Restructuring Tribal Minor Trusts Can Help Extend the Life of Trustee Funds
The success of Tribal casinos has led many Tribes to establish trusts to help provide financial security, stability, and independence for the minors in their communities. Currently, many minor trusts are set up to pay lump-sum distributions to trustees between the ages of 18 and 21. But many Tribes are now evaluating their disbursement structures to make sure they are economically and socially beneficial to their minors, and to the Tribe as a whole. Modifying the structure of these trusts could extend security and offer opportunities for ongoing financial stability later into the trustees’ lives, rather than paying out benefits unconditionally and at the younger ages.
If your Tribe is weighing similar options, it’s a good idea to evaluate specific aspects of your minor trust, such as education, age of distribution, early disbursements, and deferred compensation plans to optimize opportunities for your Tribal minors.
Consider financial education as a trustee requirement
Some Tribes require their trustees to take part in financial classes prior to receiving a trust distribution. Starting financial education early is one of the most pivotal steps in helping achieve the goals of the trusts. Teaching minors the importance of money management, saving, and investing can give them the tools they need to be financially stable and successful, as well as promote the prosperity and longevity of the entire Tribe.
With this education, minors can learn to balance their immediate needs with longer-term goals. Offering these types of classes on a regular basis will instill and reinforce the financial education of your trustees and promote the role of personal responsibility and proactive planning.
Rethink the age of distribution as an incentive for education
A number of Tribes are tying the age of distribution to the completion of education. Many trusts distribute funds to trustees who reach the age of 18, while others first require the completion of high school; for those who choose not to finish high school, the age of distribution is then raised to 21.
In anticipation of a large distribution of funds at the age of 18 or after high school, there is an opportunity to support a minor’s interest in obtaining a secondary education or trade skills. If the minor doesn’t graduate from high school or continue on to a secondary education, the Tribe can stagger distribution payments out over a period of time (e.g., five equal payments over the course of 10 years) to help maintain the trustee’s financial stability. This would allow minors to better plan for future expenditures based on the controlled disbursement method.
Moreover, the financial education requirement could extend to those minors who do not complete high school, and if younger Tribal members choose not to participate in the financial planning and management classes, they can have their initial distribution pushed back to a later age (e.g., a first distribution begins at age 23 instead of 21).
Use early disbursements to promote fiscally sound choices
You can encourage your trustees to make positive financial choices with an early disbursement strategy. Special provisions can be made for minors who wish to invest in their future and use funds for things like a down payment on a home, college tuition, or trade skill training. This will help to incentivize minors to be forward-thinking, responsible young adults and good stewards of the funds your Tribe has worked hard to pass down to them. When they understand the trust as an investment in their future wellbeing, they are more likely to use funds wisely, take a long-term perspective, and contribute to Tribal prosperity.
Jumpstart retirement planning with deferred compensation
Another strategy some Tribes use is to establish a deferred compensation plan where some or all of the trust funds can be placed in a retirement account, similar to a 401(k) plan. Converting a trust account into a retirement account jumpstarts the retirement process and opens the potential for the earnings and returns on those investments. Once your minors are receiving regular per capita payments as an adult, these ongoing payments can be directly contributed to the retirement account. Investment accounts can be used to help purchase a home or held to substantiate and expedite retirement.
Protect the value of your Tribe’s trust funds
Your Tribal minors are depending on their distributions to help fund their future, so maintaining the value of funds while your Tribe holds the trust is, of course, of utmost importance. There is always some risk involved when investing trust funds, but they can be placed in lower-risk investments as minors gets close to their distribution dates. Per capita payments made to the trust in a timely manner will enhance the fund’s earning potential — and increase the future benefit to your minors.
How we can help
It is essential to consider the specific strategies of financial education, disbursement planning, deferred compensation, and fund maintenance to best serve Tribal interests and the financial wellbeing of your trustees. CLA’s Tribal professionals and institutional investment advisors can work with you to review your minor trust policies and establish distribution protocols that are advantageous to your trustees. Our interactions with Tribes are always focused on making your Tribe and your members stronger and more financially stable for generations to come.