TrustIncome: What the Trust earns Principal or Corpus: Contributions plus any
income reinvested in the TrustTrust Review: The process by which a
decision is made whether certain major modifications should be made to the Trust after the Trust is established
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Advantages To The Trust
Tax Savings Superior Tax Reporting
Creditor ProtectionPermanence
Dedication of Assets to Specific Purpose
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Special ANCSA Rules For The Trust
The Trust Cannot Operate A Business – Passive Investment Only
PVIL must control Trustee AppointmentOnly Individuals Can Be Trustees
Trust Must Be Registered In AlaskaNo reconveyance of ANCSA lands by Trust
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Information About Other Existing ANCSA Settlement Trusts
• There are presently about 30 ANCSA settlement trusts, holding about $330 million in assets•Most common type is a Pro Rata Income
Distribution Trust • Next common is an Elders Trust• There are a small number of other types of
Trusts 7
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CURRENT TAX TREATMENT OF PVIL & ITS SHAREHOLDERS
• PVIL is currently fully taxable• PVIL will pay a combined state and federal
tax rate of about 40% on ALL income • Shareholders pay tax on PVIL’s dividends at
rates of 0% to approximately 20%• “Average” PVIL Shareholder tax rate: 15%
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SPECIAL TAX RULES APPLY TO THE TRUST AND ITS BENEFICIARIES• Contributions to Trust Are Tax Free To the
Trust• No corporate deduction for contributions• Distributions Of Trust Income To
Beneficiaries are Tax Free• NO 1099s sent to Beneficiaries• Beneficiaries do NOT include tax free Trust
distributions on their tax returns 9
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SPECIAL TAX RULES APPLY TO THE TRUST AND ITS BENEFICIARIES• Trust pays a 10% Tax Rate On the Trust’s
Ordinary Income• Examples: Interest, Rent• Contrasted with 40% PVIL tax rate• Trust has a 0% Tax Rate On the Trust’s
Dividend/Capital Gain Income• Contrasted with 40% PVIL tax rate
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Contrast of Tax Treatment of PVIL & Trust on $500,000 of Income
PVIL Trust
(With 646 Election)
Assumed Income ($10 million investment fund earning 5% annual interest)
$500,000 $500,000
Tax To Either PVIL or Trust (200,000) (50,000)
Available for Distribution $ 300,000 $ 450,000
Tax to Shareholders (assumed overall 15%)or Beneficiaries (0%)
(45,000) (0)
Kept By Shareholders or Beneficiaries $ 255,000 (51%)
$450,000 (90%)
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Contrast of Tax Treatment of PVIL & Trust on $500,000 of Income
• The Trust is highly tax efficient• This means more net after tax income is
available to produce a given level of distributions for PVIL’s shareholders • It also means PVIL’s shareholders (as the
Trust’s Beneficiaries) will keep more of what the Trust distributes versus what PVIL distributes 12
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SPECIFIC PROVISIONS OF THE PVIL SHAREHOLDER TRUST
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Title, Parties, Whereas Clauses
• Provides Introduction, Background• Trust Intent: Long Term Distributions to
PVIL’s Shareholders•Trustees: PVIL BOD•Trust Name: THE PVIL SHAREHOLDER
TRUST
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Sections 1 and 2
•Beneficiaries•PVIL’s Shareholders are the only
Beneficiaries•Trust Units•One PVIL Share = One Trust Unit•Regardless of Class
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Section 3 Covers Certain ANCSA What Ifs? • If PVIL shares become transferable (3.1):
Separate votes on shares and trust units
• If PVIL issues additional stock (3.2, 3.4):Decoupling of trust units and PVIL
shares• If PVIL is dissolved (3.3): Decoupling• If PVIL is merged (3.5): Decoupling 16
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Sections 4 and 5 • Contributions (4.1. 4.2)• Directors Not Trustees Decide
Contributions• $1000 has been contributed to start Trust • Trust is Irrevocable (5)
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Section 6
• No distributions unless Trust > $5 MM (6.1)• Elders Distribution (6.1.1)• Discretionary To Board• Can’t Exceed 10% of annual Net Cash
Income• Annually Non cumulative• Elders = 65 and over
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Section 6
• Educational Distributions (6.1.2)• Discretionary To Trustees• Can’t Exceed 10% of annual Net Cash
Income• Annually Non cumulative
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Section 6
• Pro Rata Distribution (6.1.3)• Discretionary• Separate from Elders distribution• Separate from Educational distribution• Annually Cumulative
• No principal distributions (6.2)• Adjustment if overdistribution > $100K
(6.3) 20
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Section 7 • 1st Review (7.1)• 10 yr Anniversary (i.e., 10/17/2025)• Modify Distribution/Termination Rules• Majority of Trustees & 2/3rds of Unitholders
must approve• No reversions to PVIL• Trust continues unless terminated (“evergreen”)
• 2nd & later reviews (7.3)• Every 10 years on Anniversary (10/17/2035,
etc.)• Otherwise same as 1st review
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Section 8
• Termination for Material Adverse Change (8.1.1, 27.7, 10.4.3)• At any time• Event External to Trust• 2/3rds of Trustees & Court Must
Approve• Trust distributed to shareholders
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Sections 9 and 10• Investments made under investment policy
(9)• PVIL Directors = Trustees unless decoupling
(10.1)• Annual Trustees meeting To Be Held (10.2)• PVIL Officers = Trust officers unless
decoupling (10.3)• No Trustee Fees (10.6) or Bonding (10.7)
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Sections 11 and 12
• Unclaimed Distributions (11)• Held indefinitely without interest• Redistributed if Trust terminates
• Beneficiary Protection (12)• Units not transferable without vote• No creditor seizure
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Sections 13 and 14
• Broad Trustee Powers (13)• Tax Code section 646 election
mandatory (13.11)• Trust Certificates Optional (13.13)• Trustees indemnified by Trust and PVIL
(14.2 and 14.3)25
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Sections 15, 16 and 17
• Trustees Must estimate net cash income in good faith (15.4)
• No duty to equate distributions (15.6)• Third parties can rely (17)• Annual audited financial statements required
(17)• Calendar year basis• Sent to beneficiaries at same time as PVIL’s
financial statements26
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Sections 18 and 19• Distributions to Minors (18):• Any Native parent• Any sole custodial parent• If joint custody, then Native custodial
parent• Trustees’ allocation power (19)• Includes “rainy day” accumulation power• Income taxes allocated to income if 646
governs27
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Sections 20 and 21
ANCSA prohibitions (20)• No transfers of 7(i) timber• No transfers of subsurface• No operation as business• Minority investments OK
Legal representation (21):• Sorensen & Edwards represents PVIL only
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Sections 22, 23, and 24
• Savings (22):• Any invalid provisions do not invalidate trust
• Headings (23):• Do not control interpretation of Trust
• Applicable law (24):• Alaska law controls• Trust must be registered in Alaska
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Sections 25 and 26• Grammatical references (25):• Intended to be neutral
• Minor, technical changes permissible (26.1):• Distribution timing/voting procedures/annual
meeting dates/section numbering/bonding• Trust must be registered in Alaska
• Trust modifications in lieu of termination (26.2, 26.4):• Material Adverse Effect situations
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Section 27• Definition of Material Adverse Effect (27.4):• Adverse changes in tax law• Successful litigation challenges• Adverse changes to ANCSA• Elimination of investment alternatives
• Definition of Trust Fund and Principal (27.10, 27.13):• Implements “Rainy day” fund concept
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END OF PRESENTATION