Looking For Info On The Proposed Changes to the ATF Regulations Regarding NFA Weapons and NFA Gun Trusts?
Get all the info you need about the new Obama administration proposals to change the ATF regulations regarding NFA firearm transfers and the use of NFA Gun Trusts by reading our new article: Are NFA Gun Trusts Still Legal? Obama’s Proposal to Change ATF Regulations
What is an NFA Gun Trust?
An NFA Gun Trust (aka NFA Firearms Trust or NFA Trust) is a special kind of revocable living trust that is specifically designed to hold weapons regulated by the National Firearms Act (NFA), usually referred to as NFA weapons, Title II weapons, or Class 3 weapons. Illegal possession of an NFA weapon is punishable by a maximum of 10 years in prison and a fine of $250,000. Therefore, it is of the utmost importance that you comply with all federal, state, and local laws not only at the time of purchase but also throughout the period of ownership. The NFA Gun Trust is designed to do exactly that.
At the Law Office of Zachary B. Setzer, PLLC, we draft NFA Gun Trusts for clients throughout North Carolina. Most of the process can typically be completed by telephone and/or email. Clients located near our office in Monroe are welcome to make an appointment to come in and sit down with us in person!
Note: If you are legally prohibited from purchasing, owning, using, or possessing NFA weapons, you are also prohibited from using an NFA Gun Trust to purchase, own, use, or possess NFA weapons. Any person who seeks to enlist our services in order to come into illegal possession of NFA weapons will be referred to the police station one block from our office. No exceptions.
What Are The Benefits of Using an NFA Gun Trust to Own Title II Weapons?
There are several major benefits to using an NFA Gun Trust to own Title II (sometimes called Class 3) weapons such as silencers, short-barrel shotguns (SBS), short-barrel rifles (SBR), suppressors (silencers), pre-1986 fully automatic machine guns, and Any Other Weapon (AOW) regulated by the National Firearms Act (NFA):
- No CLEO signature required
- No fingerprints required
- No Photograph required
- No certificate of citizenship required (although there have been reports of applications being erroneously returned for lack of this form, so we recommend you file it anyway)
- Usually faster approval by BATFE than individual applications
- Privacy – While your NFA weapons are still registered with BATFE, you need not notify local law enforcement of your acquisitions
- Built-in estate planning – Your trust automatically plans for your descendants’ inheritance of your NFA weapons, complete with safeguards to provide safekeeping and to prevent illegal possession
- Peace of mind knowing that you are in full compliance with all federal, state, and local gun laws
- No recurring costs, unlike a corporation or LLC
- One and Done – You can use one NFA Gun Trust to hold your entire collection of NFA weapons.
- May avoid application of future “no transfer” legislation to NFA weapons held in trust
How Much Does an NFA Gun Trust Cost?
We charge a flat fee starting at $500 to draft your NFA Gun Trust. In addition to your trust, we give you detailed information and instructions so that you understand your trust and how to use it. We also provide a Certification of Trust, which is a document that you can show to banks and any other interested parties (other than BATFE) when dealing with them in the name of your trust. That way, your actual trust remains private. Finally, we provide Trustee Affidavits for your trustees to sign, showing that they understand and accept the responsibilities associated with being trustee of an NFA Gun Trust and that they are not legally disqualified from possessing or using NFA weapons. There are no filing fees related to your NFA Gun Trust, although you will still have to pay the $200 BATFE transfer tax for each NFA item transferred into the trust.
What is a Trust?
In basic terms, a trust is a legal instrument that allows a property owner to divide the ownership of his property into two parts. The Trustee owns the part that is responsible for caring for, managing, and maintaining the property. The Beneficiaries own the other part, which usually includes the right to use and enjoy the property. For a more technical explanation of how a trust works, please see the explanation on our North Carolina Revocable Living Trust page.
One of the many ways in which an NFA Gun Trust differs from a standard Revocable Living Trust is that the Trustees are specifically authorized to use the NFA weapons owned by the trust. This means that every person listed as a Trustee who is legally permitted to possess and use an NFA weapon may possess and use the NFA weapons owned by the trust.
Do I Own My NFA Weapons Held in Trust?
Yes. If you took a minute to read our Revocable Living Trust page linked above, you saw how a Trust divides ownership of property between the Trustee and the Beneficiaries. However, because the trust is “revocable”, you retain the right to “revoke” or terminate the trust, taking all of the property back into your own personal name at any time and for any reason. You also act as a Trustee for the trust during your lifetime, and the trust document gives you the right to buy additional NFA items and to sell NFA items owned by the trust. You have the full ability to transfer the proceeds of any sale from the trust bank account to your personal bank account. For tax purposes, the IRS treats all revocable trusts, including NFA Gun Trusts, as if they don’t even exist. The tax ID number for the trust will be your own social security number.
Can I Put My Existing NFA Weapons into an NFA Gun Trust?
Yes. But you have to submit BATFE’s Form 4 and pay the $200 transfer tax for each NFA weapon, just as if you were transferring the NFA weapon to another person.
Keep in mind that all NFA weapons transferred into or out of the trust, including items transferred by you or to you in your personal capacity, require BATFE approval and the payment of the $200 transfer tax.
Who May Possess NFA Weapons Owned By An NFA Gun Trust?
Anyone who is listed as a trustee of the trust and is not legally prohibited from possessing or using an NFA firearm may legally possess the NFA weapons owned by the trust. While this gives a great deal of flexibility for you to allow people to have access to your NFA weapons, you should remember that every trustee has an equal right to possess and use the NFA firearms, which means they have just as much right to the NFA weapons as you. Therefore, it is very important to limit your trustees to a small number of people in whom you have absolute trust. You may also name successor trustees who will not act as trustees immediately but who will become trustees in the event that all of the initial trustees have ceased acting as trustees.
As long as you are living, you have the ability to add and remove trustees and successor trustees at will.
NFA Gun Trust vs. Corporation or LLC
An NFA Gun Trust is not the only way around the CLEO signature requirement. Many collectors have used corporations or LLCs instead of NFA Gun Trusts. Corporations and LLCs can be a legitimate option for owning NFA weapons under some circumstances. However, in most cases, we recommend using an NFA Gun Trust instead of a corporation or LLC. There are several reasons:
- Initial Cost – To ensure compliance with all federal, state, and local gun laws, an LLC or corporation should have a customized operating agreement (for LLCs) or bylaws (for corporations). These customized documents contain similar safeguard provisions to those found in an NFA Gun Trust. That means that the attorney fees for preparing an LLC or corporation to hold NFA weapons is about the same as the attorney fees for an NFA Gun Trust. However, in addition to the attorney fees, the North Carolina Secretary of State charges a $125 filing fee for new corporations and LLCs.
- Annual Cost – In addition to the initial filing fee, the Secretary of State charges $200 per year to process an annual report for LLCs and $25 per year for corporations. The NFA Gun Trust does not have recurring fees.
- Additional Risk – If you fail to pay the fee and file the annual report in a timely manner, the Secretary of State will dissolve your business entity. If this happens while your corporation or LLC owns NFA weapons, you will be in illegal possession of NFA weapons and could be subject to federal prosecution with a maximum penalty of 10 years in prison and a $250,000 fine.
- Business Purpose – Corporations and LLCs are intended to exist for a business purpose. If your business itself wants to own NFA weapons, forming a corporation or LLC may be the best method.
Can I Put Non-NFA Firearms In My NFA Gun Trust?
Legally speaking, you “can” put all kinds of property, including non-NFA guns, into your NFA Gun Trust. However, there is usually no specific benefit to holding non-NFA firearms in an NFA Gun Trust, and there may be reasons not to do so. Unless there is a specific reason to do otherwise, we typically advise clients to use their NFA Gun Trust for NFA weapons and to use other estate planning devices to transfer their other property.
What Happens To My NFA Guns If I Die Or Become Incapacitated?
One of the most valuable benefits of an NFA Gun Trust is that it comes with estate planning built in. If you die or become incapacitated, your successor trustee will manage your NFA Weapons according to whatever instructions you leave. If you have adult children that you wish you leave your NFA weapons to, your successor trustee will be responsible for transferring the NFA weapons to your children. If your children are minors, the successor trustee will be responsible for safekeeping the NFA weapons until your children reach an appropriate age and maturity level to receive them. If you are incapacitated, your successor trustee will be responsible for holding on to your NFA weapons until your capacity is restored.
Can My NFA Weapons Stay In Trust For The Benefit of My Children After I Die?
Yes! North Carolina law allows trusts to exist perpetually, meaning that there is no maximum duration before the trust must expire. That means that your trust can be designed as a Perpetual NFA Gun Trust. Your beneficiaries, usually your children, will themselves become trustees of the trust and therefore will be able to possess and use the NFA weapons owned by the trust. They will also gain the ability to add beneficiaries of their own so that the NFA weapons can remain in trust for multiple generations without requiring additional BATFE transfer approvals or transfer taxes. The beneficiaries will have the ability to sell the NFA weapons and terminate the trust if they all agree to do so, but the default rule will be that the trust will continue and the NFA weapons will remain in the trust. The Perpetual NFA Gun Trust upgrade is available for an additional fee of $500.
What About DIY NFA Gun Trusts or Quicken WillMaker? Can I Draft My Own NFA Gun Trust?
It is legal for an individual to draft his own legal documents, including NFA Gun Trusts. Within the NFA weapon collecting community, it is very common to hear someone say that it is easy to do your own NFA Gun Trust based off of a form or software like Quicken WillMaker or LegalZoom. Some dealers even give or sell trust forms to customers. And it may be true that an educated individual can, after some research, draft a valid trust.
However, asking whether it is legal is not the same as asking whether it is wise. There are many things that can go wrong. As one example, one man asked me to look over an NFA Gun Trust he had drafted for himself. He was sure it was fine because he drafts contracts for a living and knows how to draft legal agreements. I looked it over and, sure enough, it was invalid under state law. This can not be stressed enough: If you take title to NFA weapons in the name of an invalid trust, you are in illegal possession and could be prosecuted by federal authorities. It does not matter if you submitted the trust to BATFE and they approved it. BATFE does not check to make sure that your trust is valid under state law when they approve your transfer.
Many proponents of DIY NFA Gun Trusts say things like, “Why would BATFE go back after the fact and check to see if your trust is valid?” In most cases, they probably won’t. It’s when something goes wrong down the road that these things tend to come to light. For example, you could be stopped by a law enforcement officer who does not understand the NFA laws, so he investigates whether you are legally permitted to own your suppressor, SBS, SBR, machine gun, or whatever else you happen to have. In the process, it comes to light that your trust is invalid under North Carolina law and that you are in possession of contraband. Again, it probably won’t happen, but what if it does? Are you really going to risk having thousands of dollars worth of NFA items confiscated, not to mention the potential prison sentence and massive fines, just to save a few hundred dollars?
And even if your trust is legally valid, form software like Quicken WillMaker and LegalZoom is designed to create revocable living trusts for the usual purpose of holding all of your property and transferring it to your beneficiaries at your death. These forms do not contain any of the special provisions and precautions that are necessary to prevent illegal transfers or illegal possession of your NFA weapons. In fact, a standard revocable living trust does contain provisions that will in most cases result in an illegal transfer, which again could result in confiscation, prison time, and huge fines.
It is well worth the cost to ensure that your NFA Gun Trust protects you and your loved ones and guarantees compliance with all federal, state, and local laws.
If you think an NFA Gun Trust might be right for you, give us a call at (704)-288-4700 for a free phone consultation with Mr. Setzer. If you prefer, you can ask for more information by email to firstname.lastname@example.org.