Prince Law Offices, P.C.

With the NRA Convention starting this week, April 12 -15th, Prince Law Offices, P.C. is happy to announce that any client that had a gun trust drafted by us and now wishes to add the NRA as a Beneficiary to their trust, can do so free of charge for this week. As many of you are aware, the NRA has four non-profit organizations, each with numerous endowments. Those four organization and their respective endowments are:

1. The NRA Foundation, Inc. Federal Tax ID # 52-1710886
   1. Competitive Shooting and National Championships Endowment;
   2. Disabled Shooting Services Endowment;
   3. Firearms and Marksmanship Training Endowment;
   4. Gun Collecting Endowment;
   5. Gunsmith Training Endowment;
   6. Handloading Education Endowment;
   7. Hunting and Wildlife Conservation Endowment;
   8. Law Enforcement Training Endowment;
   9. National Firearms Museum Endowment;
   10. NRA Civil Rights Defense Fund Endowment;
   11. NRA Voice of Freedom Fund Endowment;
   12. Range Facilities and Programs Endowment;
   13. Scholarships Endowment;
   14. The NRA Foundation General Endowment;
   15. Women’s Programs Endowment; and
       
   16. Youth Education Endowment.
2. National Rifle Association Federal Tax ID # 53-0116130
   1. Competitive Shooting and National Championships Endowment;
   2. Junior Programs Endowment;
   3. Law Enforcement Activities Division Endowment;
   4. Marksmanship Endowment;
   5. National Endowment for the Protection of the Second Amendment (NRA-ILA);
   6. NRA General Endowment; and
      
   7. NRA Voice of Freedom Endowment.
3. NRA Special Contribution Fund, Federal Tax ID # 23-7367534
   1. The NRA Whittington Center Endowment
4. NRA Freedom Action Foundation Federal Tax ID # 26-1277941

If you specify one of the non-profit organizations, but not an endowment, the money can be used for general use by that Organization.

With our gun rights under constant attack by the liberals, it is important that you consider donating to the NRA to ensure that our children and grandchildren will still have the Right to Keep and Bear Arms. This is why we have decided to provide our clients with a free amendment to their gun trust for this week. To qualify, simply call into the office, 610-845-3803, between 9am on April 9th and 5PM on April 16 and inform them that you are calling to have your gun trust amended and have the NRA listed as a beneficiary. The staff will then set up an appointment for me to discuss with you the different options. After amending your gun trust to list the NRA as a beneficiary, if you so desire, after providing a copy to the NRA, the NRA will recognize you as a Heritage Society Ambassador, which will result in you being honored and receiving invitations to members only events. Together, we can ensure that our inalienable Right to Keep and Bear Arms is never encroached upon.

With the proliferation of Gun (NFA) Trusts, there are numerous questions relating to their construction, desirability, and function. This article is designed to answer most, if not all, of the possible questions that you may have.

Whether to use a Gun (NFA) Trust

1. How to decide between registering the firearm as an individual, trust, or corporation? We have complied an extensive article on the benefits and detriments to using all of these entities for registration purposes. See the article here.

2. What is the benefit of a Gun (NFA) Trust? 1. No yearly fee. 2. There is no filing requirement and the trust document and assets remain private. 3. No fingerprints, photos, or CLEO signature necessary. 4. Quicker processing since the fingerprints do not have to be sent to theFBI. 5. The ability of anyone who is a trustee to be able to lawfully possess the weapons.

3. What is the downside of a Gun (NFA) Trust? Currently, because trusts are just gaining popularity, the BATFE hasn’t decided whether to allow for a Form 5 transfer (tax free) upon the death of the grantor/settlor. While the BATFE does currently allow a Form 5 transfer if the firearm is registered to an individual and being transferred to a familial member, there is no regulation that theBATFE must do this. Hence, the BATFE may (1) either allow the tax free transfer in a trust scenario or (2) may decided not to allow a tax free transfer for anyone. UPDATE: I have been advised by Bob J. Howell, Esq. that he received a letter from the BATFE stating that they will allow a Form 5 (tax-free) transfer of a firearm in a trust to the beneficiary. However, this only applies if the firearm is being transferred directly to the beneficiary, not if the trustee is selling the firearm and giving the beneficiary the proceeds. UPDATE Part 2:Attorney David Goldman has informed me that BATFE’s chief counsel informed him, at the SHOT show, that the BATFE would NOT allow a tax-free transfer from the settlor/grantor to the beneficiary in a trust. We hope to get the BATFE to clarify its position in the near future.

4. Is there any benefit to placing non-NFA (Title 1) firearms into a Gun (NFA) Trust? Not specifically, although many clients find it useful to place all their firearms into one estate planning document so that the distribution is less likely to be contested. Also, some individuals are concerned that at some point in time, PA could pass legislation stating that a firearm (Title 1) could not be transferred or sold. In essence, this would allow the current possessor the right to keep the firearm, but at his/her death, the gun would likely be confiscated. By placing the firearms into a perpetual gun trust, it is possible for the firearms to be owned/possessed by the trust, which would never cease to exist. Hence, no future transfer would occur. However, it is unlikely that PA will enact such legislation since it is extremely gun friendly. Nevertheless, if PA does look at enacting such legislation, there would be time to draft a perpetual trust and transfer possession of the firearms into it prior to the enactment.

5. Can my friend and I form one Gun (NFA) Trust and place all of our firearms into one trust? While it is lawful to do such, it is highly inadvisable. In such situations, both “friends” plan to be named as “settlor/grantor” and “trustee.” As a settlor/grantor, EITHER“friend” could lawfully transfer the firearms to him/herself personally, or to another trust or corporation, and the other friend would find him/herself with an empty trust. Everyone always says, my friend wouldn’t do that; yet, the court dockets are filled with “friends” that have done such for a milieu of reasons. Instead, each friend should enact his/her own Gun (NFA) Trust, where the other friend is listed as a trustee. In this scenario, a trustee cannot without breach his/her duties sell the firearms for his/her own purpose and if the friendship dissolves, the “friend” trustee can be removed by amending the trust, assuming it is a revocable trust. Even if the trust is irrevocable, it may be possible to remove the “friend” trustee.

6. If I currently own NFA firearms, can I transfer them into the trust without incurring a transfer fee? Unfortunately, the answer is no. The trust is a separate legal entity and the tax must be paid for any transfer into it.

7. Can a Gun (NFA) Trust be issued a Curious and Relics (C&R) License? No, due to the definition of a “person” for licensing purpose, a trust is not listed as a recognized legal entity. For more information, click here.

Drafting Considerations and Options

1. Can I just use Quicken Will and Trust Maker or a similar product?No, you should not use these types of products because they are not designed for use with NFA firearms and there are numerous problems with Quicken. For an overview of the problems associated with Quicken, see our article here. UPDATE: The BATFE has disapproved an invalid trust that it previously approved. See the article here

2. My dealer is offering to draft a Trust for me, is that ok? No, unless your dealer is an attorney or is having an attorney draft each trust and the attorney discusses the options with you directly. Otherwise, this is the unauthorized practice of law and is illegal. While there are several dealers now offering this as a benefit of doing business with them, they are not cognizant of the laws regarding trusts, they do not have a legal degree, and cannot advise you of the potential pitfalls and other issues that may arise. Moreover, the trust formed by a non-attorney for you may result in the trust being invalid. If the trust is invalid and firearms have been transferred to it, the trustee will likely be in unlawful possession of a NFA item, because the entity to which they are registered does not exist. You should always seek out competent legal advice.

2. Can my infant son or daughter be a beneficiary of a Gun (NFA) Trust? Yes, provided that the trust document properly handles this situation. The trust can be designed so that either (1) the trust will continue to hold the firearm(s) until the beneficiary reaches a specified age of at least 18 years of age or (2) until the child is at least 18 years of age and the trustee makes and independent determination that the child is of the correct moral character and sophistication to understand the personal and legal obligations of ownership.

2. Can I be the sole trustee? Yes, you can but you must understand the purposes of the trustee in the typical trust context. In most trusts, after the death of the settlor/grantor, the trustee must either distribute the trust assets pursuant to the trust, continue to hold the trust assets until a specified time (AKA if the beneficiary is not old enough to own the NFA firearm), or slowly dole out the trust assets/money as the trust dictates. Hence, if you are the sole trustee, there will not be a trustee to do this. While a trust will not fail for want of a trustee, your estate will have to petition the court to appoint someone as trustee. This person is likely to be unfamiliar with NFA firearms. Thus, if you desire to be the sole trustee, it is highly advisable that you pick a successor trustee. A successor trustee only comes into power once the trustee dies, become incapacitated, or resigns. Hence, at the unfortunate time of your death, the successor trustee will be empowered and you can ensure that someone familiar with NFA firearms properly distributes the trust’s assets.

3. Can I, the settlor/grantor, also be the sole beneficiary? No because that would frustrate the purpose of a trust and make it invalid. If there are several beneficiaries, the settlor/grantor can be a life beneficiary.

4. Can a trustee, other than the settlor/grantor, be the beneficiary?Yes, a trustee other than the settlor/grantor can be a beneficiary.

5. Can I amend my Gun (NFA) Trust? This depends on the type of trust that is instituted. We generally advise that clients use a revocable trust so that the trust can be amended at any time prior to the settlor/grantor’s death. An irrevocable trust may be suggested if there is a possible elective share issue, as discussed below. Regardless of whether you choose a revocable or irrevocable trust, you CANNOTchange the trust’s name. Because the gun is registered to the trust by name in the National Firearms Registration and Transfer Record, the only way to change the trust’s name would be to institute a new Gun (NFA) Trust with the desired name and then transfer the firearm(s) to the new trust, incurring a transfer tax for each NFA firearm.

6. Should I consider an Irrevocable trust? There may be scenarios where an irrevocable trust is a viable and better alternative than a revocable trust. Many individuals do not realize that a judgment creditor can attach to a revocable trust because the settlor/grantor can revoke the trust at any time. This means that professionals who have a high likelihood of malpractice suits or other judgments may find that their firearms are better protected by an irrevocable trust. The downside to an irrevocable trust is that it cannot be amended, except for in limited circumstances as discussed here.

7. How many trustees may a Gun (NFA) Trust have? It may have as many as you desire; however, all trustees will have certain duties and obligations, as discussed below.

8. Can a trustee be removed? If it is a revocable trust, a trustee may be removed at any time. If it is an irrevocable trust, a trustee can only be removed by petition and approval of the court.

9. Will my beneficiary receive the firearms upon my death? The unfortunate and surprising answers is that it depends. Pennsylvania law provides that if an individual is married, upon the that individual’s death, the spouse may, at his/her discretion, take an elective share of the estate, which includes any revocable trusts. 20 P.A.C.S. § 2203. For more information, see our article on The Elective Share Issue in PA. However, this can be circumvented by an appropriately drafted waiver of this right.

10. May a trustee reside in a different state? Yes, a trustee may reside in a different state; however, the firearm cannot be taken out of the state where registered without the trustee having filed and received an approved application (BATFE Form 5320.20) to temporarily transport the firearm outside of the registered state.

Who May Possess

1. Who may possess a NFA firearm that is owned by a Trust? Only the trustee(s) or a life beneficiary may possess any NFA firearms owned by the trust.

2. How old must a trustee be to have lawful possession of a NFAfirearm? A trustee must be 18 years of age or older. The BATFEissued a determination that while an individual must be 21 years of age to purchase a NFA firearm through a dealer, an individual can make, own, and possess a NFA firearm at 18 years of age. The determination letter is here. Thus, where a dealer is not required for the transfer, such as an instate transfers between individuals, the tranferee only needs to be 18 years of age.

How to use a Gun (NFA) Trust for Registration of a NFAFirearm

1. How do I fill out a Form 1 or Form 4 using a Gun (NFA) Trust? We have complied an article with attached pictures so that our clients and their dealers can see how to properly fill out a Form 1 or Form 4 when the transferee is a Gun (NFA) Trust. See the article here.

2. What must I submit to the BATFE when having a NFA firearm transferred to the trust? You must submit a copy of your entire trust. Some individuals have claimed success in just submitting the certificate of trust. However, in the newly amended NFA Handbook, the BATFE declares, “ATF requires that the Form 4 or Form 5 include documentation evidencing the existence of the entity. This documentation would include, without limitation, partnership agreements, articles of incorporation, corporate registration, a complete copy of the declaration of trust, schedules or attachments referenced in the trust, etc.” UPDATE: The BATFE, on page 5 of the November 2008 Newsletter, has stated that a certificate of citizenship is not required. Moreover, items 13, 14, 16, and 17 (transferee’s information, photograph, and CLEO signature) of the Form 4 do not have to be filled out. However, the settlor/grantor/trustee must sign item 15 on the Form 4, which is for the transferee’s signature.

3. When submitting a check to the BATFE for the Trust, who should the check come from? While many people have submitted checks from their personal accounts, it is advisable that the Trust have its own checking account and write the check out of the Trust’s account. The reason for this is more preventative than anything else. Although we do not know of any current issues, given the BATFE’s track record, they may decide to test the validity of the trust and stamp by arguing that you and not the “trust” paid for the tax stamp. While there isn’t a current tax limitation on who may pay an owed tax, most banks will give you a free checking account if you keep $200 in the account and that will prevent you having to worry or possibly litigate the issue in the future. The other option is to use a U.S. Postal Money Order to pay for the tax stamp. The “From” should be the Trust.

4. What is the current address to send a Form 4?

Bureau of Alcohol, Tobacco, Firearms and Explosives National Firearms Act Branch P.O. Box 530298 Atlanta, GA 30353-0298

5. How long will it take for the BATFE to process my application?There is no reliable answer to this question. The duration will be based on what examiner is assigned to your application, how many transfers that examiner has, and if there are any occurrences that will slow the approval of your application (AKA forgetting to sign the Form).

6. How are examiners assigned? Effective July 1, 2011, examiners are assigned by geographical location (aka State). Currently Nicole Dudash is assigned to PA. For a list of the examiners assigned to specific states, see here.

7. What are the marking/engraving requirements for making a Suppressor, Short Barreled Rifle/Shotgun, or Any Other Weapon?See our article on the requirements here. UPDATE: The BATFE has just decided that trust names CANNOT be abbreviated. Although they were allowing abbreviations in the beginning, they have, effective 1/20/09, reversed that decision. Ironically, an individual on Ar-15.com recently posted an error letter, dated 1/20/09, for his application because he abbreviated his trust’s name. See the error letter here. However, one may be able to obtain a variance from theBATFE for the required marking. If information on marking variances, see Guide to Marking Variances.

Post-Gun (NFA) Trust Enactment

1. What if the trustee wants or needs to transport the firearm(s) across state lines, either temporarily or permanently? For the temporary or permanent transport of NFA Firearms, the trustee must file a BATFE Form 5320.20 and receive an approved copy back from the BATFE. Each location requires pre-approval. Furthermore, the BATFE is currently allowing the duration of the transport to be up to 1 year, in the case of temporary transport. The 5320.20 Form can be faxed into the BATFE at 304 616-4501.

2. When the Form 1 or Form 4 comes back approved, what do I do with it? Because of the inaccuracies of the National Firearms Registration and Transfer Record (NFRTR), it is imperative that you keep extra copies of the approved Form. One copy should ALWAYSaccompany the firearm, incase a law enforcement officer would ask to see the registration. If we have drafted a Gun (NFA) Trust for you, we will gladly scan your approved Form and keep an electronic copy incase it would be lost.

3. Should I insure the firearms? Yes, we recommend that all firearms be insured, especially with the high cost of NFA firearms. Since there are firearm specific insurers, such as Historic Firearms, the trust can insure the weapons even for damage. This will ensure that even if a trust firearm breaks during a trustee’s use, the firearm will be fixed by the insurer, so long as the parts can be found or made. For exotic and one of a kind firearms, this should be a consideration as to whether to allow the trustee to use all the weapons of the trust or to specify which weapons may be used. I have also been told that State Farm has firearm policies and that they are quick on paying claims when one is made.

4. What should I do if I made a SBR/SBS with the trust and now wish to convert it back to Title 1 status? You must contact the BATFE and request that they modify the NFRTR record for your firearm. For an example of such a letter, see here.

Trustee Duties and Obligations

1. Duty to Administer Trust: When an individual accepts the position of trustee, he/she must administer the trust in good faith, in accordance with the provisions and purposes and the interest of the beneficiary(ies) and in accordance with applicable law.

2. Duty of Loyalty: The trustee must administer the trust in the SOLEinterest of the beneficiary(ies)

3. Duty of Impartiality: If a trust has two or more beneficiaries, the trustee must act impartially in investing, managing, and distributing the trust property, giving due regard to the beneficiaries’ respective interest in light of the purpose of the trust.

4. Duty of Prudent Administration: A trustee must administer the trust as a prudent person would, by considering the purposes, provisions, distributional requirements and other circumstances of the trust and by exercising reasonable care, skill and caution.

5. Record-keeping and Identification of Trust Property: A trustee must keep adequate records of the administration of the trust. A trustee MUST keep trust property separate from the trustee’s own property. For a further discussion of this obligation, see our articlehere.

6. Duty to Inform and Report: a. A trustee must promptly respond to a beneficiary’s reasonable request for information related to the trust’s administration. b. No later than 30 days after the date on which the trustee of an irrevocable trust learns that the settlor has died, the trustee must send notice as described in 20 PA.C.S. 7780(i) to the current beneficiary(ies). c. A trustee must send notice as described in 20 PA.C.S. 7780(i) to the beneficiary(ies) each time there is a change in trusteeship.

I often receive calls and emails from individuals looking for a Gun Trust attorney in Florida. I am always happy to refer them to Attorney David Goldman of GunTrustLawer.com, who has developed a national network of Gun Trust attorneys. Attorney Goldman is cognizant of the National Firearms Act considerations that must be dealt with in a Gun Trust. Moreover, like my practice, Attorney Goldman offers the ability to do all your gun trust planning needs over the telephone, at a time that is convenient to the client. This ensures that our clients are not effected in their professional and private lives by seeking to establish a Gun Trust. He also has an active blog to keep clients and the general public up to date on new issues related to Gun Trusts.

If you are a Florida resident, save yourself some time and contact Attorney David Goldman for all your Gun Trust needs.

The answer, unfortunately, is no. While a trustee may lawfully possess assets of the trust, when he/she goes to the dealer to pick up the NFA firearm, after receiving approval from the BATFE, the trustee must fill out a 4473 and a NICS check. For a 4473, the individual must be a resident of Pennsylvania. Thus, the trustee must have some form of identification showing that he is a resident of PA in order to pick up the NFA firearm from the dealer.

That being said, this does not prohibit an out of state trustee from possessing an NFA firearm that is already in the possession of the trust. Hence, if you are a trustee of a trust that was enacted and is situated in a different state, you may use the NFA items in that state where the trust is situated. If you desire to possess the NFA firearm out of that state, you must file a temporary or permanent move of the firearm with the BATFE, using Form 5320.20.

Attorney David Goldman recently posted an article, Free NFA Trust Form for Class 3, Title II purchases, about a dealer who was offering a free NFA trusts with purchase of a NFA firearm. As Attorney Goldman discusses in his article, the trust was blatantly invalid. The invalidity of the trust could subject the trust assets to forfeiture and the grantor/trustee(s) subject to violating the NFA with penalties of up to 10 years and $250,000. Here is a copy of the Invalid NFA Trust. Because attorney Goldman has done such a great job at blogging about this issue, I would refer you to his post (see link above) for a more in-depth review.

This really underscores the need for individuals to have PROPERlegal advice when setting up a trust.

The answer, generally speaking, is no, unless you have competent legal advice on how to form a trust that would allow the trustee to “use” the assets. What many who use Quicken or other products, instead of seeking competent legal advice, fail to recognize or understand is the purpose of a trust and the fiduciary duties that go along with it. So, first let me explain the purpose of a trust and then speak about the fiduciary duties.

The purpose of a trust is for the grantor to place certain assets in trust for the benefit of the beneficiary. By doing this, the grantor is transferring possession and ownership of the assets to the trust. The trustee is to hold/possess the assets for the beneficiary(ies) pursuant to the regulations that the trust imposes on him/her. However, there are certain regulations that Pennsylvania’s Trust Code imposes on a trustee, as is discussed below. So, to understand the purpose of a trust, it is best to use an example. So, let’s assume that John wants his pristine 1957 Chevy with 20,000 original miles to go to his son, when his son is of an age and maturity to respect the nature of the vehicle. So, John forms a trust, places the 1957 Chevy in the trust, and elects Steve, his friend, to be the trustee. Steve, as trustee, now has possession of the 1957 Chevy since he is the trustee; however, if Steve starts driving the car around, the value of the car will depreciate as compared to the value of the car without the additional miles.

While I will not go over all the trustee duties, I will go over the pertinent duties in PA (and in most jurisdictions) relating to the “use” of trust assets. In Pennsylvania, under 20 PA.C.S. 7771, a trustee has a duty to administer the trust. Specifically, “Upon acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its provisions and purposes and the interests of the beneficiaries and in accordance with applicable law.” Furthermore, under 20 PA.C.S. 7772, a trustee has a duty of loyalty. Specifically, “(a)DUTY OF TRUSTEE.—A trustee shall administer the trust solely in the interests of the beneficiaries.” Lastly, under 20 PA.C.S. 7779, a trustee has a duty to control and protect the trust property; “A trustee shall take reasonable steps to take control of and protect the trust property.” Thus, by “using” a trust asset, a trustee would breach these duties owed to the trust. Back to our example above, Steve, because he drove the car around, he would have breached these duties, unless he drove the car to protect it from destruction or for some other similar reason. Hence, if Steve moved the car out of the garage that was ready to collapse, he would not breach his duties, but if he drives the car to the store to pick up his groceries, then he has breached these duties.

So, in the firearm realm, it is very hard to find a situation where the trustee would not breach his duty by using the firearm. Since the trustee would not need to “use” the firearm to move it if there was impending danger, the above car example would not apply. Even if the trustee’s life was in danger, while he could “use” the weapon under the doctrine of necessity, he would still breach his duties and be liable to the beneficiary for the depreciation.

Some have suggested that the individuals that the grantor wants to be able to “use” the weapons should be made life beneficiaries because the trust statute does not limit their “use” of the trust asset, because the trust is specifically designed to allow them to use the asset. The problem that many overlook is property law in this context. Where an individual has something less than fee simple (fee simple is a legal term used to represent the individuals interest in the property. If you have fee simple, it is solely yours and not subject to anyone else’s interest. Whereas, if you have a life estate, you only have an interest in the property for your life and then the property either reverts back to the grantor or the future interest holder takes possession), he/she cannot commit waste with the property. Surprising to most people is the fact that waste includes any acts by the life estate holder to make the asset better, which is referred to as ameliorative waste. Thus, in the firearms context, if you are a life beneficiary, you can use the firearms but may be liable for waste, including if you refinish the firearm or add an accessory to it. Many people finding this greatly surprising, but one must remember that what is one person’s greatest treasure can be another person’s trash.

In conclusion, neither a life beneficiary nor a trustee is perfect if the grantor desires to allow the included individuals to “use” the trusts assets. As such, it is imperative that you seek out competent legal advice on how to prevent trustees or life beneficiaries from being held liable for breach of duties or waste.