(This article originally appeared at ryancleckner.com and is reprinted here with permission.)
By Ryan M. Cleckner
The number one question I have been asked all week is, “Should I use an NFA trust?” People interested in silencers, short barreled rifles, short barreled shotguns, machine-guns, or “any other weapons” usually consider whether they should use an NFA trust or purchase (or make) the NFA firearm as an individual. This has always been a common topic of inquiry but lately, with the announcement of ATF’s new rules for NFA trusts, everyone seems to be trying to determine if the benefits of an NFA trust are right for them now that the rules are changing . . .
Previously, in order for an individual (not an FFL) to manufacture an NFA firearm on an ATF Form 1 (Form 5320.1) or to purchase an NFA firearm on an ATF Form 4 (Form 5320.4), there were certain paperwork hurdles to cross imposed by Federal Firearms Regulations in 27 CFR 479.85. Namely, the individual needed to fill out the appropriate ATF Form, obtain approval from their Chief Law Enforcement Officer (CLEO), and submit fingerprint cards and passport photographs along with their application to the ATF. Once the application was approved, only that individual was permitted to possess the NFA firearm.
These requirements prevented some individuals from otherwise lawfully possessing an NFA firearm and they proved burdensome for others. In a few states, it is unlawful to possess an NFA firearm. In the majority of states, however, it is currently perfectly legal for a citizen to possess a silencer (suppressor), machine gun (made before 1986), short barreled rifle, short barreled shotgun, or an “any other weapon” as long as the federal requirements were met. Even in states where NFA firearms are lawful to possess, however, some CLEOs refused to approve and sign ATF Form 4s or Form 1s for residents in their jurisdiction. In effect, this was a one-person ban on certain firearms contrary to the democratically enacted law. Of those who were able to obtain a CLEO approval, some people felt that the fingerprint and photograph requirements were too burdensome and others didn’t like the fact that even their own spouse could not have access to their NFA firearms.
Current NFA Trusts (current/past)
Enter the NFA trust. Currently, NFA Trusts have three main benefits:
No Chief Law Enforcement Officer (CLEO) approval
No fingerprints or photographs required
Sharing among “members” of the trust
Through its regulations, the ATF allows only “persons” to lawfully posses NFA firearms. As with many (most?) legal issues, it all comes down to the definitions. For example, if you didn’t look up the definition of “persons” in the regulations, you might think that only individual human beings could possess NFA firearms. In fact, the federal firearm regulations in 27 CFR 479.11 define “person” as:
“Person. A partnership, company, association, trust, estate, or corporation, as well as a natural person [(human being)]”
This means that entities/organizations such as corporations and trusts may also lawfully possess NFA firearms. The most popular of these non-human entities used for possessing NFA firearms is the trust. Interestingly, the fingerprint, photograph, and CLEO approval requirements imposed by 27 CFR 479.85 only apply to individual human beings and not NFA trusts. Therefore, individuals who were unable to obtain a CLEO approval or who didn’t want to deal with the fingerprint and photograph requirements would usually use an NFA trust to possess the NFA firearm.
Another benefit of the NFA trusts the ability for more than one individual to lawfully possess the same NFA firearm. When the trust is the lawful possessor of an NFA firearm, then any individual who is the settlor or a trustee of that trust may lawfully possess that NFA firearm. This means that if a group of individuals (family and/or friends) are part of a trust, then they all can share and have access to NFA firearms owned by the trust.
This shared access also had a benefit for estate planning. If an individual NFA firearm owner passes away, the NFA firearms mis the properly transferred to their heirs/assigns. Fortunately, there is a tax-free mechanism for this but a transfer must occur none-the-less. If the heirs/assigns are part of the trust, then there is no transfer to take place. The firearms still remain transferred to the trust and the “members” of the trust still have access to them.
The biggest downside to a trust was the upfront complication and cost. Properly establishing a trust can be complicated and expensive. Many attorneys started selling “NFA Trusts” to help individual enjoy the benefits of using a trust. If the rules aren’t followed carefully, a law-abiding citizens could find themselves on the wrong-side of the law because of a clerical error or a mishandled trust. Because of this, I never recommend using a trust that was not drafted by an attorney who understands firearm laws. Unfortunately, this also adds cost to an already expensive hobby.
Another downside to NFA trusts is one of their intended benefits – estate planning. For example, if you have a lot of money invested in NFA firearms that are held in a trust with you and your friends, then your family will not be able to inherit the NFA firearms because they weren’t yours – they belonged to the trust. Even if some family members are part of the trust, the other family members won’t have access to the NFA firearms and your family may have a more difficult time selling the firearms if they need the money because they don’t own the firearms – the trust does.
Even with all of the benefits of an NFA Trust, however, I didn’t always recommend them to most people. Of course, if you couldn’t get a CLEO approval, you had no choice but to use a trust. But, for everyone else, I would explain the merits of using a trust and also the costs and upfront complications and let them decide. I wasn’t against using a trust but I definitely didn’t think that they were the best solution for everybody. For example, many of the people who asked my opinion on the matter already had NFA firearms registered to them individually. This meant that if they were to use an NFA trust for future NFA firearms, they still would be required to properly segregate their individually registered NFA firearms so that their family members did not have access to them. If they wanted to bring their current NFA items into their new trust, then it would be new transfer process, and tax, for each item.
Future NFA Trusts (after the new rules take effect)
ATF’s new rules for NFA trusts significantly change the benefits of an NFA trust. If you were previously “on the fence” about whether to use an NFA trust, these new rules are likely to push you to the non-trust side. Of the previous three benefits of using an NFA trust, only one remains:
No Chief Law Enforcement Officer (CLEO) approval
No fingerprints or photographs required
Sharing among “members” of the trust
Also, there are some changes concerning the passing-down of NFA firearms to your heirs.
CLEO Approval Change – The benefit of not needing CLEO approval is now gone because nobody will need a CLEO approval under the new rules. Instead, every individual and every “responsible person” of a trust will only send paperwork to their respective CLEOs as notification – approval is not required.
Fingerprint/Photograph Change – The benefit of no fingerprint cards and no photographs for “members” of a trust is now gone because all “responsible persons” must submit fingerprint cards and photographs to their respective CLEO as notification and to the ATF for approval.
As I explain in my article, “Who is a “Responsible Person” on an NFA Trust?,”I believe that every person who may lawfully possess an NFA firearm in the trust is a “responsible person” and therefore must comply with the new fingerprint, photograph, and CLEO notification requirements. It is a matter of debate, however, whether every lawful possessor is a “responsible person” or whether it is only those who manage and control the trust.
A strict reading of the language published by the ATF will lead a reasonable person to conclude that the latter is true – only those who manage and control the trust must comply. However, the language published by the ATF is only part of their “executive summary” explaining their intent and is not the actual regulation. The ATF’s stated intent (in prior meetings with them) is to prevent an individual from avoiding the fingerprint and photograph requirements (and therefore the subsequent background check) by hiding as a trustee/possessor on an NFA trust.
Passing-down NFA Firearm to Heirs Change – The new rules make it easier for an individual to pass NFA firearms down to their heirs/assigns.
So, Should you Use an NFA Trust?
If your only purpose for getting/using an NFA trust was to avoid the CLEO requirement, then you no longer have a reason to use an NFA trust.
If your only purpose for getting/using an NFA trust was to avoid submitting fingerprints and photographs, then you no longer have a reason to use an NFA trust. Even if the new requirements only apply to the manager of the trust, if you are the one considering getting a trust, then the new requirements will surely apply to you.
If your only purpose for getting/using an NFA trust was for estate planning purposes so that your family would have your NFA firearms, you no longer have a reason to use an NFA trust.
If, however, your motivation to get/use an NFA trust was because of the ability to share possession of NFA firearms with those individuals in your trust, then it still may be a good option for you. It is definitely nice to be able to allow a trusted friend access to use and borrow an NFA firearm. It is also nice to not have to segregate the NFA firearms from your spouse – guys, do you feel like have a conversation with your wife about how she’s not allowed access to your “special safe?”
If you are going to use a trust to share possession, please be careful with interstate movement of NFA firearms. You must ensure that the NFA firearm is legal in every state you will travel through/to. And. you may need to get government approval before you travel or ship the NFA firearm. For example short barreled rifles require approval from the ATF before crossing state lines. Silencers, however, may cross state lines for limited purpose without prior approval (although it’s still a good idea to get it).
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