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What’s a Gun Trust & Do I Need One?

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Posted on Apr 29, 2016 | Share this post: Like Us on Facebook Join Us on Google Follow Us on Twitter

As you may know, a Trust has both a Settlor (or Trustor or Grantor), the person who created it; and a Trustee, the person responsible for administering the assets held by the trust.   Often, the Settlor and Trustee are the same initially, but once the Settlor/Trustee is unable to serve as Trustee, one or more Successor Trustees step in to handle the assets.  Trusts also provide for disposition of assets at death.

This structure comes in handy when your assets include certain firearms.

A trust for this purpose (usually referred to an NFA Trust, Gun Trust, or Firearm Trust) holds firearms restricted under the National Firearms Act of 1938 (“NFA”) and the Gun Control Act of 1968 (“GCA”).  Common examples of these firearms are machineguns, short-barrelled shotguns, silencers, and suppressors.  The governmental agencies responsible for regulating all of this are the U.S. Department of Justice’s Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF Bureau”) as well as any state firearm agency.

Back in the days of gangsters and tommy guns, Congress enacted the NFA to make sure that the weapons most commonly used by that era’s criminals would not be available (think Al Capone and John Dillinger, who you may know was apprehended at Hotel Congress right here in Tucson on January 22, 1934).  The 1938 tax aimed to prohibit purchases and was set at $200 and remains the same today.  (If it were indexed in inflation, today it would be about $3,377.76.)

In the usual transactions where a NFA firearm is purchased, or, in the terms of the NFA Act “transferred,” the two parties involved are either a dealer and individual, or an individual and another individual. At the time of the transfer, the ATF Bureau requires paperwork (Form 4) to be submitted and the bureau’s approval before the transfer is made.  If the new owner is an individual, fingerprints and photographs have to be submitted to the ATF Bureau as well. Moreover, an individual owner needs to get the consent of the chief law enforcement officer of the locale and he or she must certify to the ATF Bureau that there is no information indicating the firearm will be used for illegal purposes.  This chief law enforcement officer’s certification is often a tough administrative hurdle for individuals.

Bad news: If an individual does not comply with the regulations, there can be criminal, monetary, and forfeiture penalties.  What’s even scarier about these penalties is that someone can run afoul of the regulations with no ill intent and without doing anything that would be considered dangerous.  Needless to say, anyone who spends the time and money to purchase a NFA firearm does not want to be punished!

An “NFA Trust” is one way to comply with the regulations but also create benefits otherwise not available if owning the firearm as an individual.  One benefit is the continuity of ownership.  An NFA Trust can, in most situations, continue perpetually.  Another benefit is the ability to allow other people to use and possess the NFA Firearm.  However, an NFA Trust does not allow anyone who would be legally prohibited from having a firearm from accessing the trust.  Ultimately, an NFA Trust provides a more comprehensive and ongoing way to comply with firearm regulations.

An NFA Trust has the same foundation as any other trust.  The Settlor creates the Trust, and then transfers the NFA Firearm, subject to the ATF Bureau’s approval, into the Trust.  The Settlor then acts as the initial Trustee and has all the ability to use and possess the NFA Fiream, just like any individual owner.  Yet, unlike an individual NFA Firearm owner, the Trustee can appoint other co-Trustees who also have the same ability to use and possess the NFA Firearm. Given the complexity of the regulations, a NFA Trust also provides restrictions and protections for the Trustee.  Such protections include ensuring that any trustees and beneficiaries are not prohibited possessors; providing that the Trustee must comply with both ATF Bureau and state firearm agency rules, if applicable, before transferring a NFA Firearm; and provisions that allow beneficiaries who are underage at the time of the Trust’s creation to become a trustee (and thus own and possess the firearm) when they are eighteen and not a prohibited possessor.

Although the NFA was enacted a long time ago, the regulation does change.  In early 2016, the ATF Bureau finalized a rule that requires a few changes to Trust transfers.  As of Final Rule 41F, 27 CFR 479, the ATF Bureau added that entity owners (i.e., Trustees of Gun Trusts) must identify the “responsible persons” of the entity owning the NFA Firearm.  The rule, which takes effect July 13, requires that the “responsible persons” submit their fingerprints/photographs and transfer Form 4, plus fill out another ATF document (ATF Form 5320.23), which identifies an entity’s responsible persons.  A responsible person of a trust also would need to forward appropriate documentation to their locale’s chief law enforcement officer.  Unlike for individual owners, no approval will be necessary, just notification.  It is unclear how often an entity’s responsible persons would be required to submit the new ATF Form 5320.23 – whether only at the time of transferring a NFA Firearm or every time there is a change in the entity (i.e., adding or changing Trustees).

Given the benefits of continuity, compliance with the regulations, and safeguards to ensure the regulations are observed, an NFA Trust should be considered by anyone who owns or is considering owning an NFA Firearm.