By David Goldman
A significant number of clients over the years have asked us about National Firearms Act (NFA) trusts. We collaborate with attorneys like David Goldman and others across the United States to do one thing for our firearms clients which is vitally important, and that is to ensure that an NFA trust is not formed in the absence of considering other estate planning needs. I strongly believe that a client is misserved if they are not properly advised as to how an estate planning tool, such as a trust, for a specific dedicated purpose, fits into their overall estate and wealth planning needs. Accordingly, the practice of our firm is that we gladly work with estate lawyers in helping them to properly perform advanced and more complex firearms trusts and inheritance disposition planning for our clients. In general, the objective is to ensure that family members are not adversely affected by mistakes in estate planning driven simply by the desire to avoid the problems some NFA owners face, such as in jurisdictions where chief law enforcement officers refuse to review and complete their section of an ATF Form 4. Therefore, this month’s column, which is guest authored by attorney David Goldman, who is also a consulting counsel to FFL Guard, is devoted to the discussion of advanced estate planning tools that may be useful to the firearms community.
- our Firearms Attorney
The topic of estate planning is not usually met with joyous optimism. It conjures thoughts of the after life, financial planning, and lots of paperwork. For these reasons, people often avoid the estate planning process altogether. No bigger mistake can be made, as the ease of creating estate planning documents and the protection they can afford are unparalleled. With the help of a Gun Trust and Estate Planning attorney, the options are endless when it comes to protecting your firearms. Traditional estate planning can be problematic when dealing with firearms, because the documents used to manage your bank accounts often instruct people to violate laws when applied to the transfer, possession, and use of firearms. A Gun Trust is an estate planning document that has been designed to help you acquire, manage, use, and transfer firearms including those restricted by the NFA while protecting your family and friends from inadvertent violations of state and federal laws. The word “trust” may sound familiar, but just how does a trust actually work?
Imagine you’re a young child, traveling around the neighborhood with your Radio Flyer wagon. You are in control of the wagon, you decided what goes in and comes out of it, and as time goes on, the wagon is filled to the brim with your important possessions. You pull the handle; you decide where the wagon goes and what to do with the items that are inside. If you stumble or something happens that causes you to drop the handle, your wagon keeps all of your possessions safe. With a trust, like your wagon, all of your items are protected if you are injured or cannot direct the wagon yourself. If someone else needs to take over and help you, they will know what to do with the wagon because the rules of the trust are clear; all they need to do is pick up the handle and continue. The way we ensure this happens is by memorializing your rules and desires in a trust agreement between you and friends or family members. It was only 5 years ago that my office realized that the traditional trust used by thousands of estate planning lawyers created many potential problems when they were used to hold and distribute firearms. While some trusts could hold firearms, all of the other trusts I examined were problematic because they basically instructed people to break the law upon the death of the creator. I was born in Texas where guns are commonplace and part of the culture. Once the problems were recognized, I set out to create a more complete Gun Trust as well as the website GunTrustLawyer.com. Over the last 5 years I have continued to improve the Gun Trust and I have recently created a gun trust for larger firearms collections that provides asset protection.
State and Federal law define who and how individuals, business entities, and trusts can purchase, possess, use and transfer firearms. In addition to the legal requirements, there are moral and ethical issues that gun owners consider before giving someone a firearm. A Gun Trust allows you to instruct others on how to evaluate the relevant factors such as the geographic location of the firearms, the location of the beneficiary, the legal status of the beneficiary, and the maturity and responsibility of the beneficiary before giving your guns to someone who may not be appropriate. Unfortunately the decision of the appropriateness of the beneficiary is made after your death and without your personal oversight. It is for this reason that a Gun Trust must consider your desires and objective and not place your family and friends at risk of breaking the law when they follow your instructions.
The National Firearms Act of 1934 (NFA) has additional restrictions and legal requirements regarding the sale, use, possession and transfer of machine guns, short-barreled shotguns and rifles, silencers, destructive devices and any other weapons (AOWs). Most states allow individuals, business entities, and trusts to own some or all of these firearms. Before a dealer may transfer NFA firearms to a consumer, the Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE or ATF) requires payment of a $200 tax stamp along with an application to obtain a NFA firearm from another individual or dealer (transfer of AOWs only requires a $5 tax stamp). Trusts and businesses are often used because, unlike individuals, they are not required to obtain permission from their local Chief Law Enforcement Officer (CLEO), or to submit fingerprints and photographs. Many CLEOs refuse to sign off on these applications regardless of who is asking for the permission to purchase or make NFA firearms.
While expediting the application process was one of the original motivating factors in the creation of the Gun Trust, it became apparent that other benefits far outweighed the privacy and signature concerns that prompted its original development. The Gun Trust was the birth of a comprehensive, pragmatic solution to the issues that arise when placing firearms in a traditional trust or in no trust at all. In the past, Gun Trusts did not protect the firearms from the claims of creditors, but that has recently changed with the new Asset Protection Gun Trust.
Unlike other Irrevocable Trusts, the Asset Protection Gun Trust is treated as a disregarded entity for estate and income tax purposes so there are no adverse tax consequences for those who are not subject to estate taxes (99.7% of the US Population). This means that you do not have to pay the increased income tax rates that are typically incurred by irrevocable trusts nor do you lose the stepped up basis that is also lost with a traditional irrevocable trust.
Imagine a trust where you get to buy and sell your firearms, manage them, choose and change who can use them, that has no adverse income tax or estate tax problems, and protects the assets (your firearms) from those who may become your creditors in the future. This includes liability from professional negligence, car accidents, lawsuits, investor suits, bankruptcy, and can even be structured to protect from loss due to a divorce or the need for government health care assistance like an organ transplant or nursing home coverage. Now imagine being able to protect your families’ firearms for hundreds of years. That’s right; by choosing the jurisdiction of the trust properly, you can protect the firearms and keep the firearms from requiring a transfer (including additional tax stamps) for generation after generation.
The Asset Protection Gun Trust is not designed for the person who is already in trouble and trying to avoid liability to a known creditor as it is still subject to claims for fraudulent transfer or fraudulent conversion. The Asset Protection Gun Trust is designed to protect legitimate concerns of both the grantor and beneficiaries such as bankruptcy, creditor claims, divorce, and Medicaid issues. With a traditional Gun Trust or a revocable trust that held firearms, an individual in bankruptcy would generally lose their firearms or have to repurchase them from the trustee at fair market value. Creditors would be likewise unable to access the trust items either.
What about Bankruptcy or other Creditors?
Recently so-called Domestic Asset Protection Trusts (DAPTs) have been failing in bankruptcy courts because they create an interest in the principal or interest of the trust that is protected by statute. Bankruptcy courts around the United States have been piercing these trusts because of the 2005 Bankruptcy Reform Act that provides for a 10-year look back on certain trusts like the DAPT. Instead of relying on new unproven statutes, the Asset Protection Gun Trust is based on common law trust and property principals that have been around for over 500 years. Basically, you risk what you have an interest in. Since this trust lets you manage, buy, and sell the firearms, but does not give you a right to the income or principal of the trust, your creditors do not have a right to the assets of the trust.
What about Your Beneficiaries’ Creditors?
The Asset Protection Gun Trust can even provide protection from the creditors of your beneficiaries including future ex-spouses.
What about Divorce?
A properly drafted Gun Trust can help protect your firearms from loss due to a divorce. Structuring the proper agreement to protect from divorce is a state specific issue and may require the execution of additional documents by the spouse. The Asset Protection Gun Trust can be designed to help protect from losses through a future divorce. This can be accomplished by a waiver of rights or by maintaining separate property that is not subject to division under the terms of a divorce.
What about Nursing Home Coverage or other Medicaid Benefits?
An Asset Protection Gun Trust, if timely done, can help firearms owners not lose their firearms collection in order to be able to qualify for Medicaid benefits. Whether your need involves an organ transplant or nursing home coverage, the Asset Protection Gun Trust can remove the value of the assets from the analysis. In as little as 60 months, your firearms could essentially be treated as an exempt asset.
Are There Other Benefits to a Gun Trust?
Asset Protection Gun Trusts are modeled off what is called an Irrevocable Pure Grantor Trust. Using this trust model provides protection of assets both for the grantor and beneficiaries while taxing only the trust grantor. This means more for your beneficiaries when it comes time to distribute the trust assets. Also, assets to this kind of trust receive what is called a stepped up basis. This means that when the beneficiary receives the trust assets, their basis is the fair market value on the day of your death rather than the cost of the asset the day it was purchased. For example, if you buy a gun worth $3,500 and then put it into a Gun Trust and you pass away when the gun has appreciated to $20,000 value, your beneficiaries would receive the asset at the stepped up basis and not be taxed on the jump in value. This trust instrument is rooted in traditional estate planning rules, backed by history and case law, and does not rely on statutory law that is subject to later change or interpretation.
As mentioned previously, there are moral and ethical considerations necessary when naming beneficiaries and when actually transferring a weapon to that beneficiary. Federal law defines certain groups of people who are unable to possess or receive a firearm. Those include convicted felons, individuals adjudicated mentally defective or committed to a mental institution, those convicted of misdemeanor domestic violence offenses, users of illegal drugs, dishonorably discharged veterans and individuals who have renounced their U.S. citizenship. But, it is the trust’s grantor who has the ultimate ability to create additional requirements to take possession that the trustee must consider before giving a firearm to a beneficiary.
Turning to legal self-help resources is not a recommended way to secure a Gun Trust. Doing so could result in a poorly drafted document which risks violating federal regulations in its instructions. Gun Trusts are fine-tuned instruments developed specifically with your trust property and beneficiaries in mind. It’s necessary that Gun Trusts differ from the one-size-fits-all formula of traditional estate planning to get that red-wagon-type protection and security. Contacting a Gun Trust Lawyer® (at GunTrustLawyer.com), your own estate planning counsel, or a recommended estate planning lawyer, in your area is the first step to receiving a comprehensive asset protection plan tailored specifically to your NFA or conventional firearms needs. If you need help finding a Gun Trust Lawyer® in your area, visit GunTrustLawyer.com.
David Goldman is a graduate of the Florida Coastal School of Law and has been admitted to the Florida Bar. Mr. Goldman has 20 years of business experience. Mr. Goldman formed the Apple Law Firm PLLC in the 2006. Mr. Goldman is the author of the FloridaEstatePlanningLawyerBlog.com and GunTrustLawyer.com.
This article first appeared in Small Arms Review SAW (July 2012) |
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