By M. Todd Smith, Esq.
Firearms are unique assets, which means that an estate plan must be uniquely tailored to deal with them. One reason they are so unique is because they are the subject of strict federal and state regulations. For example, when an individual purchases a National Firearm Act, Title II, Class 3 weapon (i.e. silencers, short barrel rifles and shot guns, machine guns, etc.; hereinafter “NFA Firearms”), that individual must submit a recent photograph, fingerprint cards, and certified approval from the jurisdiction’s Chief Law Enforcement Officer (“CLEO”). This information is provided to the Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”), whose approval is required under the Act in order to transfer ownership of NFA Firearms.
Gun Trusts – Benefits
In recent years there has been some excitement among gun enthusiasts regarding “NFA Trusts” or “Gun Trusts”. This is primarily due to the perceived benefit of avoiding the cumbersome requirements discussed above regarding fingerprints and CLEO approval. This is possible because according to the regulations, those requirements only apply to transferees that are individuals, and a trust, like a corporation or limited liability company, is not an individual. Another related benefit is privacy, since gun owners are usually concerned about who has knowledge of their weapons. In most cases, law enforcement agencies are not given notice of possession of the weapons when the transferee is a trust.
Additionally, there are benefits to holding title to assets in trust that apply more generally to most people who have already set up or thought about setting up a revocable trust. For instance, if the owner (“trustor”) transfers the asset to a trust and becomes incapacitated, a successor trustee designated in the trust agreement will be authorized to manage trust assets for the benefit of the trustor for the duration of the incapacity without the necessity of involving a court appointed, court supervised guardian or conservator. Similarly, when the trustor dies, the successor trustee will be authorized to distribute trust assets to the beneficiaries without the necessity of involving a probate court, which can be a long, expensive, and arduous process.
It should be no surprise that there are serious penalties for individuals possessing NFA Firearms without proper authorization and approval from the ATF. If an individual is the registered owner of the weapon, then that individual is the only person permitted to use or possess the weapon. It is a common misunderstanding that it is permissible to let others use or possess the weapon as long as the owner is present. Such use or possession is an unapproved transfer in violation of the law. Unfortunately, the flexibility inherent in most standard revocable trusts could result in such a violation.
For example, the fact that the trust is revocable means that the trustor could revoke the trust, which would automatically result in unauthorized possession of a weapon registered to the trust. Or maybe the trustor signed a durable power of attorney (which usually accompanies a revocable trust in most estate plans) giving an agent broad powers, including the ability to revoke the revocable trust, also resulting in unauthorized possession.
Furthermore, while the Act provides that a decedent’s NFA Firearms may be conveyed tax-exempt to lawful heirs from the decedent’s estate, it is not clear that such a benefit exists if the decedent properly transferred the weapon to a revocable trust. Transfers made by the successor trustee to the trust beneficiaries may be subject to the NFA Transfer Tax.
There are many other potentially serious unintended consequences to transferring NFA Firearms to a revocable trust, including the additional liability the successor trustee takes on when attempting to follow the required legal procedures for seeking ATF approval for distributing the weapon to the trust beneficiaries. It is important to obtain competent legal representation in order to avoid these unforeseen hazards.