As an estate attorney, how do you handle the planning of an estate, which includes National Firearms Act [NFA] firearms? What if your client asks you, prior to his/her purchase of a NFA weapon, what is the best form of ownership, with long term estate planning in mind?
This issue may plague estate attorneys, leaving them to scratch their head in bewilderment as to the correct course of action. More importantly, a probate attorney may be flirting with malpractice, since the registration of NFA weapons is mandatory and ignorance is not a defense.
To begin with, one must understand what a transfer of a NFA firearm entails and which registration entity best suits his/her client. The Bureau of Alcohol, Tobacco, Firearms and Explosives currently allows the registration of NFA firearms, by an individual, which is defined as A partnership, company, association, trust, estate, or corporation, as well as a natural person.1 The correct entity will depend on the clients current and future desires.
The transfer, of a NFA firearm, is defined as the, [S]elling, assigning, pledging, leasing, loaning, giving away, or otherwise disposing of an NFA firearm.2 The lawful transfer/registration of a NFA firearm is dependent on the entity, which is registering the firearm. Moreover, certain entities allow for a prohibited person to buy and sell NFA Firearms, for economic purposes, which may be a determining factor in deciding which entity should be utilized.3 For the purposes of this article, I will deal with the requirements, benefits, and detriments of registering a weapon as an individual person, corporation, or trust.
The individual person looking to register a NFA firearm needs to file an application (BATFE Form 4, pg 172-74), in duplicate, to provide a two-hundred dollar ($200) registration tax, two sets of fingerprints, and two photographs.4 Furthermore, the individual must obtain the signature of a Chief Law Enforcement Officer [CLEO]. Acceptable certifying officials include chiefs of police, county sheriffs, heads of State police, State or local district attorneys, or such other persons whose certificates may in a particular case be acceptable to the Director.5 While the application requires that the individual person obtain a CLEO signature, nothing mandates that a CLEO must sign an application for a NFA firearm.6 Thus, many individuals, who cannot obtain a CLEO signature, register the weapon to their corporation or trust.
The benefit to the estate owning a NFA firearm is that, upon the death of the registrant, the firearm may be transferred to the specified heir, on a registration tax-free transfer (BATFE Form 5, pg 174-76).7 Moreover, the heir need not obtain a CLEO signature.8 The detriments are: 1) prohibited individuals may not own NFA weapons; 2) the registrant must always be in possession of the weapon; and 3) the individual must acquire a CLEO signature.9 As discussed in footnote 3, an individual person who is prohibited cannot obtain, even for economic purposes, a NFA weapon.10 A person who becomes prohibited during ownership, must relinquish ownership and possession of the weapon.
In a trust, the application must be submitted in duplicate, with the two-hundred dollar ($200) tax fee, but the trust is not required to submit fingerprints or photographs.11 However, the trust must currently submit the Certification of Trust, but may, in the very near future, require the Declaration of Trust.12 More importantly, a trust does not require a CLEO signature.13 Thus, in locales where the CLEO refuses to sign, the best option is either a trust or corporation.
The benefit to a trust is that: 1) the cost is incurred once, unless changes are required during the settlors life; 2) multiple individuals can be listed as the trustees;14 3) a trust will not fail for lack of a trustee, since the court will appoint one;15 and 4) if the transfer of NFA firearms becomes prohibited, the trust, if properly drafted, will continue to provide the NFA firearm(s) to generations to come. Nonetheless, there are several detriments: 1) in comparison to the registration of an individual person, the person must incur the cost of setting up the trust;16 2) there is no tax free death transfer, since the trust does not die; 3) while the trust ensures that a NFA weapon can continue to benefit future beneficiaries,17 those beneficiaries are limited, in comparison to a corporation; and 4) it requires an attorney with incredible foresight and understanding of trusts and firearms. For an in-depth review of NFA revocable trusts, see Bob Howell Esq.’s article.18
A corporation, like a trust, requires the same submission, but a copy of the Articles of Incorporation, Limited Liability Registration, or other documentation showing the registration of the corporation, in lieu of the Certification of Trust.19 The benefits to a corporation are numerous: 1) It is possible for a prohibited person to administer the corporation, but may not possess any of the firearms;20 2) the corporation may be sold, without transferring the NFA firearms;21and 3) any listed officer or paid employee may legally possess the firearm. The detriments are several: 1) the individual has the initial setup cost of the corporation; 2) the corporation must file tax returns and other state required filings, annually and pay any fees incurred; and 3) a corporation does not offer the privacy of a trust.22
The long term foresight, for issues that may or are likely to arise in firearm trusts and corporations, is the cause of concern for individuals using Quicken Wills and Trusts. While this list is not all inclusive, some of the issues are: 1) who are listed as beneficiaries and trustees, for the long term; 2) what if a beneficiary does not want the benefit, or the trustee does not want the responsibility; 3) how to handle beneficiary living in another state, where such firearms may be banned, or where the BATFE requires a transportation form (BATFE Form 5320.20, pg. 185-186) to be filed;23 4) what if the beneficiary is prohibited; 5) how to handle numerous beneficiaries desiring the use of the benefit at the same time;24 6) how does the trust or corporation pay for damage to the firearm(s); 7) the trust/corporation’s liability if the firearm is used in a crime or accidental injury; 8) at what point, if any, is the firearm to be sold, and if sold, how should the proceeds be divided up; 9) where is the firearm to be kept; 10) is the trust/corporation responsible for ammunition, service, and maintenance of the firearms, and if so, through what pecuniary means; 11) what form of insurance must be maintained and by what means; 12) how is the trustee to be compensated; and 13) what if the beneficiary is a child? 25
While clients may balk at the cost of an attorney to setup a trust or corporation, unlike receiving a bad haircut, which can be rectified, the use of generic forms or software may cause the loss of the NFA weapon, at the time of the settlor’s death. It is crucial to explain to the client that by saving a few dollars today, they may be denying their future heirs that which that sought to protect.
Whichever entity is employed, it is crucial for the attorney to keep copies of all approved firearm registrations, since the National Firearms Registration and Transfer Record [NFRTR] is grossly inaccurate.26 The copy of the registration(s) may prove invaluable to a client facing prosecution for illegally possessing a firearm, with penalties of ten (10) years and up to two-hundred and fifty thousand dollars ($250,000).27 Since the circumstances of every client are different, the proper choice for registering a NFA Firearm, with regards to estate planning, is dependent on the weighing of the benefits and detriments. While the corporation route may offer the most benefits and protections, it is also the most costly.
________________________________________________________________________________1 27 C.F.R. 479.11 (2003)
2 26 U.S.C. 5845(j); However, in U.S. v. Kiefer, the court held that the criminal defendant had not transferred a NFA firearm in part, because he did not receive any consideration, which could have been regarded as evidence of his proprietary interest in transfers. U.S. v. Kiefer, 694 F.2d 1109, 1114 & n.3, 11 Fed. R. Evid. Serv. 1832 (8th Cir. 1982). The court continued, “The plain implication is that a transferor is one controlling the ultimate disposition of the weapons, not a person without such control performing the simple act of physically handing the guns to another. Moreover, Congress, by requiring payment of a tax and registration of the transfer, clearly intended to require that a transferor have more of a proprietary interest in the weapon than just the mere transitory physical possession of it.” (citing U.S. v. Hurd, 642 F.2d 1179, 1182 (9th Cir. 1982).
3 18 U.S.C. 922(g) (2005). (stating, “It shall be unlawful for any person–(1) who has been convicted in any court of, a crime punishable by imprisonment for a term exceeding one year; (2) who is a fugitive from justice; (3) who is an unlawful user of or addicted to any controlled substance (as defined in section 102 of the Controlled Substances Act (21 U.S.C. 802)); (4) who has been adjudicated as a mental defective or who has been committed to a mental institution; (5) who, being an alien–(A) is illegally or unlawfully in the United States; or (B) except as provided in subsection (y)(2), has been admitted to the United States under a nonimmigrant visa (as that term is defined in section 101(a)(26) of the Immigration and Nationality Act (8 U.S.C. 1101(a)(26))); (6) who has been discharged from the Armed Forces under dishonorable conditions; (7) who, having been a citizen of the United States, has renounced his citizenship; (8) who is subject to a court order that–(A) was issued after a hearing of which such person received actual notice, and at which such person had an opportunity to participate;(B) restrains such person from harassing, stalking, or threatening an intimate partner of such person or child of such intimate partner or person, or engaging in other conduct that would place an intimate partner in reasonable fear of bodily injury to the partner or child; and(C) (i) includes a finding that such person represents a credible threat to the physical safety of such intimate partner or child; or (ii) by its terms explicitly prohibits the use, attempted use, or threatened use of physical force against such intimate partner or child that would reasonably be expected to cause bodily injury; or (9) who has been convicted in any court of a misdemeanor crime of domestic violence, to ship or transport in interstate or foreign commerce, or possess in or affecting commerce, any firearm or ammunition; or to receive any firearm or ammunition which has been shipped or transported in interstate or foreign commerce.”) It must be noted that while the term “prohibited person” carries with it extreme prejudice, an individual may be prohibited if a restraining order has been issued against the individual. Since restraining orders are easily instituted, an innocent, law-abiding individual may become prohibited.
4 26 U.S.C. 5811; 26 U.S.C. 5812.
5 BATFE, ATF National Firearms Handbook, 59 (June 2007)(citing 27 CFR 479.85), available at http://www.atf.gov/firearms/nfa/nfa_handbook.
6 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).
7 BATFE, ATF National Firearms Handbook, 57 (June 2007)
8 BATFE, ATF National Firearms Handbook, 57 (June 2007), available at http://www.atf.gov/firearms/nfa/nfa_handbook.
9 The issue of possession of a weapon is crucial to an NFA firearm owner, in a family, which wishes to share in the use of the firearm. When registered to an individual person, that person must always be with the firearm; thus, a father could not allow his son to take the weapon to the range. This can be circumvented where a trust and corporation registers the weapon.
10 Many individuals have found that investing in NFA firearms can yield extremely lucrative results.
11 26 U.S.C. 5812
12 http://www.silencertalk.com/forum/viewtopic.php?t=11243&postdays=0&postorder=asc&highlight=trust+corp&start=0 (discussing a current post, by a BATFE examiner, stating that the BATFE may be requiring the Declaration of Trust, in the near future.)
13 BATFE, ATF National Firearms Handbook, 59 (June 2007), available at http://www.atf.gov/firearms/nfa/nfa_handbook.
14 Any individual listed as a trustee may lawfully possess the firearm.
15 David Goldman Esq., email correspondence on 9/17/2007.
16 Many individuals are buying Quicken Will and Trust Maker, which is of concern to firearms attorneys. While Quicken may be perfectly fine for a typical will or trust, there are specialized issues that one must consider for a NFA trust, such as: who should be a trustee, can a prohibited person be a trustee, what if the trust isn’t properly filed with the state, where required, and the absence of any other legal protections that a properly drafted trust may offer.
17 It must be noted that while the beneficiary receives the benefit of being able to use the NFA firearm, the trustee must always be in possession of the NFA firearm. Thus, anytime the beneficiary desires to use the weapon, he/she must be in the company of the trustee.
18 Bob Howell, Use of the Revocable Trust to Purchase NFA Items, available at http://floridashootersnetwork.com/phpbb/viewtopic.php?t=17743.
19 BATFE, ATF National Firearms Handbook, 29, 56 (June 2007), available at http://www.atf.gov/firearms/nfa/nfa_handbook.
20 Id. at 29. Thus, if a prohibited individual is interested, for economic means, in the purchasing and selling of NFA firearm, they may be able to, under a corporation.
21 This could be extremely beneficial if the Government ever prohibits the transfer of NFA firearms, since the corporation could be sold, without the transfer of any firearms.
22 David Goldman Esq., email correspondence on 9/17/07. Mr. Goldman also brought to my attention that a corporation, in comparison to a trust, requires more expensive commercial insurance.
23See Supra, FN 16.
24 Id.; Also, David Goldman Esq., email correspondence on 9/17/07, stating that Quicken or most trusts only give the Trustee the ability to divide assets when an equitable or nearly equitable distribution is created, it may be far more beneficial for a Trustee to make a distribution by piece when NFA weapons are involved.
25 David Goldman Esq., email correspondence on 9/17/07. Currently, the age to purchase a NFA firearm from a dealer is 21 years old; however, the BATFE has recently stated that an individual to individual transfer (meaning of the same state) of an NFA weapon may occur when the registering party is 18 years old, so long as, it is not in conflict with state laws. Such registrations have been approved by the BATFE. Another concern is the future disposition of a child, which may require a trustee to make a determination of whether the beneficiary, at the age specified, is mature or mentally able to handle the responsibilities of NFA ownership.
26 Deron Dobbs, Status Report National Firearms Registration and Transfer Record, 15 (1981), available at http://www.nfaoa.org/documents/DeronDobbs.pdf.
27 26 U.S.C.S. 5861(d),(j); 26 U.S.C.S. 5872; 49 U.S.C.S. 781-788.
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