Wayde Carroll

ollowing 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.”

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 ability to set up these trusts through ANCSA, Marrs concurs.

“But nobody’s ever really had the money to do it because after you pay your overhead, your operating cost, and your reinvestment program to grow the corporation—and your taxes—there wasn’t much left,” Marrs says, noting that the incentive for adopting settlement trusts to better serve shareholders was to maximize shareholder benefits.

Prior to the changes pushed through in 2017, several corporations did set up trusts when they received a windfall of money, such as when Old Harbor Native Corporation received a settlement from the Exxon Valdez oil spill, Marrs says.

The Tax Cuts and Jobs Act of 2017 significantly changed all of that.

“In most cases where trusts are formed, corporations or individuals put money into trust, and they get a deduction. We weren’t allowed to put money in the trust until after we paid our taxes,” Marrs says. “So, the idea was to be more like the rest of America from a tax standpoint and allow us to take a deduction for what we contribute to the trust so that there would be more money piling up in these trusts to be able to pay shareholders.”

Payments into an ANST are now tax-deductible, a change from when the corporation needed to pay income tax on the money prior to putting it into the trust; however, the trust does pay a 10 percent tax on the income.

As long as a trust shows a profit, beneficiaries do not need to pay any taxes at the end of the year on dividends or other benefits received, Marrs explains.

“The biggest benefit for most of the Alaska Native corporations has been the ability to provide dividends to our shareholders tax-free,” Alaska Native Village Corporation Association Executive Director Hallie Bissett says. “By giving distributions out of the trust, we can deliver those dividends to our shareholders and they get all of the money rather than having to pay taxes on them at the end of the year.”

Part of establishing an ANST is recognizing the goals of the trust. The guidelines for these goals are incredibly flexible and broad, Hume says.

“The only thing that ANCSA requires is that it be for the health, education, or welfare of beneficiaries, or for the promotion and preservation of Native culture,” Hume says. “So each corporation kind of has to develop its own vision of what it wants to achieve with a settlement trust.”

A shareholder vote is required to establish an ANST, which—if approved—is then managed by a board of trustees. Given the benefits to the corporations and shareholders, there has been overwhelming support for creating ANSTs.

The most common type of trust established is set up to pay out dividends to shareholders. The corporation pays into the trust and then the trust itself sets up rules as to how it will pay dividends. Trusts can also be created to pay funds out for elders, scholarships, or child care, Marrs notes.

The Eyak Corporation created the Eyak Benefits Trust in 2019 with the scope of providing two types of benefits.

“It has an elders benefit program that provides payments, up to $500 per year, to each elder who is an original shareholder,” says Martin Parsons, chair of The Eyak Corporation and chair of the Eyak Benefits Trust.

“It also will have a funeral and burial assistance program that provides up to $1,000 of assistance when any [The Eyak Corporation] shareholder dies. The payments currently made by [The Eyak Corporation] under the funeral and burial assistance program it established in 2010 will be replaced.”

Parsons notes that other benefits may be added in the future, but none are currently in the works.

“The Eyak Corporation’s board of directors, management, and the Eyak Benefits Trust’s trustees are grateful for our elders and are pleased to provide this token of our appreciation,” Parson says.

The move to create an elder support program, which The Eyak Corporation didn’t have prior to this trust, saw an overwhelming amount of support from respondents to its 2017 Shareholder Survey, with 97 percent of shareholders saying it was either “very important” or “important.”

“You can differentiate in classes under the way we structure the trust rules for Native Corporations because elders are important to Alaska Natives and that allowed us to give them some help once they reach sixty-five,” Marrs says.

Old Harbor Native Corporation has established two trusts. One pays 100 percent of its shareholders in the same way the corporation might pay out a dividend. Additionally, there is a trust established to pay elders.

“In our case, we give them a monthly payment, in addition to their regular dividend trust,” Marrs says.

Marrs was part of the lobbying team that traveled to Washington, DC to create the momentum necessary to pass the legislation.

“We didn’t load it up with a whole bunch of other issues. We had it as a single issue legislation,” Marrs says, noting that when legislation starts to gain traction and move through the system, legislatures tend to load it up with additional provisions.

“That will normally kill a piece of legislation. So for this one, we tried to keep a focus on the single purpose of enhancing the economic and social values of shareholders: Alaska Natives.”

ANSTs were designed to help Alaska Native corporations tackle a unique problem, explains Marrs.

“ANCSA required us to form corporations under state law. But it added a few pieces that no other corporation ever had to deal with in America. It said that we had an obligation, which was an economic and social obligation, to our shareholders,” Marrs says. “Adding that social piece really put a burden on corporations because you had to find ways to help your shareholders come out of poverty.”

Every time an Alaska Native corporation thought it figured out a way to meet that obligation, it was met with another tax burden or some other restriction that left it handicapped, Marrs says.

“Alaska Natives and American Indians are still the poorest of the poor in the nation on a poverty level,” Marrs says. “This is just another way of trying to get them out of that hole.”

Marrs says that the measure appears to be effective, pointing out that more and more trusts are formed all the time.

“It’s taken a while for some of those smaller villages to just catch up on it. I think the majority of the regional corporations have formed trusts and are using that ability to get money to their shareholders,” Marr says. “I know that village corporations have been scrambling to get their trust together to do these set-asides. A lot of those corporations are still too small and they don’t have a huge amount that they can put into the trust, but they get there.”

Marrs points out that Alaska Native Corporations have taken their role of providing social benefits to their shareholders very seriously through nonprofits focused on health, education, and social programs.

“But even getting the basics, where Alaskan Natives actually need funding to help them, in rural areas is very difficult,” Marrs says. “With this kind of program we are able to pay them through the trust and they don’t have to pay taxes—it’s a positive income that helps enormously with the cost of living in these rural areas.”

With the costs of products imported into remote villages being as high as $7 to $8 for a gallon of milk, villages can be expensive places to live.

“I mean they have their subsistence lifestyle, but that doesn’t get everything they need,” Marrs says. “So this really does go a long way toward helping those Alaskan Natives who really need it.”

Fundamentally, ANSTs are another tool to help ANCs solve social welfare problems that can cripple the overall wellbeing of their shareholders.