Gun Trusts

Steven A. TingeyCallister Nebeker & McCullough10 E. South Temple, Ste. 900Salt Lake City, Utah 84133801-530-7368stingey@cnmlaw.comwww.cnmlaw.com

4838-4661-7122.1

First recorded use of a firearm: 1364

The Hand Cannon (external ignition through a touch hole)

America has a long history with firearms: Survival/Sport Self-defense Investment Family heirlooms

To many, Guns = Freedom; individual liberty; a basic right.

“A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.” (U.S. Const. am. 2). (1791)

Gun Trust Agenda

I. US Gun Laws SummaryII. Regulated FirearmsIII. NFA Definitions, Requirements and PenaltiesIV. The Gun Trust• Funding• Administration

• Liability• Drafting Considerations

I. US Gun Laws Overview

Second Amendment (1791) – A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”

National Firearms Act (1934) – Regulated the manufacture and sale of certain types of firearms. (26 U.S.C. Ch. 53; Treasury) $200 manufacture/transfer tax (hasn’t changed since 1934)

Federal Firearms Act (1938) – Regulated the sale and transport of firearms in interstate and foreign commerce. Seller and manufacturers must apply for Federal Firearms

License Licensees required to record names and addresses of buyers Prohibited sales to certain “prohibited persons.”

I. US Gun Laws Overview (cont.)

Gun Control Act (1968) – Expanded recordkeeping and licensing requirements. Added restrictions to sales to prohibited persons. Prohibited mail order sales of rifles and shotguns.

(18 U.S.C. Ch. 44)

Firearms Owners’ Protection Act (1986) – Eased restrictions on gun sellers. Imposed additional penalties for persons using a firearm during

certain crimes. Broadened definition of “silencer” by adding combination of

parts for silencers and any part intended for use in assembly. (18 U.S.C. § 921 et

seq.)

I. US Gun Laws Overview (cont.)

Crime Control Act (1990) – Established “drug-free school zones” Imposed criminal penalties for possessing or discharging a

firearm in a school zone.

Crime Bill (Brady Handgun Violence Prevention Act)(1994) – 5 day waiting period and background check before delivery to

an unlicensed individual. New National Instant Criminal Background Check System (NIC

check)

Violent Crime Control and Law Enforcement Act (1994) – “Assault Weapons Ban” (manufacture, possession and

importation of new semiautomatic assault weapons and large-capacity ammunition feeding devices for civilian use.

I. US Gun Laws Overview (cont.)

Violence Against Women Act (1994; amended in 1996) – Amended to assist in fighting domestic violence. Amendment added domestic violence crimes to the Gun Control

Act.

Brady Handgun Act Goes Into Effect (1998) – The five-day waiting period for handgun sales was replaced by

an instant computerized background check that involved no waiting period (National Instant Criminal Background Check).

I. US Gun Laws Overview (cont.)

District of Columbia v. Heller (2008) – (5:4 Decision) The Washington D.C. Handgun Ban Dismissed The Regulation Act of 1975 infringed on individuals right to bear

arms as protected by the 2nd Amendment. 2nd Amendment protects individual right to possess a firearm and to

use it for traditionally lawful purposes…

McDonald v. Chicago (2010) – (5:4 Decision) 2nd Amendment applies to States and local governments

An American’s right to keep and bear arms for self defense in one’s home is fully applicable to the states through the 14th Amendment (Due Process).

I. US Gun Laws Overview (cont.)

Title I (original GCA) Commerce clause allows congressional authority

To regulate Commerce with foreign Nations, and among the several states and Indian Tribes

Criminal Code Implementing Regs: 27 CFR Part 478

Title II (National Firearms Act, as amended by the GCA) Tax Code (Title 26 USC) U.S. Constitution Article I, Section 8

Power to lay and collect Taxes…and Provide for the common Defense and General Welfare of the United States

Creates criminal penalties for making, possessing and transferring regulated firearms (26 U.S.C. 5871)

Implementing Regs: 27 CFR Part 479

II. Regulated FirearmsTitle II

NFA Firearms1. Short-barrel Rifles2. Short-barrel Shotguns3. Machineguns (including

conversion kits)4. Silencers (including parts)5. Destructive Devices6. Any other Weapon

Title IGCA Firearms1. Pistols, Revolvers2. Rifles, shotguns3. Frames or Receivers4. Machineguns (except

conversion kits)5. Silencers (including parts)6. Destructive Devices7. All other weapons that expel a

projectile by the action of an explosive

Machineguns are subject to § 922(o) of the GCA and the NFA.

Title IINFA Firearms1. Short-barrel Rifles2. Short-barrel Shotguns3. Machineguns (+ conversion kits)4. Silencers (including parts)5. Destructive Devices6. Any other Weapon

Title IGCA Firearms1. Pistols, Revolvers2. Rifles, shotguns3. Frames or Receivers4. Machineguns (no conversion kits)5. Silencers (including parts)6. Destructive Devices7. All other weapons that expel a projectile

by the action of an explosive

III. NFA Requirements, Definitions and PenaltiesTransfer: Selling, assigning, pledging, leasing, loaning, gifting or otherwise disposing of an NFA firearm.

Lawful transfer of an NFA firearm generally requires:• Filing an appropriate ATF transfer form, • Payment of a transfer tax, • Approval by the ATF, and • Registration with the National Firearm Registration and Transfer

Record (NFRTR)

Prohibited Transfers:• Transfer of NFA firearms require ATF approval & registration• Interstate transfers must be through a Federal Firearm Licensee• May not transfer to a “prohibited person”• Prohibited person may not receiver or “possess”

III. NFA Definitions, Requirements and Penalties (cont.)

Prohibited Person:• Felons and certain convicts• Fugitives• Illegal drug addicts (what about legalized/recreational use

of marijuana?)• Mental defectives• Many aliens (including all illegal aliens)• Person with dishonorable discharge from military• Person who renounced citizenship• Person subject to restraining order• Person convicted of a crime of domestic violence(Applies to all trust fiduciaries and beneficiaries)

III. NFA Definitions, Requirements and Penalties (cont.)

A prohibited person cannot possess a firearm…

Possession: • Actual Possession: Physical custody or control of an object.

• Constructive Possession: Possession extends to situations where a person has no hands-on custody of an object.

IV. The Gun Trust

Gun Trust: a legal trust (revocable or irrevocable) that is used in the United States to register, own and manage NFA firearms.

• A traditional trust is not appropriate for the purchase, transfer, or use of NFA firearms. Terms of a traditional trust may cause a trustee or beneficiary to commit an “accidental felony.”

• NFA firearms must be registered on the National Firearms Registration and Transfer Record (NFRTR) through the ATF (Bureau of Alcohol, Tobacco, Firearms, and Explosives).

IV. The Gun Trust

Benefits of a Gun Trust:• Private• Informal• Flexible• No annual reports or filing requirements• Avoid probate• Provide firearm specific guidance• Protect and preserve firearms• Protect fiduciaries, beneficiaries and lawful heirs

IV. The Gun Trust (cont.)

1. Ease of administration upon death

Individual - Part of decedent’s estate- Reregistration upon distribution to beneficiary (ATF Form 5)

- No Transfer Tax if to an individual

Vs

Trust- Gun may remain in trust rather than distributed to beneficiary

- Name intended beneficiaries as successor Trustees- Reregistration upon distribution to beneficiary (ATF Forms 5)

- No Transfer Tax if to an individual (Form 4 & Transfer Tax if to a Trust)

IV. The Gun Trust (cont.)

2. Easier to purchase/register a Title II firearm

Individual vs. TrustATF Form 4 ATF Form 4

- Fingerprinting - $200 Transfer Tax- Photograph - **- Background check- Approval by local chief law enforcement officer (CLEO)- $200 Transfer tax

**ATF 41P: Executive action seeking to amend the transfer of NFA firearms. Proposed rulemaking includes an amendment to require a Chief Law Enforcement Officer (CLEO) signoff for all NFA transfers to non-licensees, including those conducted by a trust or legal entity. All “responsible parties” subject to background check, finger printing and photo. Final ruling expected May 2015.

IV. The Gun Trust (cont.)

3. Multiple individual use of firearmsA Title II firearm can only have one registered owner.

Individual: Others are permitted to possess/use the firearm only if the permitted user is in the immediate physical proximity and under the supervision of the registered owner.

vs.

Trust: Legal ownership is held by all trustees. Trustees may be changed. (It may be possible for a Trustee to convey Trust property for beneficiary use without Trustee being present…with documentation)

IV. The Gun Trust (Funding)

Steps to Funding a Gun Trust

After the Gun Trust is created:

1. Set up a bank account for the Trust

2. Non-regulated firearms can be assigned or sold to the Trust

3. Regulated firearms, fill out Form 4 and Form 5330, pay the transfer tax and wait for registration with the NFRTR and ATF approval prior to taking possession of the firearm

IV. The Gun Trust (Administration)

The “Accidental Felony”

“Accidental Felony”: The unlawful sharing, gifting, selling or possession of a firearm.• Receiving or possessing a firearm transferred to oneself in violation

of the NFA;• Receiving or possessing a firearm not registered to oneself in the

National Firearms Registration and Transfer Record (NFRTR);• Transferring a firearm in violation of the NFA.

IV. The Gun Trust (Administration)

Suggestions for Administering a Gun TrustAvoid the “accidental felony”

1. Verify that a firearm has been properly transferred into Trust:• Is the appropriate transfer documentation in place?• If the firearm requires registration, has it been properly registered to the Trust?

• Beware of Contraband!

2. Control use of firearms by co-trustees and named beneficiary• Are any co-trustees or named beneficiaries “prohibited persons?”

• Is there reasonable cause to believe someone is a prohibited person?• Background check (by permission) through the Bureau of Criminal Identification

• Safest way for a beneficiary to use a firearm is in the presence of the Trustee

3. Properly Transfer of Firearms:• Use a gun dealer to distribute non-regulated firearms• Use proper transfer for regulated firearms

IV. The Gun Trust (Liability considerations)

Penalties for Gun Law Violations:

Violation of NFA (Manufacture, transfer, transport, possession)• Up to ten years in prison as well as fines up to $250,000• Forfeiture of any firearm involved in an NFA violation

Willful evasion of Tax imposed by the Act:• A willful attempt to evade or defeat a tax imposed by the Act is

a felony punishable by up to five years in prison and a fine under the general tax evasion statute.• For an individual, it can be up to $250,000• For an entity, like a trust, it can be up to $500,000

IV. The Gun Trust (Drafting)

Components of a Gun Trust:• Establishment Provisions:

Creation, naming, intent, reserved rights, transfer to trust…• Trustee Provisions:

Appoint Trustee/Successor Trustees, qualification to serve, resignation…• Administration Provisions:

During life, incapacity, upon death• Beneficiary and Distribution Provisions:

Name beneficiaries and provide specific distribution instructions, especially as it relates to complying with Federal and State gun laws

• Trust Administration and Trustee Powers: NFA Specific instructions

• General Provisions: NFA Definitions, etc.

IV. The Gun Trust (Drafting)

Special Drafting Considerations:

1. Make sure the Trust is valid under State law

2. Keep the name of the Trust short (Name will be engraved on NFA firearms);

3. State intent/purpose of Trust to own NFA firearms;

IV. The Gun Trust (Drafting)

Special Drafting Considerations:

4. Termination: Don’t allow the trust to be revoked or terminated until any NFA firearms or firearms requiring state or local registration have been distributed accordingly

5. Provide warning language about inadvertent or inadvisable transfers;

6. Trust guidance with respect to registered firearms;• Use a schedule to list NFA firearms registered in the name of the Trust

IV. The Gun Trust (Drafting)Special Drafting Considerations:

7. List Trustees and Successor Trustees that are not “prohibited persons”

• May use a schedule to list Successor Trustees

• Trustee must be at least 21 years old to serve (if Trust holds NFA firearms)

• What happens Settlor/Trustee becomes incapacitated or a prohibited person? (Special trustee appointment)

• Provide liberal Trustee discretion and alternate forms for distribution: (i.e. sale firearm and distribute cash)

• Special instruction for restricted possession by institutional trustees

IV. The Gun Trust (Drafting)Special Drafting Considerations:

8. Naming Beneficiaries: (Beneficiary vs. lawful heir)

• Beneficiary: Any individual who may receive benefits under Trust

• Formal beneficiaries: As named • Often times the Settlor is named alone;• Sometimes Settlor’s spouse and Settlor’s Children are named

• Informal beneficiaries: Persons with whom the settlor is engaging in a firearms-related activity

• Lawful Heirs: An individual entitled to receive distributions from the Trust

• May use a schedule to list remainder beneficiaries

IV. The Gun Trust (Drafting)

Special Drafting Considerations:

9. Explain a Trustee’s additional duties under a Gun Trust;• Trustee must comply with federal, state and local gun laws• Reasonable determination of capacity of each beneficiary and lawful

heir before allowing the use or distribution of a firearm

10. Include NFA definitions as well as NFA and GCA references in Trust

11. Changing the Governing Law and Situs of Administration• Transportation of most NFA firearms requires prior approval using

Form 5320.20 (Best practice = one form for each NFA firearm)

V. NFA Forms

• ATF Form 1: Application to Make and Register a Firearm

• ATF Form 4: Application for Tax Paid Transfer and Registration of Firearm

• ATF Form 5: Application for Tax Exempt Transfer and Registration of Firearm

• ATF Form 20: Application to Transport Interstate or to Temporarily Export Certain NFA Firearms (“Gun Visa”)

• ATF Form 5330.20: Certification of Compliance with 18 U.S.C. 922(g)(5)(B)

Thank you!

Steven A. TingeyCallister Nebeker & McCullough10 E. South Temple, Ste. 900Salt Lake City, Utah 84133801-530-7368stingey@cnmlaw.comwww.cnmlaw.com