July 19, 2017 - “What is a gun trust?”

I get asked that question a lot lately. Surprisingly, interest in gun trusts seems to be on the rise at a time when a federal regulation change and a piece of pending legislation would seem to make them less relevant.

Origins of Gun Trusts

Gun trusts have their origin in the National Firearms Act (NFA). Enacted in 1934 largely in response to the Prohibition-era violence of organized crime that involved such firearms as the Thompson submachine gun (Tommy gun), Browning Automatic Rifle (BAR), short-barreled rifles and shotguns, and explosives, the NFA regulates fully automatic firearms, suppressors, short-barreled rifles and shotguns, destructive devices, and parts of any of these.

To lawfully acquire any of these, an individual must pay a $200 transfer tax; register the item with the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF); submit fingerprints and a photo; and obtain the signature of his or her chief law enforcement officer (CLEO). The Brady Handgun Violence Protection Act of 1993 added the requirement that the individual also submit to a background check.

‘Persons’

Historically, obtaining the signature of the CLEO has proven to be difficult, if not impossible. However, the NFA governs persons, and 26 U.S.C. §7701(a)(1) defines “person” to include individuals, trusts, estates, partnerships, associations, companies, and corporations.

Trusts, therefore, are persons under the NFA, although the requirement to obtain the CLEO signature only applies to individuals, not to nonindividual persons. Accordingly, a trust could more easily register an NFA-regulated firearm than an individual.

Supressors

Fully automatic and short-barreled firearms tend to be owned largely by collectors. Suppressors, which are often referred to by the misnomer silencers, are widely used by target shooters and hunters, so much so that currently approximately 36 states have legalized their use for hunting.

While the public’s perception of them is largely based on their appearance in television shows and movies as an accessory used by criminals, suppressors muffle the report of a firearms to lessen hearing damage, and can reduce felt recoil to improve accuracy.

Recent Change to ATF Rule 41F

I mentioned that two recent changes in federal law have seemingly lessened the usefulness of gun trusts.

The first is a change to ATF Rule 41F that took effect on July 13, 2016. This change eliminated the requirement that an individual obtain the signature of his or her CLEO and replaced it with a duty to notify the CLEO of the existence of the NFA firearm, including the place where it is stored. The rule change also added the requirement that nonindividual persons, i.e., trustees, notify the CLEO of the jurisdiction where the NFA firearms are stored of their existence, the address of the place where they are stored, and if there are multiple trustees, the identity of the trustee who resides at or is otherwise principally in charge at that address.

The rule change also now requires that all trustees of a gun trust submit finger prints, a photo, and undergo a background check, whereas under previous law only one trustee was required to do so. In short, the change to Rule 41F leveled the playing field and took away the advantage that owning NFA firearms in trust had over owning them individually.

Pending Changes to Hearing Protection Act

The other change is the Hearing Protection Act, which is currently pending as House Bill H.R. 367 and Senate Bill 59. First introduced in 2015 and reintroduced in 2017, the Hearing Protection Act would eliminate the $200 transfer tax on suppressors and eliminate the need to register them with the ATF.

Reasons to Hold Firearms in Trust

While the change to Rule 41F and the pending Hearing Protection Act make it easier for an individual to own NFA firearms, there are still numerous reasons for a firearm owner to consider holding all firearms in trust, even those that are not regulated by the NFA.

These include:

1. An NFA firearm must always be in the possession of the registered owner and must always be accompanied by the ATF Form 4 bearing the stamp that shows the $200 transfer tax has been paid. Ownership in a trust with multiple Trustees allows any one of them to use and possess a registered firearm. For example, if a father and all his children age 21 or older are co-trustees, then any one child can use and possess an NFA firearm registered to the trust without the father having to be present.


2. Using a trust makes clear the settlor’s intention that the settlor’s firearms be retained. Most estate plans are either silent in this regard or contain broad bequests of tangible personal property which will include firearms.


3. A properly designed trust avoids outright ownership by beneficiaries who live in areas where ownership is restricted or subject to registration. While Federal law only restricts NFA firearms, several states have enacted legislation that further restricts the type of firearm or capacity of the magazine that may be used in a firearm. Several states have also enacted state-level registration requirements, meaning that the owner must register all firearms owned by him or her.


4. Trust ownership can help avoid confiscation if a beneficiary becomes a “prohibited person” under Federal or state law. The Gun Control Act of 1968 defines prohibited persons to include convicted felons, fugitives, addicts or users of controlled substances, persons who have been adjudicated mentally defective, illegal aliens and persons with nonimmigrant visas, persons dishonorably discharged from the armed forces, persons who have renounced their United States citizenship, persons subject to a domestic relations restraining order, and persons who have been convicted of a misdemeanor related to domestic violence.


5. Ownership in an asset-specific trust avoids the problem of naming a corporate or individual trustee who does not want to administer such assets.


6. Ownership in a continuing (generation-skipping) trust avoids the potential need to register transfers between family members.


7. Ownership by a trust in a firearm-friendly jurisdiction avoids outright ownership by beneficiaries in jurisdictions that are hostile to firearm ownership.


8. Trust ownership can keep firearms out of reach of a beneficiary’s creditors, a bankruptcy trustee if a beneficiary files for bankruptcy, or a divorcing spouse.

Making a Gun Trust Valid

A gun trust must be a valid trust under state law. To avoid a merger of interests that occurs when the settlor is the sole trustee and sole beneficiary, a gun trust should have at least two beneficiaries or trustees. It should identify the beneficiaries, and require that they be of legal age and under no legal impediment to use or possess the trust’s firearms. It should also address what happens if a trustee or beneficiary becomes a prohibited person under state or Federal law.

If a gun trust is not also funded with cash or other assets to cover the cost of repairs, maintenance, and insurance, the trust should obligate the beneficiaries to cover such expenses as a condition of using the firearms owned by the trust, and should exonerate the trustees from any liability for not insuring the firearms.

The trust should clearly state the situs and governing law, which ideally is in a gun friendly jurisdiction, and should authorize the trustee or a trust protector to change the situs and/or governing law as may be necessary to respond to an ever-changing legal landscape.

While recent and pending changes in the law might lead one to conclude that gun trusts are a thing of the past, there are many reasons to consider owning all firearms in trust, not just those that are regulated under the NFA.

This article was originally published on the State Bar of Wisconsin’s Real Property, Probate and Trust Law Blog. Visit the State Bar sections or the Real Property, Probate and Trust Law Section web pages to learn more about the benefits of section membership.