Recently a client asked at what age a person in Pennsylvania could establish a revocable trust to hold firearms regulated under the National Firearms Act (the “NFA”). The answer is eighteen years of age.
First, although federal law requires an individual to be twenty-one to purchase a firearm (other than an ordinary shotgun or rifle) from a federal firearms licensee (“FFL”), see 18 U.S.C. § 922(b)(1), (c)(1), an individual only needs to be age eighteen to own a firearm, see 18 Pa. C.S.A. § 6110.1; see also 18 U.S.C. § 922(x)(5) (defining a “juvenile” for purposes of restrictions on handguns as under age eighteen). So, for example, at age eighteen a person could receive firearms as gifts, without limitation to ordinary shotguns or rifles. Clients with trusts drafted by Price Law Offices, P.C., are likely already familiar with that answer as we advise that all trustees of an NFA trust must be eighteen (not twenty-one) years of age.
Second, Pennsylvania law provides that a person with the capacity to make a Will also has the capacity to establish a revocable trust. “The capacity required to create, amend, revoke or add property to a revocable trust . . . is the same as that required to make a will.” 20 Pa. C.S.A. § 7751. And a person only needs to be age eighteen to make a Will. Id. § 2501.
Together those two points open the door to additional planning through the use of a gun trust. The obvious point is that a person eighteen years of age need not wait until age twenty-one in order to establish a gun trust. A less obvious benefit is that at age eighteen the beneficiary of one gun trust could establish his own separate gun trust to receive the distribution of NFA firearms from the first trust. For example, the settlor of a revocable gun trust might name various family members as trustees and designate his grandson as the beneficiary. When the grandson attained age eighteen, he could establish his own trust and the grandfather could amend the original trust to name grandson’s new trust as the beneficiary in lieu of the grandson himself. If the grandson’s trust named the same family members as trustees, they could all continue to benefit from the use of the NFA firearms even after the grandfather’s death.
Under current law, the practice of the Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”) has been to permit the transfer of NFA firearms from the original trust upon the death of the settlor as an involuntary transfer, free of transfer tax on a Form 5. If the grandson were to accept that distribution as an individual and later transfer the firearms to his own trust, that could well trigger the requirement to pay transfer taxes as high as $200 per NFA firearm. For a trust that holds a significant collection of firearms, that tax bill can quickly become prohibitive. If the grandfather’s trust specified that the beneficiary was his grandson’s new trust, however, the NFA firearms would flow directly from trust to trust without payment of transfer tax.
While ATF has, on at least one occasion, permitted an individual named as the beneficiary of a trust to create his own revocable trust into which he accepted the distribution free of transfer tax, that approach is less well-established. By establishing a second generation of NFA trusts into which the assets of the earlier trust are distributed, multi-generational planning is possible without the added complication and expense of a perpetual trust.