Are NFA Gun Trusts Being Eliminated by the ATF’s Final Rule Change?

On January 4, 2016, the ATF published new regulations relating to the use of NFA gun trusts when filing an ATF Form 4 for the transfer of an NFA firearm and an ATF Form 1 for the manufacture of an NFA firearm, which were to go into effect 180 days after they were published in the Federal Register. The new regulations were published in the Federal Register on January 15, 2016, so the new regulations will go into effect on July 13, 2016. Let’s make this perfectly clear — NFA gun trusts are the best means of acquiring or manufacturing NFA firearms, and NFA gun trusts will continue to be the best means of acquiring or manufacturing NFA firearms after the ATF’s new regulations go into effect.

Over the last two years, many law-abiding gun owners have expressed concerns that they read somewhere on the Internet or were told by a few gun store employees that NFA gun trusts were going to eliminated by the ATF’s Proposed Rule Change, also known as ATF 41-P, which was first published in the Federal Register on September 9, 2013. This rumor was absolutely false.

In addition, over the last few days, several law-abiding gun owners have expressed their concerns that they read somewhere on the Internet or heard from a few gun store employees that NFA gun trusts are going to be eliminated by the ATF’s Final Rule Change, also known as ATF 41-F, which will be published soon in the Federal Register. Again, this rumor is absolutely false. On the contrary, what was proposed to be changed and what will be changed after the final rule change goes into effect is the application process for an ATF Form 4 transfer or an ATF Form 1 manufacture of an NFA firearm.

In the past, the ATF has only required proof that a valid NFA gun trust existed as part of the application process. This evidence was a complete copy of the NFA gun trust. Under the ATF’s proposed rule change, the ATF was always going to continue to require proof that a valid NFA gun trust existed, i.e., a complete copy of the NFA gun trust. However, the ATF was also going to require, in addition to a copy of the NFA gun trust, proof that each “responsible person” on the NFA gun trust was entitled to possess firearms. Specifically, the ATF’s proposed rule change was going to also require each and every “responsible person” of the NFA gun trust to submit fingerprints, photographs, and obtain approval from the chief law enforcement officer in each settlor’s or trustee’s county of residence.

One of the major concerns with the ATF’s proposed rule change was that it was unclear whether the chief law enforcement officer in each settlor’s or trustee’s county of residence would agree to sign the ATF’s paperwork. If not, then law-abiding gun owners in the chief law enforcement officer’s county would be prevented from exercising their constitutional right to own NFA firearms that were not prohibited by Federal, state, or local law merely at the whim of the chief law enforcement officer. Due to the addition of a local chief law enforcement officer approval requirement, the ATF’s proposed rule change appeared to be designed to prevent law-abiding gun owners in many areas from owning NFA firearms, even if they were not prohibited by state or local law.

Another major concern with the ATF’s proposed rule change was the ATF’s vague and ambiguous use of the term “responsible person,” which is not a term that is used in any state’s trust law.

The ATF’s final rule will go into effect 180 days after the final rule is published in the Federal Register. As a result, the ATF’s final rule will go into effect sometime in July 2016. The ATF’s final rule does change NFA gun trusts, and it does not affect existing tax stamps or pending ATF Form 4 or ATF Form 1 applications.

Under the ATF’s final rule, the ATF is still going to continue to require proof that a valid NFA gun trust exists, i.e., a complete copy of the NFA gun trust. However, the ATF is also going to require proof that each “responsible person” on the NFA gun trust is entitled to possess firearms. Specifically, the ATF’s final rule will also require each and every “responsible person” of the NFA gun trust to submit fingerprints and photographs. During the approval process, the ATF will conduct backgrounds checks on each and every “responsible person” of the NFA gun trust. However, after complying with the new application process and receiving approval from the ATF, if another ATF Form 4 or ATF Form 1 application is filed in the following 24 months, the “responsible persons” of the NFA gun trust will not be required to submit fingerprints and photographs, provided that there has been no change to the documentation previously provided to the ATF since the prior approval. 27 C.F.R. §§ 479.63(c) (Form 1), 479.85(c) (Form 4).

Under the ATF’s final rule, the ATF eliminated the proposed chief law enforcement officer signature requirement, but replaced it with a chief law enforcement notification requirement. As a result, each and every “responsible person” of an NFA gun trust will also be required to forward certain ATF application documents to the chief law enforcement officer in each such settlor’s or each such trustee’s locality, before the ATF Form 4 or ATF Form 1 application is submitted to the ATF. The ATF defines that “chief law enforcement officer” as the local chief of police, county sheriff, head of the State police, State or local district attorney or prosecutor. 27 C.F.R. §§ 479.62(c) (Form 1), 479.84(c) (Form 4).

Generally, a “responsible person” will be defined in 27 C.F.R. § 479.11 as any individual with the power or authority to direct the management and policies of the NFA gun trust, including any individual who has the capability to exercise such power and possesses, directly or indirectly, the power or authority under any trust instrument, or under state law, to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the NFA gun trust.

In a well-written NFA gun trust, it is clear that each settlor and trustee is a “responsible person,” while beneficiaries and successor trustees are not “responsible persons,” because neither beneficiaries nor successor trustees have any present power or authority whatsoever to direct the management and policies of the NFA gun trust. Specifically, neither beneficiaries nor successor trustees have any power or authority whatsoever to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the NFA gun trust. Normally, while the settlor or settlors are alive, a beneficiary or a successor trustee would only have any power or authority to direct the management and policies of the NFA gun trust, if, and only if, the beneficiary or successor trustee is also serving as or later becomes a trustee.

Unfortunately, there are many poorly written gun trusts that provide beneficiaries with the power and authority of unsupervised use and possession of the firearms that are owned by the NFA gun trust. Most often, these beneficiaries are minors, such as infants and small children of the settlor or settlors. This is, of course, stupid, but it is also illegal. After the ATF’s final rule goes into effect, the owners of these NFA gun trusts are in for a rude awakening. Fortunately, a competent attorney will be able to amend and restate most of these poorly-written gun trusts after the ATF’s final rule goes into effect.

NFA firearms must be titled in the name of an individual or entity, much like other real property (land) and some types of personal property, such as cars, trucks, boats, and airplanes. If an NFA firearm is titled in the name of an individual, only that specific individual may possess it. One of the chief advantages of titling NFA firearms in the name of a trust, rather than in the name of an individual, is that more than one person may legally possess and use the trust property. Any person at least 18 years of age who can legally possess NFA firearms may be listed as a trustee of the NFA gun trust and, thereby, legally possess the trust property, which is usually the NFA firearms assigned to the trust.

For a married couple, suppose the husband owns a suppressor, which is legally registered with the ATF in his own name. The husband goes to work and leaves his suppressor at home. If the wife stays at home that day and could have access to the suppressor, she is committing a federal felony offense that carries a prison sentence of up to 10 years and/or a fine of up to $250,000. 26 U.S.C. §§ 5861, 5871; 18 U.S.C. § 3571(b). Further, the suppressor is subject to seizure and forfeiture. 26 U.S.C. § 5872. If convicted, the wife loses her right to own or possess any kind of firearms in the future. In addition, if the husband instead left the suppressor in the wife’s vehicle, the vehicle is subject to seizure and forfeiture. If the husband had simply registered the suppressor in the name of an NFA gun trust and listed both himself and his wife as trustees of the trust, this situation would have been prevented.Additionally, the couple could list other individuals, such as friends and family who are at least 18 years of age and who may legally possess firearms as trustees of the trust, if the individuals agreed to be listed as trustees.

Even if a person is single, it will still make sense to title NFA firearms in the name of a trust because of the built-in flexibility of being able to amend the trust throughout the person’s lifetime to add or remove additional trustees (persons allowed to use and possess the NFA firearms) and to identify beneficiaries (persons who may inherit the NFA firearms when the person dies) as the person’s life and roles evolve (i.e., husband, father, grandfather, etc.). If the person titles NFA firearms in his own name and then decides later to title the NFA firearms in the name of a trust, the person will end up paying the $200 transfer tax (or whatever the transfer tax amount is at that time) for each NFA firearm to be transferred to the trust. This short-term thinking (titling NFA firearms in the name of an individual) could end up costing the person a large sum of money down the road. Further, all property assigned to the NFA gun trust passes to the beneficiaries outside of probate.

Would you like to have the peace of mind that comes with knowing that you received a high-quality, state-specific NFA gun trust drafted by a very experienced gun trust attorney who is recommended by some of the largest and most successful Class 3 dealers in the United States? Let’s get started!

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