1. Firearms Trust, Gun Trusts and NFA Weapons Trusts
  2. Avoiding Extortionate "Preferential Transfer" Claims following Commercial Bankruptcies
  3. Problems Passing an "Instant Check"
  4. Firearms Law and Inheritance
  5. Financing your Litigation
  6. Fairness in Marcellus Shale Dealings

Firearms Trust, Gun Trusts and NFA Weapons Trusts

In recent years there has been a great deal of interest in the use of a trust to purchase and hold firearms regulated under the National Firearms Act (“NFA”). These trusts have been variously referred to as “firearms trusts,” “gun trusts,” “NFA trusts,” and “NFA weapons trusts.”

The “firearms” regulated under the NFA are not all firearms as we think of them. They are specially defined to include such articles as sound suppressors (sometimes referred to as “silencers”), short-barreled rifles, “sawed off” shotguns and machine guns. The exact definition of “firearms” regulated under the NFA is as follows:

Firearm. – The term “firearm” means (1) a shotgun having a barrel or barrels of less than 18 inches in length; (2) a weapon made from a shotgun if such weapon as modified has an overall length of less than 26 inches or a barrel or barrels of less than 18 inches in length; (3) a rifle having a barrel or barrels of less than 16 inches in length; (4) a weapon made from a rifle if such weapon as modified has an overall length of less than 26 inches or a barrel or barrels of less than 16 inches in length; (5) any other weapon, as defined in subsection (e); (6) a machinegun; (7) any silencer (as defined in section 921 of Title 18, United States Code); and (8) a destructive device. The term “firearm” shall not include an antique firearm or any device (other than a machinegun or destructive device) which, although designed as a weapon, the Secretary finds by reason of the date of its manufacture, value, design, and other characteristics is primarily a collector’s item and is not likely to be used as a weapon.
26 U.S.C. § 5845(a).

These NFA articles are often regulated, or entirely prohibited, under state law. Federal law also prohibits private citizens from possessing many machine guns and “destructive devices.” However, where an NFA article may be legally owned, the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) will regulate and tax the transfer of such articles.

Transfer NFA Articles

The ATF requires the transferor of an NFA article to fill out a special application form, and the payment of a tax of $200 or $5, depending upon the article being transferred. The payment of the tax is evidenced by the issuance and cancellation of a tax stamp, which is like a large postage stamp put right on the original copy of the application for a transfer.

Where the transferee of a firearm is a human being, ATF regulations have long required the individual transferee to submit a photo and fingerprint cards; and the chief local law enforcement official (“CLEO”) in the municipality where the transferee resides to approve the transfer by signing a statement that the CLEO had no information indicating that the receipt or possession of the firearm would place the transferee in violation of State or local law or that the transferee will use the firearm for other than lawful purposes; and a requirement the transferee pass a criminal history background check.

However, where the transferee was a corporation, limited liability company, trust, estate or other non-human entity, the fingerprint cards, background check and certification by the CLEO were not required. This prompted many people who wanted to avoid some or all of those requirements to create a “trust,” and then purchase the NFA article in the name of the trust. The trust would own the article, but the individual in charge of the trust would still have access to use the NFA article (assuming, of course, he or she was allowed under state and federal law to possess the article).

Many attorneys, including me, were concerned about the use of an NFA trust to purchase a regulated NFA article, where the only reason the trust was being employed was to avoid regulatory requirements. In cases where the sole purpose of the trust was to avoid fingerprints, a background check or approval by local law enforcement, there was a possibility that ATF might, by regulation, declare the use of trusts unlawful. In addition, trusts are organized under state law, and their existence is subject to state doctrines pertaining to the abuse of the legal form of the trust. This raised the possibility that state officials could refuse to recognize a trust, or revoke an existing trust, on grounds the trust was being used for purposes violative of the public policy of the state in which the trust was organized.

These concerns are now largely resolved. On January 4, 2016, the ATF promulgated regulations that clear up many of the questions regarding how the ATF will treat gun trusts. These new regulations will go into effect 180 days after the ATF regulations are published in the Federal Register, so they are not currently the law. When they do go into effect, the use of an NFA firearms trust will be officially sanctioned, so long as the new regulations are complied with. This makes it very unlikely either the ATF or a state official could attack the validity of a firearms trust based upon a claim the sole purpose of the trust is to evade requirements of law.

New Regulations

The new regulations will require each "responsible person" within a firearms trust (meaning any trustee, beneficiary or anyone who the trust will allow to have control over the trust or the NFA article(s) held in the trust) to complete an application form as though they were personally the transferee of the NFA article. This means every “responsible person” must submit a photograph and fingerprints on a specified fingerprint card.

The new form for each “responsible person” will be forwarded to the CLEO in their respective jurisdictions, who will run a background check on each “responsible person.” The CLEO will no longer be required to certify he or she has no information indicating that the receipt or possession of the firearm would place the transferee in violation of State or local law, or that the transferee will use the firearm for other than lawful purposes.

These changes will eliminate the use of a “firearms trust” as a means to avoid the fingerprinting requirement or background check. It will also remove the ability of a CLEO to effectively block an application by refusing to sign application forms.

There is also a new section governing disposition of NFA articles by estates of decedents. The new section specifies that the executor, administrator or personal representative of the decedent is permitted to possess a firearm registered to a decedent during the time the estate is in probate. Passing the NFA article from the decedent to the executor will not be considered a taxable “transfer” under the NFA, but when the estate transfers eventually transfer the article it will be a “transfer.” A “transfer” from the estate to an heir of the decedent will be exempt from the tax, but transfers to anyone other than an heir will still be subject to the transfer tax.

Creating a Trust?

Even before these changes in the ATF regulations, the use of a firearms trust was not necessarily the best choice for one who wanted to own an NFA article. The creation of a trust is similar to the creation of a corporation or a limited liability company, in that there are legal requirements that must be satisfied and certain responsibilities attach. Under some circumstances, state laws will deem a trust to automatically go out of existence when in the event one of the legal requirements for the existence of a trust can no longer be met, and care must be taken to avoid that ever happening.

There is actually some “estate planning” involved in the creation of any trust for the benefit of named beneficiaries. One must consider what happens when a trustee or a beneficiary dies or renounces his or her interest in the contents of the trust (the NFA article), or when the trustee(s) change his, her or their mind(s) about what to do with the NFA article(s) in the trust.

For example, if the trustees are a husband and wife, there must be provision in the trust for what to do when one or both spouses die, or if there is a divorce. Trustees may wish to resign, or may disagree on whether or how to dispose of an NFA article that is held in the trust. There must be provision made for how to dissolve the trust if and when the trustee(s) and beneficiary agree that is what they want to do.

Further, existing federal and state laws and regulations concerning the purchase, transportation and possession of an NFA article remain in effect, and those laws may change. The trust must be set up such that the trustee(s) can react to changes in the law.

For these reasons, I recommend against people attempting to set up one of these trusts by copying a trust agreement used by somebody else, or from “kits” they find online. Like “do it yourself” divorce kits, wills or incorporation kits, these “solutions” will work just fine – until they don’t. It is sometimes difficult for even experienced attorneys to anticipate all the things that can go wrong with a business organization, an estate or a trust, and mistakes can be very expensive, sometimes requiring judicial action to correct.

Consult with your attorney

I strongly recommend that anyone who feels they may benefit from the creation of a firearms trust consult with an attorney in their specific jurisdiction, both to assess the advantages and disadvantages of creating such a trust and, if one decides a trust is the best way for them to have access to an NFA article, to set up a trust that will fully comply with and offer clear guidance to the trustees and beneficiaries of the trust.

Greystone Legal Associates, P.C., will be pleased to advise citizens of the Commonwealth of Pennsylvania regarding a firearms trust. In most cases, we will charge a flat fee of $300 to prepare the trust documents. Just give us a call at the number on the “home page” of this web site.

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