As if estate planning was not already complex and all-encompassing, there is a new craze sweeping firearm enthusiasts throughout Pennsylvania and the rest of the United States. It is the Gun Trust. However, most attorneys are bewildered by this new trust and are asking: What is it? What is its purpose? What benefit does it give? This article will put those questions to rest.
What is it?
In essence, a gun trust is a language specific trust that only holds Machineguns, Suppressors, Short-Barreled Rifles, Short-Barreled Shotguns, Destructive Devices, and/or Any Other Weapons (referred to as Title II weapons under the National Firearms Act 1) for the benefit of the beneficiary, while giving possessory and use rights to the trustee(s).
What is its Purpose?
To understand the purpose of a Gun Trust, one must understand the National Firearms Act (NFA of 1934)2, the Gun Control Act (GCA of 1968)3 , and the Firearms Owners Protection Act (FOPA of 1986)4. Specifically, under these laws, an individual must register any Machinegun, Suppressors, Short-Barreled Rifle (SBR), Short-Barreled Shotgun (SBS), Destructive Device (DD), or Any Other Weapon (AOW).
The Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE) currently allows the registration of NFA firearms, by an “person”, which is defined as: “A partnership, company, association, trust, estate, or corporation, as well as a natural person.”5
An individual looking to transfer/register a NFA firearm needs to file an application (BATFE Form 1 for making a NFA firearm and BATFEForm 4 for transferring a NFA firearm 6), in duplicate, provide a registration tax 7, two sets of fingerprints, and two photographs.8Furthermore, the individual must obtain the signature of a Chief Law Enforcement Officer (CLEO). While the application requires that the individual person obtain a CLEO signature, nothing mandates that aCLEO must sign an application for a NFA firearm, even if the applicant would pass the BATFE’s rigorous background check.9
With many CLEOs refusing to sign for NFA firearms, even though both federal and state law allows for ownership, firearm enthusiasts sought different ways to acquire NFA firearms. In looking to theBATFE regulations, many saw corporations and trusts as viable alternatives, since they do not require a CLEO signature.10 With corporations requiring hefty startup costs, annual tax returns, and a lack of privacy, many began to investigate the trust alternative.11
And so was born the Gun Trust. For a trust, the application must be submitted in duplicate, with the appropriate tax fee 12, but the trust is not required to submit fingerprints or photographs.13 More importantly, as stated above, a trust does not require a CLEOsignature.
What benefit does it give?14
As discussed above, one of the highlights of a gun trust is the ability to acquire NFA firearms without a CLEO signature. However, there are numerous other benefits that flow from a gun trust. For instance, with a properly drafted gun trust, the trustee(s) will have the ability to possess and use the firearms, without violating their obligations as trustees and fiduciaries. Moreover, and a reason that many families opt for a gun trust, is the fact that when an individual transfers/registers an NFA firearm, only that individual may possess and use that NFA firearm. However, with a gun trust, any trustee may possess the firearm.15 Hence, where a family sets up a gun trust, all family members over the age of 18 could be designated trustees; thus, enabling them to have possession of the firearm. Another reason for a gun trust is the ability to draft it such that the trust will continue to hold the firearms until the beneficiary comes of age 16 or until the trustee determines that the beneficiary is of such maturity that he/she can assume the responsibilities of ownership.
Also, in PA, there is the possibility of a perpetual trust, since we have done away with the rule against perpetuities. Thus, an individual who is concerned about future statutory changes, can form a gun trust that will provide these NFA firearms to generations to come without future transfers. In states that have not done away with the rule against perpetuities or for short-term gun trusts, there is some indication that the BATFE allows a tax-free transfer, upon the death of the settlor/grantor, to the beneficiary, so long as, the beneficiary is a familial relation to the settlor/grantor.17
Conclusion
These are but a few of the reasons that firearm enthusiasts are opting for gun trusts. However, a gun trust should not be drafted without sufficient knowledge of the NFA and BATFE’s rapidly changing, sometimes daily, decisions regarding trust applications. While it is likely that the BATFE will institute a slew of regulations regarding gun trusts and gun corporations, the gun trust will continue to provide substantial benefits over personal transfer/registration and is likely to be included in law school textbooks in the near future.
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1: It should be noted that Title I weapons under the National Firearms Act, as amended, are the typical firearms that the public is accustom to seeing at the range or while hunting. These include handguns, bolt action rifles, and semi-automatic rifles.
2: 26 U.S.C. § 5801 et seq.; 73 P. L. No. 474; 48 Stat. 1236.
3: 90 P. L. No. 618; 82 Stat. 1213. (Amending the National Firearms Act).
4: 18 U.S.C. § 921 et seq.; 99 P. L. No. 308; 100 Stat. 449. (Amending the National Firearms Act). FOPA prohibits the making or registering of any new machineguns. For a copy of the entire NFA with amendments, see https://blog.princelaw.com/assets/2008/11/19/National_Firearms_Act.pdf.
5: 27 C.F.R. 479.11 (2003)
6: For an electronic versions of these forms, see http://www.titleii.com/Forms.htm. If you click on the desired form, the page will change to a new page where you can input the information, so that when you hit submit in the lower left-hand corner, the form will be automatically filled in with that information. Hence, if you just want to see what a blank form looks like, just scroll to the bottom and hit submit. If you plan to use the electronic forms, the Form 1 and Form 4 must be submitted double sided. If it is printed on 2 pages, it will not be accepted.
7: The registration tax will either be $5 (for Any Other Weapons) or $200 for all otherNFA firearms.
8: 26 U.S.C. § 5811; 26 U.S.C. § 5812.
9: Lomont v. O’Neill, 285 F.3d 9, 15 (D.C. Cir. 2002). Although a CLEO is not required to sign, further litigation is expected. See, Stephen P. Halbrook, Firearms Law Deskbook, 537-541 (Thomson/West, 2007).
10: BATFE, ATF National Firearms Handbook, 59 (June 2007), available at http://www.atf.gov/firearms/nfa/nfa_handbook.
11: Another detriment to using a corporation is that many states require annual fees. PA is not currently among those states. For a further comparison of different entity options for NFA firearm ownership, see https://blog.princelaw.com/2007/12/19/national-firearms-act-estate-planning-101.
12: The registration tax will either be $5 (for Any Other Weapons) or $200 for all otherNFA firearms.
13: 26 U.S.C. § 5812.
14: For a full discussion of gun trust issues and considerations, see https://blog.princelaw.com/2009/1/12/gun-nfa-trust-frequently-asked-questions.
15: For the trustees to able to use the firearm, the trust must be properly drafted.
16: To own or possess a NFA firearm, the individual must be at least 18 years of age.
17: Attorney Bob Howell informed me that he has a letter from the BATFE declarign that they will allow the tax-free transfer to the beneficiary upon the settlor/grantor’s death. However, Attorney David Goldman informed me that at this year’s SHOT show, the BATFE’s Chief Counsel informed him that they would not be allowing tax-free transfers to the beneficiary upon the settlor/grantor’s death.
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