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Old June 17, 2013, 04:12 PM   #1
Bartholomew Roberts
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The Difference Between Generic Gun Trusts and Lawyer-Drafted Gun Trusts

Introduction

Bartholomew Roberts is a pseudonym for a Texas-licensed attorney who has drafted gun trusts, is a member of the Texas State Bar Real Estate, Probate and Trust Law Section, and who has taken David Goldman's "Gun Trust" CLE through the ABA.

Often, in reading Internet discussions of whether someone should use an attorney-drafted trust or a "generic trust" from a legal form service such as Quicken, LegalZoom, etc., I see groups of people who don't know what they don't know. One day, I got tired of addressing common misconceptions one at a time and decided to write this short article in hopes of helping non-professionals understand the differences between a generic form trust used for a gun trust and an attorney drafted gun trust. This will, I hope, give you some idea about what a gun trust is and some things to think about if you decide you might want to set one up. But this is not intended to tell you in detail how to go about it and it is no substitute for a professional consultation with an attorney.

What is a Trust?

First, let’s discuss what a trust is. Most commonly, a trust is a device to hold property for the future use of other people. In the distant past, when people died and their children were not yet of age to manage land or other expensive property, the property would be placed in a trust. The trustee was the person who managed the property for the benefit of the children, who are called the beneficiaries. The key features of a trust are that it involves a future interest and it distributes control and use of the property to more than one person. Additionally, in many states, the trust must have a set lifespan and will one day have to terminate and distribute its property.

Over time this idea was extended more broadly so that people could give property to trusts while still alive (living trusts) and even revoke the trust and retake possession of the property (revocable trusts). Trusts, however, are a creation of state law and what powers they may have depends entirely on your state law. Accordingly, the issues discussed here are only discussed in a broad, general sense to help you become better informed. Once again, this post is no substitute for consultation with a lawyer or attorney specialized in Trust Law in your state.

So what is a Gun Trust?

Many people become interested in Gun Trusts because they wish to own NFA firearms and in many restrictive areas, a Gun Trust can make this easier. There are two common reasons people use NFA Trusts. Sometimes, the Chief Law Enforcement Officer will not fulfill his obligation to sign the Form indicating that possession of NFA weapons is not illegal in your area – even if this is well understood by the courts, the legal system and ATF. Without this signature, the ATF will not process your request. However, this requirement is not necessary for a corporation or trust. A second common reason is that possession of an NFA weapon not registered to you is a serious felony crime with strict penalties. This means even your close family may not use or even have access to your NFA firearms without your direct supervision. Rather than create a situation where your wife or children can easily become felons, many families choose to use a Gun Trust since this allows for possession of the firearm by more than one person.

However, Gun Trusts have more uses than just NFA firearms. If you live in a restrictive state that is about to adopt prohibitions on the transfers of magazines or non-NFA firearms, a Gun Trust may be an excellent vehicle for making sure your children can enjoy the same rights you enjoyed when they come of age.

Three Common Ways Used to Draft Gun Trusts

Once people become interested in Gun Trusts, they soon discover some very different approaches to having one done. The first approach is to “borrow” a form from the Internet and change the names and wording as necessary. This is usually the least desirable approach; but the cheapest in terms of initial cost ($0). Much like you can be your own plumber or electrician, you can be your own lawyer as well. Except instead of 3” of water on your kitchen floor, the problems in a poorly drafted trust may not show up for years and can range from minor inconvenience, to major legal expense, to criminal charges and prison.

The second approach is to use a “generic trust” generated by Quicken, Legal Zoom, or similar software. Occasionally, gun stores will even hand out these blank forms for their customers to fill out. The trusts will have standard language with blanks for the user to fill in according to their needs. These trusts will be very simple, very broadly drafted documents that don’t address many common issues in NFA trusts. However, as long as you fill them out correctly, the ATF will usually approve the form. For example, one common error in drafting by non-professionals is to make the Grantor (also called a Settlor), the Trustee and the Beneficiary all the same person. Remember, a trust involves property interests among more than one person. Such a trust will be found invalid, even when using an otherwise valid form trust. Attached to this post is an example of a generic form "gun" trust that was posted on the Internet.

According to the poster, the trust was being handed out by a Texas gun shop to people interested in NFA firearms. This raises an additional issue for FFLs to be aware of – while a person can be their own plumber or surgeon, if you provide that same service to someone, you are required to be licensed in most states. Lawyers are no different in that regard. This generic trust has a modified Schedule A to make it more suitable for guns (ironically, it not only creates problems for the user as I’ll describe later; but if the gun shop did that modification, it could open them up to being sued for the unlicensed practice of law.)

Using a generic form trust as a Gun Trust has two major advantages – the initial cost is minimal ($30-50) and the chances of your form being approved by the ATF are very high. So if your major concern is to get your NFA toys into your hot little hands as cheaply and quickly as possible, this approach has a lot of appeal.

The final approach is to have a lawyer who specializes in trust law, or better yet, Gun Trusts specifically, draft a trust that specifically meets your needs. Ideally, a lawyer will talk to you about your needs and determine what approach works best for you. Because he does this for a living, he likely has an already drafted form or forms that are very close to what you want that he will modify as necessary. While many people don’t understand the difference between this and filling out a blank Quicken form, there are significant differences and I’ve found clients appreciate you not billing them several days work to recreate the form from scratch.

Additionally, a lawyer should not only draft a custom Gun Trust suitable to his clients needs; he should advise them on NFA law and how to avoid common pitfalls in NFA ownership. He should show you the kind of proper documentation he needs to defend you in court if you do have a problem somewhere. And he should help familiarize you with the tax consequences of trusts. As an added bonus, lawyers can be very handy in navigating establishing a bank account for your trust. You may have read recently that several banks have refused to do business with gun businesses. According to David Goldman, a Florida lawyer practicing in this area, this practice has also been extended to Gun Trusts by some banks.

The downside is that this approach, while very thorough, also has the highest initial cost ($150-600). While I described what I think is ideal and responsible, you should keep in mind that lawyers are businesses who have loans and expenses to pay. As you get lower in prices, you may not see the same level of service I described here simply because it isn’t economically feasible.

Quick Checklist - Will a generic trust be a good fit for my needs?
So which approach best fits your needs? To be honest, the generic form trusts can be a great solution for many people and it would be a mistake to discount them. I’ve created a short checklist to determine whether one of the generic form trusts would be a good fit for you:
1. Are you single?
2. Are you primarily interested in a suppressor or NFA item with a relatively low value and no plans to expand?
3. Do you trust every single person named in your trust in any capacity 100%? Not just trust them with your life; but trust them with your money and your hypothetical wife as well? Trust them for the rest of your life?
4. Are you going to be mentally OK with having the same people you trusted take every single thing you put in the trust and selling it for their own benefit/destroying it/taking it? Would you still consider that a good deal compared to the initial cost of an attorney?
5. Is your primary interest just to own an NFA item (not to deal with magazines or non-NFA items) and you don’t really care what happens with it after you die or whether it creates problems for those who handle your estate?

If you answered “YES!” to all of those questions, then you are probably a good fit for a generic form trust. Now using a generic trust doesn’t mean all of those things WILL happen. It just means that the generic trust doesn’t address a lot of commonly seen issues. If your trust is full of trustworthy people with good relationships with each other, even a poorly drafted trust will handle most problems because the people involved are trying to resolve their issues with goodwill.

Examining the Generic Trust as a Gun Trust - First Problem

Now let’s examine the generic trust to see how well it works as a Gun Trust. Since this form is drafted to Texas law and I am a Texas lawyer (but not your lawyer), we will be looking at it specific to Texas. Some of these points may not apply if you do not live in Texas and as always, this is a poor, poor substitute for an actual face-to-face with a conversation with a lawyer. The first thing you’ll notice is that the generic trust isn’t a gun trust at all. It is a generic form trust that has a different schedule A to list firearms on it. However, in attempting to give this generic form trust a “gun trust” flavor, the drafter actually created a minor problem. Under NFA law, your trust may not take possession of a firearm until your form is approved. Unless you already own the NFA item in question as a private individual, you have no authority to transfer it to the Trust. If you live in an area where the CLEO signature cannot be obtained, it will have to be transferred from the FFL to the Trust directly. So the Schedule A will not be helpful in that circumstance. It probably won’t be harmful either; but if you were foolish enough to list your new intended purchase on the Schedule A, it can raise questions as to who the actual owner of the item was at the time of transfer and ambiguity about who is the legal owner of an NFA weapon is rarely helpful. The gun trusts that I have drafted actually use a very similar Schedule A. The difference is that when you fill out a gun trust I drafted, I am there to advise you how to fill it out correctly. With any generic form trust, you take that responsibility on yourself.

Common Problem #1 in Generic Trusts used as Gun Trusts

Let’s discuss a common situation with Gun Trusts. You have a family and you want to own NFA items. You love your wife and do not want her to go to prison because while you were at the range the police came by to check on a burglar alarm and discovered your short-barreled rifle registered in only your name; but that your wife had access to because you gave her the combination to the safe so she could use your handgun if necessary. So you use our generic form trust and you list your wife’s name as Trustee so she will be able to have LEGAL access to your short-barreled rifle (which she probably shoots well because it is light and the suppressor makes it quiet ). Texas is a community property state. Was it your intention in creating this trust to make even your separate property into community property? Did your wife join you in executing the trust? The generic form trust we are looking at is unclear on the intent of the Grantor as well as giving a non-professional any clue that it might or might not be necessary for the wife to join in the execution of the trust.

And what happens if one day divorce hits our happy hypothetical family? As written, the generic form trust says that “If, in the judgment of the Trustee, the Grantor becomes incapacitated by reason of legal incapacity or other infirmity, Trustee shall have full authority…” That seems like a remarkably broad grant of power doesn’t it? The same Trustee who has full authority to manage all the trust property also has the authority to declare you incapacitated and continue to manage the property. Additionally, the generic form trust goes on to say that the Trustee must be given 30 days notice before removal by the Grantor and that the Grantor is powerless to modify or alter the powers of the Trustee without the consent of the Trustee. Between this and the generic reference to the Texas Trust Act powers, anyone named as a Trustee has the power to find the Grantor incapacitated based only on their own judgment, as well as the power to sell Trust property, take loans against it, etc.

Even if it is obvious that there is a conflict between the Trustee and the Grantor, the Grantor cannot remove the Trustee without 30 days notice or restrict the powers of the Trustee without their consent. How long would it take for a registered M16 lower to sell for say $200? Less than 30 days? Will a court be willing to invalidate a sale to a third party when the Trustee clearly had those powers under the terms of the trust? Those can be expensive questions to resolve through the court system. And that broad grant of power with little ability to revoke it may be a problem in a contentious divorce.

And even if you can revoke the trust successfully - what are you going to do with the NFA items? If you revoke the trust, they will have to be transferred to the individuals who established the trust. Assuming that divorce isn't already complicating that issue, one of the common reasons for an NFA trust is that the CLEO will not sign off on the proper form. If the ATF will not approve the transfer to the individual or individuals, then being able to revoke the trust isn't a very helpful means of resolving any problems caused by the drafting of your trust.

Other Common Problems Not Addressed by This Generic Trust - A Short Rundown

These are just a few examples of commonly occurring problem with generic trusts that this trust doesn’t really address well. There are others :
1. This trust has no provisions for what happens if a Grantor, Trustee or Beneficiary becomes a prohibited person.
2. It has no provisions dealing with tax issues raised by gifting NFA items to a trust (more important in transferable machineguns or items with a value of greater than $10,000 in a single year)
3. This trust terminates on the death of the Grantor. What happens if your beneficiary is a minor child unable to possess such items due to state or federal law when you die? Will the Trustee be forced to sell off the items in order to terminate the Trust and comply with the law?
4. The trust isn't really designed to have multiple Trustees. What happens if there is more than one Trustee named (say you and a spouse) and you each have a different opinion about what is the best course of action for dealing with Trust property. Who wins that argument?
5. The Trust has no provisions dealing with waste. Remember, the purpose of a trust is to manage a future interest in property for someone else for their benefit. What happens if a beneficiary objects to the use of trust property because shooting that transferable M249 SAW will reduce its future value? Does that beneficiary have a claim against the Trustee? Of course, the Grantor could always just revoke the trust - assuming the CLEO will sign off...

For further reading, David Goldman, a Florida-based Gun Trust lawyer, keeps quite a collection of stories of various problems with generic "gun" trusts he has encountered in his practice. It makes for some informative reading in seeing the types of problems he has been asked to solve for clients who didn't want to pay the higher initial cost; but I doubt he solved many of those problems for less than $600.

Conclusion

I hope you have found some of this info useful in deciding what type of Gun Trust is going to best suit your needs. Without question, I think an attorney-drafted Gun Trust is the best option if you can afford the higher initial cost. Like many things in life, I think that in the long term that type of trust is going to cost you less than some of the options that appear cheaper at first glance. Having said that, thousands of people have used generic form trusts successfully to enjoy NFA firearms without problems yet. Nobody can tell you whether you are going to be one of those people; but those who can answer Yes to all of the questions on this checklist should be in a better position than most to have that experience. Ultimately, a trust is about planning for the future; but it can also be used to just simply streamline the NFA process. If you interested in planning for the future, a lawyer's advice is going to be invaluable because they know where the problems are going to crop up due to experience. If you just want to streamline the NFA process and are less worried about future planning, then a generic trust may be a better value for you. Ultimately, it is a decision you will have to make. I hope this piece helped you be a little better informed about those decisions.
Attached Files
File Type: pdf generic gun trust.pdf (253.3 KB, 138 views)
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Last edited by Bartholomew Roberts; June 17, 2013 at 04:18 PM.
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Old June 17, 2013, 07:51 PM   #2
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Excellent!

This should be stickied in both Legal and NFA forums.
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Old June 18, 2013, 11:07 AM   #3
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Well explained, thank you. I went with the lawyer drafted trust myself and feel it was worth the extra cash.
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Old June 18, 2013, 12:47 PM   #4
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Yes very well written and easy to understand. I too went with the attorney-written trust, and I sleep very well at night. Sometimes during the day too. ZZZZZZZZZZZZZZ
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Old June 18, 2013, 01:53 PM   #5
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Thanks. I would also like to thank everyone at THR and TFL who contributed to editing the original draft. Without their help, this would not have been near as useful.
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Old June 18, 2013, 02:57 PM   #6
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And stickied.
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Old July 27, 2013, 03:09 AM   #7
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Copied, pasted in Word, and saved on my PC. Thank you!
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Old December 9, 2013, 08:36 PM   #8
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I would guess that most generic trusts are drafted by some lawyer somewhere. How does a lawyer know what to put in an NFA-specific trust?

I'm also curious as to what circumstances would create a review of the trust by BATFE after the tax stamp is issued?

I went ahead and applied for my current form 4 using my LLC as owner. Would probably have preferred a trust.
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Old December 10, 2013, 05:20 PM   #9
Bartholomew Roberts
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Quote:
I would guess that most generic trusts are drafted by some lawyer somewhere. How does a lawyer know what to put in an NFA-specific trust?
It is kind of like a car - an engineer probably designed a Ferrari and an F250; but both for different purposes. The generic trusts are drafted very broadly and simply to apply to as many situations as humanly possible; but as I pointed out above, that can often make them less than ideal for firearms trusts which have some unique concerns.
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Old December 10, 2013, 07:45 PM   #10
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I understand the desirability of an NFA-specific trust. What I'm asking is how does a lawyer like Herr Roberts learn what to put in an NFA trust, as opposed to a generic trust?

Two of my progeny are attorneys, but neither has ever drafted an NFA trust. Coincidentally, my youngest son, the attorney, found this thread when I asked him to research NFA trusts. He's pretty bright and has a lot of experience dealing with wills, trusts and asset protection...does a lot of bankruptcy work.

I really would like to know, for sure, what would predicate a review of a previously-approved trust that owned NFA weapons/silencers and to which a tax stamp had been issued? Does the BATFE just spontaneously go back months or years later and decide to invalidate a trust for NFA purposes?
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Old December 10, 2013, 08:29 PM   #11
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As an attorney, I think I can chime in. How did I know what to put into an NFA trust?

Knowledge of the National Firearms Act is the key ingredient. It sounds like your son who does trust and estate work has more than enough trust-related knowledge. In fact, you don't have to be particularly an expert on trust law. You do have to know something about trusts, of course, but there are many advanced areas of trust law that are completely unrelated and/or useless for NFA trusts.

But to know what parts of a "standard" trust are problematic for NFA trusts, you need to know about the National Firearms Act. You need to know what actions would put people in danger of ending up in federal prison. For example, what constitutes a transfer? Who can legally possess NFA firearms? What normally happens to NFA firearms when someone dies? May a minor possess an NFA firearm? How old do you have to be? 18? 21?

It's a confluence of knowledge about Title II firearms laws and regulations and trust law that makes you qualified to draft an NFA trust.

As for what would cause the BATFE to look closely at a trust? Probably not a lot of things that normally folks would get up to. But you can never tell. If a local LEO with a grudge decided that he didn't think your short-barreled shotgun was legal, and you had to show him your trust, it might end there. Or he might still not understand, and the ATF might get involved. In the course of trying to help a local LEO figure out whether you were legally allowed to possess a short-barreled shotgun, the ATF might take a look at your trust paperwork.

Now what if your brother was on the trust as a trustee, but he has since committed a felony and can no longer legally possess the SBS? You're not letting him take it out the shooting range anymore, but you haven't gotten around to amending the trust to remove him. If you're using a generic trust, there's probably not language in the trust that automatically disqualifies him as a trustee at the moment be became a convicted felon. The ATF might decide they wanted to harass you for owning an SBS that includes a convicted felon as a trustee.

Are these huge practical concerns? Perhaps not. As I like to say when people start worrying about constructive possession: the ATF probably doesn't have any reason to be kicking down your door, unless you're a white supremacist cooking meth and building illegal machine guns in your walled compound. You may be just fine with your Quicken Willmaker trust if you're a "regular guy." But then again, who can say? Using a qualified attorney to draft an NFA trust is (relatively) cheap insurance against the unforeseeable.

Aaron
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Old December 10, 2013, 10:38 PM   #12
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If your son is already familiar with trust and estate law, then he can familiarize himself with the National Firearms Act. There is also an ABA-sponsored CLE on the subject available online.

Quote:
Does the BATFE just spontaneously go back months or years later and decide to invalidate a trust for NFA purposes?
Trusts and corporations are creatures of state law so the ATF has no power to invalidate a trust. However, if ATF decides that in their legal opinion, your trust does not comply with that law, you may have a problem. If it is your first item, then ATF will just deny the transfer. However, if you have previously purchased NFA items under that same entity and NFA approved the earlier transfers, you may now have a problem

Because NFA isn't in the business of trust law and does only a cursory review of trusts to make sure basic requirements of a trust are met, what I described above has happened at least twice that I know of. I don't know how either of those cases were ultimately resolved between the parties though.
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Old December 12, 2013, 04:52 PM   #13
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Thanks for the feedback guys. I'll refer my son to this thread. I don't know if he's interested/has time enough in his practice to take the CLE course, but I'll make him aware of it.

I have no concerns about being questioned about local l.e. officers regarding my ownership of NFA items. I can't personally envision circumstances where the BATFE would at some date after issuing a stamp to a trust in which the BATFE would invalidate the trust's ability to own NFA items. I suppose the BATFE might have some interest if one of the items were involved in a crime, which, of course, isn't going to happen in my case.

If I decide to purchase another NFA item, I'll look further into an NFA trust.

Here's another question to which you guys might know the answer: Is an FFL required in a Form 5 intra-state transfer?
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Old December 13, 2013, 08:41 PM   #14
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Quote:
Is an FFL required in a Form 5 intra-state transfer?
I can't see why one would be. A Form 5 is basically just a tax-free Form 4, and a Form 4 transfers between two residents of the same state doesn't require an FFL.

Interstate? Yes. Intrastate? No.

That's my understanding.

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Old December 14, 2013, 09:23 AM   #15
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Thanks Aaron. I thought that was correct, but appreciate your advice.
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Old January 2, 2014, 12:28 AM   #16
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Bartholomew,

Do you have any insight as to whether or not the BATFE will approve non-family members as either trustees or beneficiaries? I have heard a rumor that they will not, but have not been able to confirm one way or the other.

Thanks,

Sebastian
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Old January 2, 2014, 02:36 PM   #17
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An acquaintance recently had a trust drawn by an attorney. He offered to black out his personal information and allow me to copy his trust for my own use adding my own personal information. What do you think of that offer?
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Old January 2, 2014, 03:11 PM   #18
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The Difference Between Generic Gun Trusts and Lawyer-Drafted Gun Trusts

Quote:
Originally Posted by Mike1234567 View Post
An acquaintance recently had a trust drawn by an attorney. He offered to black out his personal information and allow me to copy his trust for my own use adding my own personal information. What do you think of that offer?

Probably a bad idea. The attorney most likely drew up the trust to suit your friend's particular needs and wants. There's no reason to believe the trust would be suitable for your particular needs and wants.
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Old January 2, 2014, 08:10 PM   #19
Bartholomew Roberts
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Quote:
What do you think of that offer?
It is basically the same as copying a random trust off the Internet. Unless you understand what you are modifying, you might get some surprising results. Just to use one common example, is your buddy married? Because in Texas, community property issues can crop up in trusts also and if you are single, copying that language can create confusion (and vice versa).
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Old January 2, 2014, 08:32 PM   #20
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He's a friend of a friend and I don't know if he's married but he's a resident of the same county here in Texas.
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Old January 2, 2014, 09:35 PM   #21
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Quote:
Do you have any insight as to whether or not the BATFE will approve non-family members as either trustees or beneficiaries? I have heard a rumor that they will not, but have not been able to confirm one way or the other.
The BATFE doesn't "approve" trustees OR beneficiaries. They have no control over who you name as either. As long as your trust is legal under state law, the ATF doesn't get much say in the matter.

I could go on and on about why they wouldn't even have any way of knowing whether or not trustees are related to you based on last names, the inability of the ATF to run background checks on anyone based on a name alone, etc...

But suffice it to say that approved tax stamps are issued to trusts every day that have trustees and beneficiaries who are unrelated to the grantor/creator/settlor of the trust.

Aaron

P.S. Where DO these rumors get started?
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Old January 3, 2014, 09:30 AM   #22
Bartholomew Roberts
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Quote:
As long as your trust is legal under state law, the ATF doesn't get much say in the matter.
You would think that should be the case; but I just talked with another attorney who had a client's Form 4 denied because of a typo in his trust that had no effect on the validity of the trust. He was able to resolve it by calling the examiner; but the fact ATF was even looking at provisions that had no effect on the validity of the trust or whether trustees were prohibited was ridiculous.

However, none of that changes what Mr. Baker said about non-family members. Who trustees and beneficiaries are is a matter for state law - and I'm not aware of any state with the limitations you mentioned.
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Old January 19, 2014, 04:46 PM   #23
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anyone is south florida have a good attorney i could use for this?
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Old January 22, 2014, 07:16 PM   #24
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Is a trust created by an attorney in one state valid in all states? For example, let's say I buy suppressors in state A and register them with the ATF using a trust created in state A. I then move to state B (that allows suppressor ownership) and buy more suppressors. Can I use the same trust from state A to register those suppressors with the ATF even though I'm living in state B?
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MCMXI LLC - FFL (07) and SOT (Class 2 - Manufacturer of NFA firearms) now offering FFL and Class 3 dealer services in NW Montana.
Send a PM or email info@mcmxi.org if you're interested in FFL or Class 3 services in NW Montana.
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Old March 21, 2014, 02:40 PM   #25
1858
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Join Date: July 1, 2008
Location: Montana
Posts: 6,220
I spoke with a very knowledgeable attorney in MT today who offers a trust service specifically for those wanting to own or purchase NFA items. He even bothered to differentiate between Title II weapons and Class III FFL dealers (big plus there). He mentioned that it's more likely that a trust created in a state other than MT would be valid here rather than the other way around. He cited the "low bar" to establish a trust in MT as being the reason.

A quick search revealed this from the Montana Judicial Branch.

http://leg.mt.gov/bills/mca/72/38/72-38-403.htm

72-38-403. Trusts created in other jurisdictions. A trust not created by will is validly created if its creation complies with the law of the jurisdiction in which the trust instrument was executed or the law of the jurisdiction in which, at the time of creation:
(1) the settlor was domiciled, had a place of abode, or was a national;
(2) a trustee was domiciled or had a place of business; or
(3) any trust property was located.

History: En. Sec. 52, Ch. 264, L. 2013.
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MCMXI LLC - FFL (07) and SOT (Class 2 - Manufacturer of NFA firearms) now offering FFL and Class 3 dealer services in NW Montana.
Send a PM or email info@mcmxi.org if you're interested in FFL or Class 3 services in NW Montana.

Last edited by 1858; March 21, 2014 at 02:52 PM.
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