Tribal Estate Planning: Nuance and Consequence

Simple estate planning is pretty straightforward. There is usually a Last Will and Testament, Power of Attorney, Health Care Directive, and Trust if necessary. But there is a niche practice within estate planning ripe with landmines waiting to detonate if one is not careful. This is estate planning for an enrolled Native American, and this niche of estate planning can have significant impacts on family businesses owned partly or entirely by Native Americans.

The reason this is unfamiliar territory for many is because estate planning for a tribal member involves the federal probate code; the American Indian Probate Reform Act (AIPRA). The federal government decided to establish the probate code after ownership in Indian trust land, the largest land trust in the United States, became highly fractionated. Fractionation happens when someone equally devises their interest to their eligible heirs, whether through a Will or probate. For example, a grandparent devises their 20 percent interest equally to four children. Each child in turn devises their 5 percent to their four children. By the end, you have sixteen grandchildren with an ownership interest of 1.25 percent. By 2006 many trust lands had owners holding less than five percent interest. The system is highly inefficient for all parties. Owners make minimal money from ownership of their land and the government has the financial burden of keeping track of who owns what. AIPRA aims to consolidate ownership interest in trust land, which places more money in the pockets of tribal members in the long run, and will eventually require much less administration by the federal government.

So, what are the basics you need to know about this niche estate planning?

1. This isn’t your Momma’s probate. Native American estates, trust land and income, are handled through AIPRA. This means that the federal probate code applies and a member’s probate is filed with the federal government. But the system balances a delicate blend of the federal, and tribal probate codes too. To confirm you are in compliance, a thorough look at an individual’s tribal probate code is necessary.
2. Forget what you know about automatic assumptions. One of the main ways AIPRA differs from common law is the assumption of joint tenants with the right of survivorship, in contrast to state laws with an assumption of tenants in common. This is the main way to consolidate interest of land, where the interest of a decedent is automatically transferred to the remaining surviving owners.
3. There are limitations on who can be a beneficiary in a Will for trust property. An eligible beneficiary is someone of lineal descent, existing co-owners, or the tribe with jurisdiction. With limited exception, the descendant or co-owner must be an enrolled tribal member, but they can be a member of any tribe. If a correct beneficiary is not named, the tribe with jurisdiction over the land may acquire that interest by offering fair market value. These provisions ensure trust land stays in the hands of tribes and its members.
4. Be aware of the Single Heir Rule. For an ownership interest less than 5 percent, without a valid Will, the surviving spouse will receive a life estate only in the trust or restricted parcel they live on at the time of decedent’s death. All other interest and the spouse’s remainder will transfer to a single eligible heir – oldest surviving eligible child, grandchild or great grandchild. If no eligible heirs are identified, the interest transfers to the tribe with jurisdiction.
5. There are further consequences of not having a Will. Without a valid Will, or eligible heirs, the court may force the sale of interests less than 5 percent to co-owners of the tribe with jurisdiction. Without a will, a co-owner (individual or tribe) can petition to purchase the interest at probate for no less than fair market value, and consent of individual trust property owners is not required if their interest is less than 5 percent. Lateral heirs are not considered as heirs if there is no Will, only children and grandchildren.

The nuances of estate planning for tribal members abound. The consequences of not drafting documents that comply with AIPRA and individual tribal probate codes can force the government to administer estates in a way contrary to what the decedent would have wanted.

Drew Steen is a business transactions attorney at Davis Wright Tremaine, LLP.  He represents both buy-side and sell-side clients in mergers and acquisitions, venture capital investments, joint ventures, equity co-investments and restructurings.  He also serves as regular corporate counsel for several closely-held and family-owned companies.  Drew can be reached via email at andrewsteen@dwt.com or directly at 206.757.8081.