Lawyer: Makivik not responsible for exiles’ trust
“It’s a completely separate entity”
The Makivik Corp. is not directly responsible for the High Arctic Relocatees Trust and played no role in producing its current financial difficulties, Sam Silverstone, Makivik Corp.’s senior legal counsel said this week.
“The Makivik board of directors and the Makivik executive do not run the High Arctic trust. It’s a completely separate entity,” Silverstone said.
He said Makivik has a “certain supervisory role” in running the trust: two of the six trustees must be Makivik employees.
“But on a day-to-day, year-to-year basis, Makivik does not run the trust. Any difficulties that the trust is encountering now has nothing to do with Makivik… It’s the six trustees who run the trust,” Silverstone said.
He said the exiles’ trust was set up under the federal Income Tax Act as a private “flow-through” trust.
This means than any money earned by the principal must be given out to trust beneficiaries by Dec. 31 of each calendar year.
If not, the money is subject to a punitive rate of taxation: 50 per cent.
Silverstone also said that trustees cannot build up the fund by adding earnings to the principal from one year to the next — all the earnings must be spent each year on beneficiaries.
“We can’t recuperate lost capital by allowing income to accrue, because we have to pay income tax on it,” Silverstone said.
In its early years, the trust did well, posting earnings of about $1.4 million in its best year.
“All of that was distributed to beneficiaries. It was the six trustees who would decide in an annual meeting,” Silverstone said.
In 2009, hit by the global financial crisis, the trust fund’s earnings sunk so low, trustees didn’t have enough money to pay administrative expenses.
At the same time, the trust deed — the document that sets out basic rules for how the fund is managed — does not allow trustees to spend the original principal.
This situation now leaves the trust with no legal method by which they can distribute money to beneficiaries.
Silverstone said that only 34 people are left within the class of beneficiaries made up of orginal relocatees, and that many of them are aging.
So to find a way of resuming benefits to these people, the trustees wants the Quebec Superior Court to give them permission to spend up to $3 million of principal.
The fund was set up in 1996 to hold and distribute a $10 million payment from the federal government aimed at compensating the High Arctic exiles for the suffering they endured during their relocation from Inukjuak and Pond Inlet to Resolute Bay in 1953 and to Grise Fiord in 1955.
In 1996 and 1997, the trust distributed $2 million among the original relocatees, then invested the remaining $8 million to produce earnings for distribution each year among original relocatees and their descendants.
That $8 million is now invested in a special banking instrument called a guaranteed investment certificate, or GIC, at a CIBC branch in Montreal.
Silverstone said trustees did this to ensure the money was invested in the safest possible manner.
He also said that riskier stock market investments may have produced more than 1 per cent in earnings, but that beneficiaries were determined to minimize risk and not gamble with beneficiaries’ money.
He also said that administrative costs charged to the trust are not unreasonable.
They cover necessary items such as meeting expenses, insurance for directors and auditor’s fees, Silverstone said.
Related:
• Quebec court to ponder big changes to High Arctic exiles’ ailing trust fund
• Background: What’s proposed for the High Arctic exiles fund
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