Gun trusts are commonly used for weapons that are regulated by the National Firearms Act of 1934 (“NFA”) and Title II of the Gun Control Act of 1968, but can also be used for all firearms. NFA weapons include suppressors, short-barreled rifles/shotguns, machine guns, and others. The ATF’s new rules for NFA trusts have caused some to question whether the benefits of a trust outweigh the cost.
The answer very often is yes.
To obtain an NFA weapon (without a trust), the owner must obtain approval from the ATF and his or her Chief Law Enforcement Officer (CLEO), submit fingerprint cards and passport photographs, and pay a tax of $200. Only that individual is allowed to possess the NFA firearm. If the owner wants to transfer the weapon to another person, the new owner will need to go through the same process, get the same approvals, and pay another $200.
What if your CLEO won’t sign your form?
Prior to ATF Rule 41F, a potential owner could transfer the NFA weapon to a trust, which didn’t require permission of a CLEO pursuant to 27 CFR § 479.85.
1. Easier Purchasing
On July 13, 2016, ATF Rule 41F went into effect, which makes it easier for some people to purchase NFA weapons, but complicates how trusts are handled. The rule defines a new term “Responsible Person,” as used in reference to a trust and requires Responsible Persons to complete specified forms, submit photographs and fingerprints, and forward a copy of the application to the CLEO; but the rule eliminates the requirement for a certification signed by the CLEO. Under the rule, the term Responsible Persons includes any individual or entity that has the power to direct the management of the trust or use the NFA weapons held by the trust. 27 CFR § 479.11.
Besides allowing people to possess NFA items without CLEO approval, what are some other benefits do trusts provide?
2. Multiple Owners Possible
The primary benefit of an NFA trust is that more than one individual can be named as a trustee and may lawfully possess the same NFA weapons. Without a trust, an individual owner is the only person who can possess the weapon.
This provides an important practical benefit for family members; if they were not listed as trustees of a trust, but were ever in possession of the NFA weapon outside of the owner’s direct physical presence or supervision, even accidentally, they could be guilty of a felony. Another benefit of the trust is that additional individuals can be added as trustees or responsible persons and be allowed to use the NFA item without paying an additional $200 tax stamp per individual.
3. Estate Planning
There are also several estate planning benefits. If a sole NFA weapon owner passes away (without a trust), the NFA firearm must be transferred to his or her heirs; but if the heirs are part of the trust, then no transfer takes place and the NFA weapons pass to the beneficiaries outside of the probate process. This is important for privacy reasons because the trust property will not be listed in the probate court records, which are public. Rule 41F clarifies that the executor, administrator, personal representative, or other person authorized under State law to dispose of property in an estate may possess a firearm registered to a decedent during the term of probate without such possession being treated as a “transfer” under the NFA.
One other benefit of a trust is that the transfer of the firearm to any beneficiary of the estate may be made on a tax-exempt basis. The owner who creates a revocable living trust can maintain control over the trust property during his or her lifetime. A revocable living trust is flexible, and can be changed or dissolved as circumstances or intentions change.
4. Protection from Confiscation
If a sold NFA weapon owner (without a trust) is deemed to be incompetent, his or her weapons are subject to immediate confiscation because it would be illegal for any other individual to take possession the NFA weapons. But, if a trust owns the NFA weapons, a co-trustee can continue to possess and direct the use of the firearms. Even if the owner can no longer use the weapons him or herself, the owner can elect for the weapons to be held in trust for beneficiaries, or sold and the cash returned to the owner.
If you are interested in setting up a gun trust, please call The Franchise & Business Law Group, today.