Gun (NFA) Trust - Frequently Asked Questions
With the proliferation of Gun (NFA) Trusts, there are numerous questions relating to their construction, desirability, and function. This article is designed to answer most, if not all, of the possible questions that you may have.
Whether to use a Gun (NFA) Trust
1. How to decide between registering the firearm as an individual, trust, or corporation? We have complied an extensive article on the benefits and detriments to using all of these entities for registration purposes. See the article here.
2. What is the benefit of a Gun (NFA) Trust? 1. No yearly fee. 2. There is no filing requirement and the trust document and assets remain private. 3. No fingerprints, photos, or CLEO signature necessary. 4. Quicker processing since the fingerprints do not have to be sent to the FBI. 5. The ability of anyone who is a trustee to be able to lawfully possess the weapons.
3. What is the downside of a Gun (NFA) Trust? Currently, because trusts are just gaining popularity, the BATFE hasn’t decided whether to allow for a Form 5 transfer (tax free) upon the death of the grantor/settlor. While the BATFE does currently allow a Form 5 transfer if the firearm is registered to an individual and being transferred to a familial member, there is no regulation that the BATFE must do this. Hence, the BATFE may (1) either allow the tax free transfer in a trust scenario or (2) may decided not to allow a tax free transfer for anyone. UPDATE: I have been advised by Bob J. Howell, Esq. that he received a letter from the BATFE stating that they will allow a Form 5 (tax-free) transfer of a firearm in a trust to the beneficiary. However, this only applies if the firearm is being transferred directly to the beneficiary, not if the trustee is selling the firearm and giving the beneficiary the proceeds. UPDATE Part 2: Attorney David Goldman has informed me that BATFE’s chief counsel informed him, at the SHOT show, that the BATFE would NOT allow a tax-free transfer from the settlor/grantor to the beneficiary in a trust. We hope to get the BATFE to clarify its position in the near future.
4. Is there any benefit to placing non-NFA (Title 1) firearms into a Gun (NFA) Trust? Not specifically, although many clients find it useful to place all their firearms into one estate planning document so that the distribution is less likely to be contested. Also, some individuals are concerned that at some point in time, PA could pass legislation stating that a firearm (Title 1) could not be transferred or sold. In essence, this would allow the current possessor the right to keep the firearm, but at his/her death, the gun would likely be confiscated. By placing the firearms into a perpetual gun trust, it is possible for the firearms to be owned/possessed by the trust, which would never cease to exist. Hence, no future transfer would occur. However, it is unlikely that PA will enact such legislation since it is extremely gun friendly. Nevertheless, if PA does look at enacting such legislation, there would be time to draft a perpetual trust and transfer possession of the firearms into it prior to the enactment.
5. Can my friend and I form one Gun (NFA) Trust and place all of our firearms into one trust? While it is lawful to do such, it is highly inadvisable. In such situations, both “friends” plan to be named as “settlor/grantor” and “trustee.” As a settlor/grantor, EITHER “friend” could lawfully transfer the firearms to him/herself personally, or to another trust or corporation, and the other friend would find him/herself with an empty trust. Everyone always says, my friend wouldn’t do that; yet, the court dockets are filled with “friends” that have done such for a milieu of reasons. Instead, each friend should enact his/her own Gun (NFA) Trust, where the other friend is listed as a trustee. In this scenario, a trustee cannot without breach his/her duties sell the firearms for his/her own purpose and if the friendship dissolves, the “friend” trustee can be removed by amending the trust, assuming it is a revocable trust. Even if the trust is irrevocable, it may be possible to remove the “friend” trustee.
6. If I currently own NFA firearms, can I transfer them into the trust without incurring a transfer fee? Unfortunately, the answer is no. The trust is a separate legal entity and the tax must be paid for any transfer into it.
7. Can a Gun (NFA) Trust be issued a Curious and Relics (C&R) License? No, due to the definition of a “person” for licensing purpose, a trust is not listed as a recognized legal entity. For more information, click here.
Drafting Considerations and Options
1. Can I just use Quicken Will and Trust Maker or a similar product? No, you should not use these types of products because they are not designed for use with NFA firearms and there are numerous problems with Quicken. For an overview of the problems associated with Quicken, see our article here. UPDATE: The BATFE has disapproved an invalid trust that it previously approved. See the article here
2. My dealer is offering to draft a Trust for me, is that ok? No, unless your dealer is an attorney or is having an attorney draft each trust and the attorney discusses the options with you directly. Otherwise, this is the unauthorized practice of law and is illegal. While there are several dealers now offering this as a benefit of doing business with them, they are not cognizant of the laws regarding trusts, they do not have a legal degree, and cannot advise you of the potential pitfalls and other issues that may arise. Moreover, the trust formed by a non-attorney for you may result in the trust being invalid. If the trust is invalid and firearms have been transferred to it, the trustee will likely be in unlawful possession of a NFA item, because the entity to which they are registered does not exist. You should always seek out competent legal advice.
3. Can my infant son or daughter be a beneficiary of a Gun (NFA) Trust? Yes, provided that the trust document properly handles this situation. The trust can be designed so that either (1) the trust will continue to hold the firearm(s) until the beneficiary reaches a specified age of at least 18 years of age or (2) until the child is at least 18 years of age and the trustee makes and independent determination that the child is of the correct moral character and sophistication to understand the personal and legal obligations of ownership.
4. Can I be the sole trustee? Yes, you can but you must understand the purposes of the trustee in the typical trust context. In most trusts, after the death of the settlor/grantor, the trustee must either distribute the trust assets pursuant to the trust, continue to hold the trust assets until a specified time (AKA if the beneficiary is not old enough to own the NFA firearm), or slowly dole out the trust assets/money as the trust dictates. Hence, if you are the sole trustee, there will not be a trustee to do this. While a trust will not fail for want of a trustee, your estate will have to petition the court to appoint someone as trustee. This person is likely to be unfamiliar with NFA firearms. Thus, if you desire to be the sole trustee, it is highly advisable that you pick a successor trustee. A successor trustee only comes into power once the trustee dies, become incapacitated, or resigns. Hence, at the unfortunate time of your death, the successor trustee will be empowered and you can ensure that someone familiar with NFA firearms properly distributes the trust’s assets.
5. Can I, the settlor/grantor, also be the sole beneficiary? No because that would frustrate the purpose of a trust and make it invalid. If there are several beneficiaries, the settlor/grantor can be a life beneficiary.
6. Can a trustee, other than the settlor/grantor, be the beneficiary? Yes, a trustee other than the settlor/grantor can be a beneficiary.
7. Can I amend my Gun (NFA) Trust? This depends on the type of trust that is instituted. We generally advise that clients use a revocable trust so that the trust can be amended at any time prior to the settlor/grantor’s death. An irrevocable trust may be suggested if there is a possible elective share issue, as discussed below. Regardless of whether you choose a revocable or irrevocable trust, you CANNOT change the trust’s name. Because the gun is registered to the trust by name in the National Firearms Registration and Transfer Record, the only way to change the trust’s name would be to institute a new Gun (NFA) Trust with the desired name and then transfer the firearm(s) to the new trust, incurring a transfer tax for each NFA firearm.
8. Should I consider an Irrevocable trust? There may be scenarios where an irrevocable trust is a viable and better alternative than a revocable trust. Many individuals do not realize that a judgment creditor can attach to a revocable trust because the settlor/grantor can revoke the trust at any time. This means that professionals who have a high likelihood of malpractice suits or other judgments may find that their firearms are better protected by an irrevocable trust. The downside to an irrevocable trust is that it cannot be amended, except for in limited circumstances as discussed here.
9. How many trustees may a Gun (NFA) Trust have? It may have as many as you desire; however, all trustees will have certain duties and obligations, as discussed below.
10. Can a trustee be removed? If it is a revocable trust, a trustee may be removed at any time. If it is an irrevocable trust, a trustee can only be removed by petition and approval of the court.
11. Will my beneficiary receive the firearms upon my death? The unfortunate and surprising answers is that it depends. Pennsylvania law provides that if an individual is married, upon the that individual’s death, the spouse may, at his/her discretion, take an elective share of the estate, which includes any revocable trusts. 20 P.A.C.S. § 2203. For more information, see our article on The Elective Share Issue in PA. However, this can be circumvented by an appropriately drafted waiver of this right.
12. May a trustee reside in a different state? Yes, a trustee may reside in a different state; however, the firearm cannot be taken out of the state where registered without the trustee having filed and received an approved application (BATFE Form 5320.20) to temporarily transport the firearm outside of the registered state.
Who May Possess
1. Who may possess a NFA firearm that is owned by a Trust? Only the trustee(s) or a life beneficiary may possess any NFA firearms owned by the trust.
2. How old must a trustee be to have lawful possession of a NFA firearm? A trustee must be 18 years of age or older. The BATFE issued a determination that while an individual must be 21 years of age to purchase a NFA firearm through a dealer, an individual can make, own, and possess a NFA firearm at 18 years of age. The determination letter is here. Thus, where a dealer is not required for the transfer, such as an instate transfers between individuals, the tranferee only needs to be 18 years of age.
How to use a Gun (NFA) Trust for Registration of a NFA Firearm
1. How do I fill out a Form 1 or Form 4 using a Gun (NFA) Trust? We have complied an article with attached pictures so that our clients and their dealers can see how to properly fill out a Form 1 or Form 4 when the transferee is a Gun (NFA) Trust. See the article here.
2. What must I submit to the BATFE when having a NFA firearm transferred to the trust? You must submit a copy of your entire trust. Some individuals have claimed success in just submitting the certificate of trust. However, in the newly amended NFA Handbook, the BATFE declares, “ATF requires that the Form 4 or Form 5 include documentation evidencing the existence of the entity. This documentation would include, without limitation, partnership agreements, articles of incorporation, corporate registration, a complete copy of the declaration of trust, schedules or attachments referenced in the trust, etc.” UPDATE: The BATFE, on page 5 of the November 2008 Newsletter, has stated that a certificate of citizenship is not required. Moreover, items 13, 14, 16, and 17 (transferee’s information, photograph, and CLEO signature) of the Form 4 do not have to be filled out. However, the settlor/grantor/trustee must sign item 15 on the Form 4, which is for the transferee’s signature.
3. When submitting a check to the BATFE for the Trust, who should the check come from? While many people have submitted checks from their personal accounts, it is advisable that the Trust have its own checking account and write the check out of the Trust’s account. The reason for this is more preventative than anything else. Although we do not know of any current issues, given the BATFE’s track record, they may decide to test the validity of the trust and stamp by arguing that you and not the “trust” paid for the tax stamp. While there isn’t a current tax limitation on who may pay an owed tax, most banks will give you a free checking account if you keep $200 in the account and that will prevent you having to worry or possibly litigate the issue in the future. The other option is to use a U.S. Postal Money Order to pay for the tax stamp. The “From” should be the Trust.
4. What is the current address to send a Form 4?
Bureau of Alcohol, Tobacco, Firearms and Explosives National Firearms Act Branch P.O. Box 530298 Atlanta, GA 30353-0298
5. How long will it take for the BATFE to process my application? There is no reliable answer to this question. The duration will be based on what examiner is assigned to your application, how many transfers that examiner has, and if there are any occurrences that will slow the approval of your application (AKA forgetting to sign the Form).
6. What are the marking/engraving requirements for making a Suppressor, Short Barreled Rifle/Shotgun, or Any Other Weapon? See our article on the requirements here. UPDATE: The BATFE has just decided that trust names CANNOT be abbreviated. Although they were allowing abbreviations in the beginning, they have, effective 1/20/09, reversed that decision. Ironically, an individual on Ar-15.com recently posted an error letter, dated 1/20/09, for his application because he abbreviated his trust’s name. See the error letter here. However, one may be able to obtain a variance from the BATFE for the required marking. If information on marking variances, see Guide to Marking Variances.
Post-Gun (NFA) Trust Enactment
1. What if the trustee wants or needs to transport the firearm(s) across state lines, either temporarily or permanently? For the temporary or permanent transport of NFA Firearms, the trustee must file a BATFE Form 5320.20 and receive an approved copy back from the BATFE. Each location requires pre-approval. Furthermore, the BATFE is currently allowing the duration of the transport to be up to 1 year, in the case of temporary transport. The 5320.20 Form can be faxed into the BATFE at 304 616-4501.
2. When the Form 1 or Form 4 comes back approved, what do I do with it? Because of the inaccuracies of the National Firearms Registration and Transfer Record (NFRTR), it is imperative that you keep extra copies of the approved Form. One copy should ALWAYS accompany the firearm, incase a law enforcement officer would ask to see the registration. If we have drafted a Gun (NFA) Trust for you, we will gladly scan your approved Form and keep an electronic copy incase it would be lost.
3. Should I insure the firearms? Yes, we recommend that all firearms be insured, especially with the high cost of NFA firearms. Since there are firearm specific insurers, such as Historic Firearms, the trust can insure the weapons even for damage. This will ensure that even if a trust firearm breaks during a trustee’s use, the firearm will be fixed by the insurer, so long as the parts can be found or made. For exotic and one of a kind firearms, this should be a consideration as to whether to allow the trustee to use all the weapons of the trust or to specify which weapons may be used. I have also been told that State Farm has firearm policies and that they are quick on paying claims when one is made.
4. What should I do if I made a SBR/SBS with the trust and now wish to convert it back to Title 1 status? You must contact the BATFE and request that they modify the NFRTR record for your firearm. For an example of such a letter, see here.
Trustee Duties and Obligations
1. Duty to Administer Trust: When an individual accepts the position of trustee, he/she must administer the trust in good faith, in accordance with the provisions and purposes and the interest of the beneficiary(ies) and in accordance with applicable law.
2. Duty of Loyalty: The trustee must administer the trust in the SOLE interest of the beneficiary(ies)
3. Duty of Impartiality: If a trust has two or more beneficiaries, the trustee must act impartially in investing, managing, and distributing the trust property, giving due regard to the beneficiaries’ respective interest in light of the purpose of the trust.
4. Duty of Prudent Administration: A trustee must administer the trust as a prudent person would, by considering the purposes, provisions, distributional requirements and other circumstances of the trust and by exercising reasonable care, skill and caution.
5. Record-keeping and Identification of Trust Property: A trustee must keep adequate records of the administration of the trust. A trustee MUST keep trust property separate from the trustee’s own property. For a further discussion of this obligation, see our article here.
6. Duty to Inform and Report: a. A trustee must promptly respond to a beneficiary’s reasonable request for information related to the trust’s administration. b. No later than 30 days after the date on which the trustee of an irrevocable trust learns that the settlor has died, the trustee must send notice as described in 20 PA.C.S. 7780(i) to the current beneficiary(ies). c. A trustee must send notice as described in 20 PA.C.S. 7780(i) to the beneficiary(ies) each time there is a change in trusteeship.
