Structure of the Investment Industry
Whether long term capital pools are held within a trust, a corporate structure or by the Aboriginal government or organization directly, they will need to be invested. This paper will seek to provide a framework for understanding what types of firms and suppliers are available to handle the investment of the capital that is to be invested in the public
markets.
Whether the capital to be invested is a few hundred thousand or tens of millions, there are many firms in the financial services industry that will want to handle your investments for you. Before determining what firm or firms you want to deal with, it is important to understand what type of firm they are and the services they typically provide to clients.
Developing Sustainable Spending And Disbursement
In the case where funds have been set aside for the building of a new community or recreation centre, the time horizon is matched to the building schedule. There might be a plan to start construction in three years and have it completed in five years. A sustainable spending policy for this fund would be to begin drawing down income and capital to pay for the construction with a goal of having disbursed the entire amount at the completion of construction.
Another type of fund that might have a target end date is a TLE Trust, with the capital and income being used to purchase land over a ten or twenty year period. At the end of the period, there will have been a specific amount of land purchased and the balance of the investments remaining in the trust will be zero.
Sustainable Spending Policies - Aboriginal 2007
The challenges facing trustees and administrators are real. As fiduciaries, trustees are charged with ensuring that trust assets are nurtured and disbursed appropriately.
One of the most important and determining factors of trust success is the creation and application of a sustainable spending policy. A clear, forward-looking and well communicated approach is essential for both financial and program success. This short paper identifies some important characteristics of a successful spending policy and outlines some approaches that can contribute to trust success through sound and
realistic spending policy.
For the purpose of this paper, spending policy is defined as the mechanism by which the amount of funds withdrawn from a trust is calculated or determined. For example, paying 10% of trust assets out every year constitutes a spending policy, albeit a grossly
simplified and likely unsustainable one.
One of the first challenges facing trustees is reconciling the difficulty of meeting program objectives today while ensuring sustainability of assets to meet the objectives of tomorrow. If spending policy is too low, beneficiaries risk becoming frustrated with low program funding. In the most unfortunate cases where spending policy is too high,
disappointment is invariably the result as trust assets are whittled away or as previously aggressive funding is cut back to preserve assets from depletion.
Using A Trust Structure
All trusts need these 5 elements to be a trust:
The Settlor, (usually the First Nation), gives the Trust Property (Settlement Funds or Resource Revenues) to a Trustee or Trustees, (Band Members or a Trust Company), to hold for the benefit and use of the Beneficiaries, (the Band or Band members) , in
accordance with a specific set of rules, the Trust Agreement.
The role of the trustee is quite important in this relationship as once the Trust is established, the Trust Property legally belongs to the Trustees. The choice of trustee is key to ensuring smooth safe operation of the trust.
First Nations Trusts and The prudent Investor Rule
This paper was originally prepared for presentation to lawyers for the Legal Education Society of Alberta at the Banff Wills and Estates Refresher in April 2002. The paper focuses on the Alberta Trustee Act but the analysis is relevant to all prudent investor jurisdictions in Canada provided
that the reader makes reference to the legislation in their province or territory. The adoption of the prudent investor rule in most of Canada is a welcome development in the law of trusts. In Alberta, the Trustee Act1 was amended by the Trustee Amendment Act2 which was assented to on November 29, 2001, and proclaimed in force effective February 1, 2002. The Trustee Amendment Act repeals sections 2 to 13 of the old Act and replaces it with new sections 2 through 8. The Trustee Amendment Act for the most part adopts the recommendations of the Alberta Law Reform Institute, Final Report no. 80, "Trustee Investment Powers".3 The new
provisions essentially replace the "legal list approach" in the old Trustee Act with the prudent investor rule as recommended by the Alberta Law Reform Institute. Another major development took place in March 2006 when the Alberta government abolished the Schedule to the Trustee
Act thereby totally abolishing the legal list approach.4
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