Gun Trusts

What is a Gun Trust?

Gun trusts are becoming more popular and ubiquitous.  But what on earth is a “gun trust” anyway?  Gun trusts are special purpose entities that are designed to own machine guns, suppressors, and other firearms regulated under federal law.  Yes, those weapons are legal for civilians to own, and owning them in a trust is the ideal way.  If you can legally own a gun in Arizona, you can own a machine gun, suppressor, or other NFA firearm, such as artillery.  Before I explain more about gun trusts, it is important that you understand what a trust is generally.  A trust is simply a special type of agreement.  Trust agreements happen all the time—often when we don’t even realize it.  For example, a trust agreement would be established if I gave an orange to my friend Bob and asked him to give it to Charlie when he saw him and Bob agreed to do so.  Bob would be holding the orange for Charlie.  That is a trust, where I am the trust maker (often called grantor or settlor), Bob is the trustee (the person who holds the assets), and Charlie is the beneficiary (the person whom the assets are being held for).  Trust agreements can be verbal, though such verbal agreements should only be utilized for simple things, like giving an orange to someone.  After all, Bob could later claim the orange was a gift to him and it would be my word against his.  If the dispute is over an orange, it is not a big deal.  If the dispute is over a piece of real estate or a bank account, it is a problem.  To prevent such problems and to ensure the trust maker’s wishes are followed now and many years in the future, we use written trust agreements in the estate planning world.  An estate planning trust, usually referred to as a “living trust” or “revocable trust” is a convenient and effective way for one person to hold financial assets for the benefit of a third person or persons.  It is an ideal way to ensure that one’s family receives the money and personal possessions in the manner the trust maker wants at their death, all while avoiding the time and expense of probate.  For more information regarding probate and/or trusts generally, see articles written by my colleagues.[1]

A gun trust has similar goals as a standard estate planning trust: to protect your family, ensure your assets are divided how you would like at your death, and to avoid probate.  Despite these shared goals, a gun trust is very different from a standard estate planning trust and the two are not interchangeable.  A standard estate planning revocable trust, which I will call an “estate trust” in this article, is designed to hold financial assets such as real estate or bank accounts.  An estate trust should never be used to acquire or own NFA firearms.  A gun trust is a very special estate planning tool designed to address the unique concerns, laws, and regulations associated with gun ownership, especially firearms that are regulated under the National Firearms Act (“NFA”).[2]  Estate trusts are simply not designed for that purpose.

The NFA is administered by the Bureau of Alcohol, Tobacco, Firearms, and Explosives (“BATFE” or “ATF”) and includes the following types of weapons:[3]

• Machine Guns
• Short Barrel Rifles (SBR)
• Short Barrel Shotguns (SBS)
• Suppressors (Silencers)
• Destructive Devices
• Any Other Weapons (AOW)

This list ought to reinforce the notion that a gun trust is very, very different legal tool than an estate trust.  Nearly every provision in a properly drafted gun trust should address gun ownership in some way.  It is crucial that a gun trust be drafted by a knowledgeable attorney.  All too often, people put their faith in computer software or a low cost non-attorney online service to generate their NFA trust.  Saving a few hundred dollars by using such services is certainly appealing; however, such a decision may end up costing substantially more money in the long run.  The laws and regulations that control firearms, and in particular NFA firearms, are highly technical, often confusing, and can easily be violated by accident.  Ignorance of the law or good intention is not a defense.  Violations of the NFA carry extreme penalties: up to 10 years imprisonment, up to $10,000.00 in fines, confiscation of the weapons, and even confiscation of vehicles that NFA weapons were transported in.[4]  Plus, any willfull attempt to evade or defeat the taxes imposed by the NFA will subject the violator to an additional 5 years imprisonment and up to $500,000.00 in fines.[5]  Thus, total penalties for NFA violations are as long as 15 years in prison, as much as $510,000.00 in fines, plus confiscation.  Additionally, violators may face long and expensive legal battles in attempt to avoid the penalties.  On top of that, the violator faces the social stigma of the arrest and trial, and the massive hassle of a criminal prosecution that may drag on for years, even if the defendant ends up beating the charges.  That is an awful lot to risk to save a few hundred dollars by getting an inferior gun trust.

It is important to discuss the hyper sensitivity of this area of the law.  The terms “possession” and “transfer” are defined and interpreted very broadly by the BATFE and have the potential to lead unsuspecting individuals into hot water through inadvertent NFA violations.  The term “transfer” is defined as “selling, assigning, pledging, leasing, loaning, giving away, or otherwise disposing of” an NFA firearm.[6]  Notice that loaning an NFA weapon is considered a legal transfer.  It is illegal to receive or possess an NFA firearm that is not registered to you.[7]  You must have ATF approval prior to making any transfer.[8]  Make no mistake; it is possible that simply loaning your NFA gun to a friend to shoot while you both are at a shooting range could be illegal and subject you to the penalties mentioned above.  People have been prosecuted by law enforcement for illegal possession in similar scenarios before.  One man was prosecuted for illegal possession of an NFA weapon because he merely held a suppressor for a few minutes.[9] Another was prosecuted for grabbing a short-barreled shotgun to protect the life of another.[10]  Likewise, there have been numerous prosecutions when others merely knew of and had access to the NFA weapon, including those who reside under the same roof as the person to whom the firearm is registered (i.e. family members).[11]

The previous paragraph highlights the problems and risks associated with owning NFA weapons and NFA items.  This is particularly true when a person purchases an NFA weapon in their individual name—no one but the registered purchaser can possess or use the weapon without triggering an illegal transfer and subjecting both the user and gun owner to the penalties discussed above.  This is why gun trusts are the best way to acquire and possess NFA weapons.  A properly drafted gun trust permits you, your family, and your shooting buddies to legally possess and use the weapons.  It is important to recognize that estate trusts (such as LegalZoom[12] or Quicken Willmaker[13], or even attorney created estate trusts) do not permit shared usage, if they do, they often authorize illegal transfers.  Such trusts simply are not designed for guns, much less NFA weapons.  Additionally, it should be noted that not all gun trusts are created equally.  Some “gun trusts” don’t allow shared usage either, or may even authorize illegal transfers. Additionally, such trusts typically call for the “outright distribution” of the guns to your children (or other beneficiaries) after your death.  Outright distribution occurs when your personal representative (the person who is managing your affairs after your death) essentially says “here you go” and hands the weapon to your beneficiary.  Outright distribution is not illegal (assuming NFA rules are followed by properly transferring the weapon with ATF approval), but it creates a huge problem—now your children have the same problem you would have if you bought NFA weapons in your individual name—no one else can possess or use them without breaking the law.  Our custom-created gun trust, the AZ Advanced Gun Trust^TM, is designed to eliminate, or reduce, all of these problems.  It provides for shared usage of NFA weapons for your friends and family in your life and is a multi-generational dynasty trust that also protects your children and grandchildren so that they can also share, use, and possess the weapons.  This is the same trust that I use myself for my NFA weapons.

Acquiring and possessing NFA weapons is not something to be taken lightly, but someone who is interested in owning such weapons need not be frightened away either. Dealing with the onslaught of laws and regulations associated with NFA weapons can be overwhelming, and given the potential risks, rightfully so.  The key to protecting yourself is to make sure you obtain a well-drafted NFA gun trust by a knowledgeable gun trust attorney, like me, and then strictly follow the guidelines and procedures outlined in the trust.  If you are interested in obtaining your own AZ Advanced Gun Trust^TM, or simply have questions or need legal advice, please don’t hesitate to contact me at 480-344-4597.