NFA Gun Trust: Legality?

[bigfutz]

http://www.gearhog.com/ is advertising a deal for a NFA Gun Trust for $99, normally $199, from http://199trust.com/

I have heard of a trust, but don't understand the legality of it in the context of NFA purchases. I know we have some lawyers on here, as well as some NFA folks. Would anyone care to explain how this trust thing works? I know NFA violations come with some pretty strict federal penalties.

 

[armaborealis]

IANAL, but the advantages of the trust are:
1) No Chief LEO endorsement required. This is useful if your CLEO refuses to sign NFA paperwork.
2) The items are owned by the trust and thus can be used by any trustee. For example, you and your wife could both be trustees, allowing either of you to have access to the safe and bring the weapons to the range. Normally only the person on the form 4 can have access.

The downside is a little up front expense and perhaps complication if your state of residency changes.

ETA: There is nothing illegal about it in most states. In fact it pisses off the antigunners so much they are starting to bleat about the trust loophole.

 

[LiveFreeorDie]

IANAL = I Am Not A Lawyer?

Me neither, but I do have an NFA trust. Some of my best friends are attorneys (as are some of those I despise the most :evil: ) so think about the legal profession: they create "things" such as L.L.C.s, P.A.s, Wills and Trusts, etcetera, not to mention laws and then get paid to put people in them. Trusts are legally recognized "entities" wherein property can be placed, held, and ownership, both current and future can be assigned. armborealis stated it well in #1 and #2. There is nothing "hinky" or unlawful about them and in fact the BATFE recognizes them without an issue. On the application forms you indicate if this item is for an individual or a trust. Once you've paid an attorney to have the trust created you submit a copy of the trust along with Schedule A (the list of items owned by the trust) with your application instead of fingerprint cards and the other stuff. I actually like having a trust, especially for #2 above. Hope this helps.

 

[Tigerstripe]

im not a lawyer but i play one on TV.

im thinking i should have went the trust route.

there is the fee for the trust but if you think about it its going to cost more if i die and my wife has a bunch of NFA items in our safe, what will that cost, or will they be confiscated?

now to go that route i have the fee plus another $200 tax on each item to change it.

 

[HarperJt]

Tigerstrip. If you die then the items can be transferred to your heirs on a form 5 which is tax free, it?s probably not a bad idea to have a will.

Jeff

 

[rotarymike]

I am a lawyer, but the following advice is worth what you pay for it and does not create a lawyer-client relationship between me and anyone else reading it...

The benefit for a trust IMHO is protecting your family. If you as an individual own an NFA item and keep it in a safe, technically, if your spouse has the combo or the keys or even *knows where the keys are* she is in constructive possession of an unregistered NFA item (as in, not registered to her) and could face a felony charge with a 10 year sentence. This is true even if you pass away and she inherits them - still have to do the transfer, although the process is a little different for heirs than normal transferees. The BATFE is known for conducting 'sting' operations like this - there's even case law on the topic.

With a trust, you have one or more trustees, and a beneficiary. The trustee(s) have full access and control to any assets of the trust individually or in concert, ASSUMING it is otherwise legal for them to do so. The items are held for the benefit of the beneficiary. The beneficiary does not get control or possession of the items until certain listed events happen. So say you and your wife are trustees and your minor child is the beneficiary. You and your wife can possess and use the NFA items at will. Usually the trust is written so that the beneficiary gets control and possession at a certain trigger point - say 21 and no criminal record. With a properly written trust you can change or add trustees and beneficiaries at will - so you could add your son, now an adult, as a trustee, and change the beneficiary to your grandchild. And so on. You never have to pay another transfer fee unless you sell the NFA item, since the item is owned by the trust and never legally changes hands. There are some tax issues, but they are usually treated as capital gains and dealt with when the asset item is sold.

The best in the business in SC at least is a guy named Stephen Shaw. He literally wrote the book (SC Gun Law, ISBN 978-0-9817469-0-6) on South Carolina specific laws, including CWP. When I get requests for NFA trusts I use him - no need to reinvent a wheel that's been perfected over years of work and research. He charges $250, and I just act as a liaison (and don't add anything to that fee).

 

[Crunchy Frog]

James Anderson in Greenville also practices in this area.

 

[armaborealis]

If you plan on going the Trust route, I'd move ASAP.

The administration is planning on changing the rules regarding trusts. Their exact plans are unclear but it looks like...

- All trustees will need to be photographed, finger printed, and get an FBI background check. It is unclear how this will work if you add or remove someone from your trust. The whole point of the trust (or corporation) is to allow multiple people such as employees, family members, etc access to the item so it may be a ~12 month wait for ATF to process the change paperwork each time you want to make a change.
- It looks like they may require at least CLEO notification and maybe CLEO signoff with trusts and corporations now. This is a serious problem for people who have anti-gun CLEOs who refuse to sign. This is a Jim Crow-era provision intended to prevent minorities from getting access to certain types of firearms so I find it really ironic that the administration is pushing it on the anniversary of the March on Washington.

I just put in for a suppressor, and plan on doing a Form 1 for an SBR soon so I hope I can get in before the changes are made. I'm also writing my elected representatives and asking that they prohibit these changes from being made when NICS is up for reauthorization later this fall. If the administration wants NICS to continue to be funded, then I think the price should be keeping the NFA rules the same.

 

[melloyello]

So if I have a couple NFA items as an individual, I'd have to pay the $200 tax again if I want them in a NFA Trust?

 

[rotarymike]

Yes.

 

[Gamecock24]

Can anyone suggest some more lawyers to set up a trust? I saw some recommendations on silencershop.com but they are all out of state. I did a search for sc gun trust lawyers and came across these guys http://www.nosaljeterlaw.com/
I emailed them and they quoted me $600 to form the trust I thought that seemed high considering some of the out of state guys will do it for $200-300. If you have suggestions and can say what it cost please share.

 

[PapaBear]

The guy who wrote the law (that a previous poster was referring to):

Stephen Fulton Shaw, J.D., Ph. D.
Attorney at Law
27 S. Main Street, Travelers Rest, South Carolina 29690
(877)600-7429 SC Bar # 76811
P.O. Box 1241, Silver Springs, Florida 34489
(352)694-5245 FL Bar # 128661
www.shawlegalfirm.com
[email protected]




I just emailed him to get mine started. He does everything through email and you never have to visit his office.

 

[Paco]

Can anyone suggest some more lawyers to set up a trust? I saw some recommendations on silencershop.com but they are all out of state. I did a search for sc gun trust lawyers and came across these guys http://www.nosaljeterlaw.com/
I emailed them and they quoted me $600 to form the trust I thought that seemed high considering some of the out of state guys will do it for $200-300. If you have suggestions and can say what it cost please share.

Talk to Robert Merting - http://rkmerting.com/
He's around $200 for a proper NFA trust. He works with these shops: http://rkmerting.com/south-carolina-gun-shops/ but you should be able to just contact him directly.
(He did mine)

 

[RK3369]

So, as with other trusts, are these trusts required to file an annual tax return and pay any applicable trust taxes? Or are they specifically exempted from trust taxes because they typically would just be a holding "entity" for the ownership of class II firearms, on which all applicable taxes had been paid? I'm curious because that could add an additional annual cost to maintaining the trust, especially if you had to pay someone to prepare the applicable trust tax returns.

Sorry, should have looked at the regs first. Apparently no return is required if there is no trust taxable income, or gross trust income is below $600, or there is no foreign beneficiary, otherwise an annual trust return would be required. So, I guess it's a matter of keeping any income earning assets out of the trust so as not to generate any trust income, then no tax returns are required, however if a weapon were sold, then there could possibly be an income tax return required if the sale or total sales for the year exceeded $600 in gross income.

 

[Tigerstripe]

if you buy a machine gun for $15000 and 10 years later sell it for $25000 how are they going to know you made a profit?

if you have to put a value on it for the trust make it $50000.

 

[RK3369]

They likely will never know however, you are required to report any income and pay the tax, same as your personal 1040, so if somehow they do happen to figure out that you made a profit on it and didn't report it, you'll get whacked for failure to file and failure to pay penalties, plus interest. Let's say your personal return gets audited and you deposited the 50K into your bank account. The IRS auditor asks you where the 50K came from, you say, I sold a gun, he says what did it cost, you say 25K,, he says you have a 25k taxable gain that's not on your 1040. You say it's from a trust, he says where's the trust return?

Just playing devils advocate. It's not likely to happen but it is a potential problem with having another return to file under the correct circumstances. And no, I don't work for the IRS.

 

[Tigerstripe]

yeah, ill never sell mine. if i go first my wife gets it then my son.

people do things like not reporting income all the time when selling cars.

 

[rotarymike]

With NFA guns being so tightly regulated, and valuable, if you don't play by the rules the IRS will hammer you. And since a trust legally has to file returns when there is a profit, if it does not then the BATFE could declare the trust invalid, and you'd be in possession of an unregistered NFA item and so on down that rabbit hole.

It's pretty simple in reality. When you buy an NFA item, purchase price (and I include all expenses in that, including the stamp, shipping, transfer fees, hell cleaning kit and gun case) is your basis price. When you sell that NFA item, the sales price minus costs (shipping that you pay, any transfer fees, etc) is your new value. New value - basis is your profit. File a return for the trust on that amount - and remember, it is a capital gain so taxed at %15 not like income taxes.

Of course, if you document repairs and maintenance throughout your possession of the NFA item, those can go against the basis, minimizing the difference.

My point is - if you can afford a $12000 M-16, you can afford the $450 in taxes when it sells for $15000 a few years later. Don't ignore the rules, or it can really, *really* bite you in the ass.

 

[RK3369]

yeah, ill never sell mine. if i go first my wife gets it then my son.

people do things like not reporting income all the time when selling cars.

Yes, but most people selling cars do not make a profit on the sale of the car. You buy a new car for $20K, 10 years later you sell it for 2K, you have a loss. You can not deduct personal losses, with some exceptions for capital loss items, but even then the loss deductions are limited so there's really no benefit to trying to deduct a personal loss on your 1040, which is why most people don't report them. There's no IRS reg saying you have to report a loss, but there are plenty of regs saying you have to report taxable income.

What Mike says is correct. If an agent gets hold of you and wants to make an example out of you, and believe me they do it intentionally for the "shock" value that it imparts to everybody, they are going to run you through the grinder. Best not to fool around with it and if you do keep track of your costs, you will be surprised that you aren't really making as much on it as you thought.

Remember how they've been hammering Willie Nelson for years? That's all to keep the rest of us in line.

I would expect, since these NFA trusts appear to be relatively new inventions, that the IRS will eventually get around to focusing some audit effort on them, then when they do get hold of some violations, they will make the lives of the poor individuals involved so difficult that they will wish they never heard of the word "trust". It's just the way they work, and they do it on purpose to intimidate the rest of us. They don't have anywhere near enough resources to audit every return filed every year, so they find the "high risk" returns, focus on them, find the problems or potential violations of law, press those home, and make the lives of the taxpayers involved a living hell. All with the goal of making the rest of us think twice about violating the regs. Kind of like speed limits, we all violate them but only the driver that gets caught in a radar trap is the one that has to pay the fines. If you know there's a radar trap up the road, you slow down. Same with tax returns. I'm just recommending file the returns when you have a taxable gain. It would appear to be a high exposure area with the subject matter that is owned by the trust, so everybody will be looking closely at it. I m not a lawyer but I am a CPA licensed both in SC and in NY. If I owned any of the Class 2 weapons, I would probably go the trust route also but I'd file the necessary federal and state returns when required. just my $.02.

 

[RK3369]

if you buy a machine gun for $15000 and 10 years later sell it for $25000 how are they going to know you made a profit?

if you have to put a value on it for the trust make it $50000.

The IRS is already way ahead of you on that one too. Generally, the basis of an asset given to the trust is the same as it's basis in the hands of the donor so, you would have to be able to prove that you actually originally paid the $50K for it for that basis to be allowed. If the asset were acquired by you as part of an estate, the basis to you at the time it was acquired is the fair market value at the date of death (or 6 months later as an option) of the decedent, so if it was worth $50K when you acquired it, that would be your basis and that basis would pass to the trust, but it you purchased it outright, your basis (and also the trust's basis) in the property is what you actually paid for it, plus any additions or improvements you made, less any depreciation you claimed in past years on the asset. In other words, you have to be able to prove what the cost of the trust item was originally, so it is necessary to maintain records of the actual purchase cost and improvements you've made to the items involved. This would be particularly important to have if there ever were an audit.

And to further complicate things, if you "give" or "donate' something to another individual (including a trust, which is another "entity") you, the donor, are technically responsible to pay any related gift tax on the gift. As a practical matter, it would probably fall under the current lifetime exclusion limits for having to file a return however, it is another consideration and another potential tax liability associated with "donating" assets to someone else, including a trust.

I'm just trying to point out some of the other issues concerned with this. Too often people get into things and don't appreciate all the potential back end issues involved. I'd probably do it myself if I were in that situation, just be aware that there may be other things to deal with down the road. Most important, keep good records of purchases and other expenses.