Trusts - Frequently Asked Questions
What is a Trust?
A trust provides a legal mechanism through which certain defined
property is preserved for the benefit and use of a specified person
or personas.
A good trust arrangement consists of five divisions:
The Settlor: the person who makes the decision to place the money
into a trust. In the case of a First Nation trust, the settlor is
the First Nation itself.
The Property: the money being placed into the trust. This money
will be invested to produce income and grow the trust money for
the benefit of the First Nation.
The Trust Document: the legal written document which outlines the
managing terms of the trust and insures that the money in the trust
is used for its intended purpose. The trust document (also called
a "Trust Agreement" or "Trust Indenture") may
alternately specify who is eligible to benefit from the trust; how
much money may be used from the trust; when trust money may be used;
how trustees are selected; and/or how the trust money may be invested
to ensure security and growth.
The Trustees: the people responsible for managing the trust and
making decisions regarding its operation. It is their duty to ensure
the terms of the trust as written in the trust document are carried
out.
The Beneficiaries: the individuals or groups who are intended to
receive the benefits of the trust, as written in the trust document.
What are trusts used for?
Trusts are a means of providing a lasting benefit to another person
or persons.
For example, a grandparent wanting to provide for the education
of grandchildren may place money into a trust. The grandparent gives
this money to trustees that they choose "in trust for" present and
future grandchildren.
The trustees would have the responsibility of maintaining the money
and providing for the educational needs of the grandchildren, even
if the grandparent passes away.
Trusts are also used to ensure that settlement money received by
First Nations from governments and others is used for the purpose
that it was originally intended.
For example, a First Nation may receive money from a government
as compensation for treaty obligations. The First Nation could place
the settlement money into a trust and, through the trust document,
specify eligibility criteria for trustees, tell how the money is
to be used or distributed to community members, and specify how
the money is to be managed and invested by the trustees.
The trust document's guidelines would last for generations, even
though different Councils may govern the First Nation.
By placing the money into a trust, the First Nation can be assured
the money will be used as intended and that the money will receive
the benefit of professional management.
Is our trust money taxable?
The initial settlement money (capital) is not taxable. Whether
or not the income and capital gains earned by the First Nation trust
is taxable depends on how the trust itself is structured and managed.
Royal Trust can help in developing and managing the trust so that
it may be tax exempt.
Will our First Nation lose control of our money if we use a trust company?
At no time does a First Nation lose control of the settlement
money or the trust. Royal Trust seeks to ensure that the trust is
situated on reserve, and that control and management of the trust
remains with the First Nation trustees. Think of a trust as a living
body; the heart, mind and spirit of the trust are represented by
the First Nations trustees while the trust company represents the
arms and legs. The trust cannot walk without direction from the
spirit.
How can we be sure our money is safe?
The most important factor to ensuring that the trust money is safe
is to purchase wise, low-risk investments. Some of the safest investments
are guaranteed bonds issued by the federal or provincial governments.
Another way to ensure the money is safe is to assign trustworthy
personas as trustees.
How safe is Royal Trust?
Royal Trust is owned by Royal Bank of Canada, and is part of Royal
Bank Financial Group. RBC Royal Bank is the largest bank in Canada and
the third largest in North America, and has been in existence for
over 100 years. As part of RBC companies,
Royal Trust is one of the safest trust companies in Canada.
Can we change the terms of our trust in the future?
Yes, if such provisions for changing the trust are written into
the trust document. In most cases, the process for change should
be one that ensure the community is in agreement with the changes.
Can we use the trust money as collateral for a loan?
In most cases, First Nations have decided in their trust document
that the trust capital should not be used as collateral for a loan.
However, if it is written in the trust document, the income from
the trust may be used to secure a loan.
How easy is it to get our money out of the trust when we need it?
Assuming that all the proper documentation has been received by
the trustees, money can be made available for distribution within
five business days, and even sooner in most cases.
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