Following the signing of the Tax Cuts and Jobs Act of 2017 into law, more and more Alaska Native corporations are adding Alaska Native Settlement Trusts (ANSTs) to their toolbox to better support the welfare of their shareholders.
Unlike other corporations, those created through the Alaska Native Claims Settlement Act (ANCSA) are legally required not only to serve the economic interests of shareholders but also uphold their social values.
"I've been working on Native issues for fifty years now; the one thing that's always bothered me is the Alaska Native Claims Settlement Act said our purpose is to enhance the economic and social values of Alaska Natives," says Carl Marrs, Old Harbor Native Corporation CEO and the mastermind behind recent changes to ANSTs. "But because of the way the tax rules are structured, it's always limited what we could do for our shareholders as far as being able to give them any real income and enhance their economic value."
Updating Trust Policies
ANSTs were originally authorized by ANCSA amendments with the purpose of serving as a means to protect land. But they weren't used frequently because land is already protected under the automatic land bank protections in ANCSA, explains Robert H. Hume Jr., a partner at Landye Bennett Blumstein who specializes in working with issues unique to Alaska Native corporations.
The "1991" amendments to ANCSA, enacted by Congress in 1988, authorize Alaska Native corporations to place assets in a "settlement trust" for the benefit of shareholders. Natives, and descendants of Natives.
In 2001, Congress eliminated most tax impediments to the formation and capitalization of settlement trusts and adopted provisions that gave additional tax benefits for using settlement trusts.
Despite these changes and Alaska Native corporations' desire to establish trusts as a mechanism to provide benefits to shareholders in other ways, the Internal Revenue Service's standard was that the transfer of funds to ANSTs would be treated like a distribution to the beneficiaries, which caused issues, Hume says.
"For many corporations, the tax situation was such that, if they put sizable amounts of assets into the trust, it would be considered to be an immediate taxable distribution to the shareholders even though they received no cash," Hume says. "That prevented most corporations that saw the trusts as an opportunity to set aside resources for their shareholders from doing so."
There has always been the...