Joshua G. Prince authored an article entitled The New Trust on the Block -- the "Gun Trust." I am pleased to post his simplified explanation of a concept foreign to many professionals and consumers.
Josh is now a third-year law student at Widener University School of Law (Harrisburg Campus). He was the author of three prior articles, which I edited and posted on this Blog in 2007 about the handling, transferring, and holding of weapons.
Based upon those article, he was a co-presenter with me in 2008 at three sessions for lawyers about "Guns in Estates & Trusts" held at the bar associations of Cumberland County, Dauphin County, and Berks County, PA. See: PA EE&F Law Blog posts DCBA Gun Session with a Heller of a Difference (07/07/08), and "Guns in Estates & Trusts" Seminar (04/25/08), and the many links included.
Josh can be reached at: email@example.com. Feel free to contact him with any questions.
The New Trust on the Block -- the "Gun Trust"
Copyright © 2009 by Joshua G. Prince
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?
What is a "Gun Trust"?
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 Act1) for the benefit of a beneficiary, while giving possessory and use rights to the trustee(s).
What is the Purpose of a "Gun Trust"?
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 “individual”, 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 BATFE Form 4 for transferring a NFA firearm6), in duplicate, provide a registration tax7, two sets of fingerprints, and two photographs.8 Furthermore, 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 a CLEO 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 the BATFE 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 fee12, but the trust is not required to submit fingerprints or photographs.13 More importantly, as stated above, a trust does not require a CLEO signature.
What benefit does a "Gun Trust" Offer?14
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.
Another reason that many families opt for a Gun Trust is the ability for multiple people to use a weapon. When an NFA firearm is transferred or registered to an individual, only that individual may possess and use that NFA firearm. However, with a gun trust, any trustee may possess the firearm. Of course, for trustees to able to use the firearm, the trust must be properly drafted. 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 age15 or until the trustee determines that the beneficiary is of such maturity that he/she can assume the responsibilities of ownership.
Also, in Pennsylvania, there is the possibility of a perpetual trust, since the Rule Against Perpetuities has been abolished. 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, 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.
ConclusionThese 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 tighter regulations regarding gun trusts and gun corporations in the future, a gun trust could continue to provide substantial benefits over personal transfer/registration.
Maybe it will even be referenced in a law school textbook someday.16* * *Footnotes:
1 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. The author has posted online a copy of the entire NFA with amendments (PDF).
5 27 C.F.R. 479.11 (2003)
6 Electronic versions of these forms are posted online. Click on the desired form, and the page will change to a new page where you can input information. When submitted using the button in the lower left-hand corner, the form will be automatically filled in with that information. To see what a blank form looks like, just scroll to the bottom and hit "submit".
7 The registration tax will either be $5 (for Any Other Weapons) or $200 for all other NFA 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 Act Handbook, 59 (June 2007) [See graphic above].
11 Another detriment to using a corporation is that many states require annual fees or levy stock assessments. Pennsylvania is not currently among those states. The author previously posted a further comparison of different entity options for NFA firearm ownership.
12 The registration tax will either be $5 (for Any Other Weapons) or $200 for all other NFA firearms.
13 26 U.S.C. § 5812.
14 The author previously posted a full discussion of gun trust issues and considerations.
15 To own or possess a NFA firearm, the individual must be at least 18 years of age.
16 Editors Note: Maybe, Josh; but "gun trusts" likely will not be promoted in the ATF's National Firearms Act Handbook.