New suppressor, trust question

[hentown]

Is the verbiage that's unique to an NFA trust a deep, dark, secret? Seems to me it should be pretty simple to use an online source for the trust and add whatever verbiage is needed to make the trust NFA-compliant.

I'm going the LLC route, but did have an attorney handle the creation of the LLC. Glad the attorney is my son. I got the "family discount," of course.

 

[cpy911]

Is the verbiage that's unique to an NFA trust a deep, dark, secret? Seems to me it should be pretty simple to use an online source for the trust and add whatever verbiage is needed to make the trust NFA-compliant.

I'm going the LLC route, but did have an attorney handle the creation of the LLC. Glad the attorney is my son. I got the "family discount," of course.

Here is a template from a local forum I visit.

http://www.northwestfirearms.com/nfa-weapons/18970-revocable-living-trust.html

 

[Bartholomew Roberts]

I *am* a lawyer. I paid almost $200 just to attend a CLE specifically on the topic of drafting gun/NFA trusts, even though I already had access to multiple professionally drafted gun trusts and have drafted them in the past. If you feel OK with a $30 Quicken trust, that is your choice.

There are all kinds of ways to screw up a trust. Unlike being your own plumber though, you won't get immediate feedback if you do something wrong. If you are lucky, you'll know after a few months when the ATF refuses it. That is actually good news as you know you have a problem and are only out $200. If you are somewhat unlucky, it will only create a problem for your heirs and you'll be dead so what do you care? If you are really unlucky, someone will end up in prison or you may get ousted from your own trust, etc.

The Quicken trusts are written generically to cover the broadest possible range of situations. They are updated infrequently, meaning they often miss state level changes in probate law, and occasionally, they are flat out wrong. If you just want a trust the ATF will approve so you can get your hot little hands on a new toy as cheap and as fast as possible, they'll probably do.

Remember though, a trust is a separate entity - like a corporation. That may have tax consequences in your state, either initially or if you later add to it. At the federal level, wiith NFA items, you may end up creeping into your estate tax exemption when adding to a trust.

A good lawyer should not just be drafting you a trust (and he'll use a form of his own too); but he should also be explaining how NFA laws and tax laws can affect you and the best practices to comply with them.

 

[greyling22]

for whatever it's worth, my buddy just bought a suppressor in dallas, where they don't give CLEO signoff, and the gun shop gave him this trust form to fill out.

 

[Bartholomew Roberts]

That "gun trust" is a pretty typical example of a trust that the ATF will approve (provided you fill it out correctly and don't do something stupid like making the Settlor, Trustee and Beneficiary the same person) but that makes absolutely zero effort to address any of the problems that commonly occur with gun trusts.

The only thing that makes it a "gun trust" as opposed to a generic trust is the Schedule A for listing firearms - and since the trust doesn't actually take possession until after the Form 1 or 4 has cleared, most of that Schedule A is unnecessary.

If you:
Live in Texas
trust everyone you are dealing with 100%
are OK with possibly losing everything in the trust to people you trusted
and don't want to pay an attorney, then that trust is probably a good fit for you.

Even then though, you will lose out on valuable advice on how not to fall into common NFA traps, how to document your purchases in a way where an attorney can defend them in court if he has to, and how to deal with banks (remember all the banks cutting off gun related businesses recently - they have done that to gun trusts also).

 

[Lennyjoe]

I still don't understand the banks play in all of this. I purchased my suppressor out of my personal account and have a copy of the transaction. Why would I need a separate account? Please clarify...

 

[Bartholomew Roberts]

Lennyjoe, purchasing the NFA item out of your separate account creates two different issues:

1) The first is any tax consequences of funding a trust. A trust is still a separate taxable entity. In addition to state tax issues that can crop up, any non-charitable gift of more than the gift tax exemption to a single entity can trigger the federal estate tax. Currently the gift tax exemption is $10,000 plus a variable inflation adjustment allowance. So if you bought say an M16 registered receiver or bought a bunch of suppressors in one year, you could end up reducing the estate tax exemption after your death. For a lot of people who want an SBR or suppressor, this is not a big issue; but it certainly will effect guys who can afford registered machineguns.

If you are funding the trust randomly out of your personal account it makes it harder to separate your purchases and trust purchases for tax purposes. People are more prone to making mistakes in that situation - and since purchasing an item for your trust from your personal account and then failing to report the gift to the trust looks a lot like tax evasion to some auditors, it can create unnecessary problems.

2) The second issue is that the NFA firearm is registered to the Trust - not the Grantor of the Trust. Having a separate bank account in the Trust's name and using that for all of your purchases and tax stamp fees helps build a nice solid chain of evidence if you ever have to go into court about whether your possession of an NFA item is legal.

Also, in the past in many states, there has been a lot of litigation over whether a trust was a "sham" trust designed to circumvent state probate law or a legitimate trust that served what the state saw a legitimate purpose. As revocable living trusts have become more popular, that has become less of an issue. I would guess that purchasing and paying tax stamps out of your personal account could conceivably cause some heartache in those states though since it might indicate a blurring between the Grantor and the Trust as separate entities. Just a guess though... it would require a lot of legal research to give a solid answer to that particular issue (sham trusts vs. legitimate trusts) and I'm guessing if you don't want to pay an attorney for a gun trusts, you sure don't want to pay one for that kind of research

This thread actually inspired me to do an article on your question and it includes an analysis of the gun trust greyling22 posted and how well it works as a Texas gun trust. When I get the article finalized in a week or so, I will probably post it here (if you want to wait).

 

[Bartholomew Roberts]

Is the verbiage that's unique to an NFA trust a deep, dark, secret?

As I hope to demonstrate in my article, it isn't so much that the verbiage that is unique to a well-drafted gun trust is a deep, dark secret. It is that most of the gun trusts out there use generic form trusts from Quicken that don't even try to address some of the more common issues.

And once you get into copying specialized, custom-drafted gun trusts from other people, you basically get into a situation where the average person is in over their head. You can change the names and the ATF will probably approve it; but unless you happen to have exactly the same situation and desires as the person the trust was drafted for, it is very easy to screw yourself even worse than the form trusts.

 

[Lennyjoe]

Good info. Thank you sir!

As of now, all I can afford is a single silencer.. But, I do see additional purchases in the future so I think it would behove me to set up an account for the trust.

Looking forward to the article.

 

[greyling22]

I'd be very interested in your analysis Bartholomew. I'd love to own a suppressor or 2 some day, and while I live in a place where the sheriff will sign off, I like the ability of the trust to allow the suppressor to hang out with multiple trustees. Ex: put my brother on the trust an let him take the suppressor out when he hunts pigs. It intrigues me, but I can't afford a lawyer to whip up a super awesome trust. If the generic form allows for that, then great. If it doesn't, then I'm not going to waste my time and risk legal hell. I'll let me brother track down his own can.

 

[Bartholomew Roberts]

Here is the article: http://www.thehighroad.org/showthread.php?t=719848

 

[greyling22]

Good read. Thanks Bart.

 

[LawBot5000]

I drafted my trust years before I became a lawyer (sadly I don't have a job where I ever deal with trust issues or NFA stuff at all) and lately I've gotten to wondering if I should draft a new trust. I have a basic understanding of the issues but I know that I am probably unaware of about 90 percent of the pitfalls.

Can you modify an already extant trust if you give it the same name, or does that create a new (identically named) trust that doesn't have possession of the items that you transferred to it before redrafting it?

 

[Lonestar11]

I am not a lawyer, and I am not trying to justify the $200.00 I paid to have the trust drawn up by a lawyer. I just wanted to make sure that when something happens to me there would be no problems with the people I named in my trust possessing, selling, etc., my suppressor.

Since I am in Texas, I used a Texas lawyer that specializes in Trusts, AND holds a class 3 license.

 

[hentown]

I have experience in trusts, aamof, I'm the trustee of my oldest son's estate planning family trust. I don't have any experience in NFA trusts. If I were going to go the trust route, I'd trust (no pun intended) my lawyer-son to draft the NFA trust for me. I know that he'd do whatever research was necessary to do the job right.

One thing I do know is that property granted to a revocable trust, whether NFA or not, is included in the Grantor's estate...not so for an irrevocable trust, with the exception that life insurance transferred from the Grantor to a trust is still in the Grantor's estate for a period of three years following the transfer. I believe the current estate tax exemption is $4M (or $8M for a married couple), and that the Unified Credit is @ $1M for gifting. The estate tax exemption and the Unified Credt amounts were the same until fairly recent history.

However, I have already bought my second suppressor through my LLC, and I did buy it with the LLC's bank account. When the form 4 is started, it'll be in the name of the LLC.

 

[Bartholomew Roberts]

Since this popped back up, I wanted to hit another good reason to use a separate bank account for a trust - a trust must be funded at the time of its creation in order to be valid under many state laws. In those states, if there is no property for the trust to manage when it is created, the trust is invalid. A separate bank account can help establish clearly that the trust was funded and had property at the time of its creation.

 

[Elkins45]

I wonder if BATFE gives less scrutiny to a legal instrument that was created by an actual lawyer as opposed to a 'generic' trust?

 

[Lennyjoe]

My trust made no mention of any bank account. Recon I should establish one just to be safe.

 

[knifestuff]

Let me provide some updates on gift tax limits so folks have the right numbers to consider as they consider trusts--the current Federal gift tax exemption is now $13,000 per year per person/entity. (A typical revocable trusts is linked to the grantor's own SSN if you establish a trust account at the local bank).
I am a trust and estate attorney and will tell you Bartholomew Roberts' advice is spot on as it pertains to NFA trusts and getting an attorney to assist. If you spend good money on a can, SBR, AOW, or other NFA item, there is no need to put it at risk by a poorly written trust. I can't speak to what others charge but my fee does not come near to 4 figures (or even the mid range on 3 figures). Shop around, find a trust attorney who belongs to the NRA, and I think you'll get good service and protect your NFA investment.

 

[Prince Yamato]

Have a lawyer do the trust for you. Unlike a regular revocable trust, there is specific NFA language and considerations that must be addressed in the trust. Drafting a trust yourself and having it end up being invalid would mean that the purchases made using the trust would be illegal. Most places charge between $500-1000 to draft a trust for you and then $75-100 for any amendments that you add in the future.

There is no NFA specific language.

There is no difference between a lawyer drafted trust and one you do yourself, other than the lawyer's comes in a fancy folder with the font of his choosing.

Do the trust yourself.

 

[Bartholomew Roberts]

There is no difference between a lawyer drafted trust and one you do yourself, other than the lawyer's comes in a fancy folder with the font of his choosing.

http://www.thehighroad.org/showthread.php?t=719848

As it turns out, there certainly can be a difference between a lawyer drafted trust and a form trust from Quicken or some other source. That thread gets very specific.

 

[MasterSergeantA]

Is an account at a credit union treated the same way as a bank-based account?

 

[Bartholomew Roberts]

Yes, it is. The two big things are that the trust has property or funded when it is created and that you keep accurate track of the property you have given to the trust and follow the appropriate tax law (a separate account helps with that).

 

[Prince Yamato]

As it turns out, there certainly can be a difference between a lawyer drafted trust and a form trust from Quicken or some other source. That thread gets very specific.
________

Well, yes, you can mess up the trust if you don't follow directions.

My issue is that I see guys walk away from buying NFA weapons because dealers say, "oh you need a trust, here's they lawyer we use, he charges $500+". I think for many people, it's easy enough to do on your own. If I were a heavy collector, yeah, I'd probably go the lawyer route, but for people getting into things like suppressors, you end up paying more for the lawyer than a .22 can.

I have issues with the folks who purposely try to keep NFA weapsons, "a rich man's game". I notice a lot of back scratching going on between NFA dealers and lawyers that basically amounts to over-charging people for a simple service that (most) can do themselves.

 

[Bartholomew Roberts]

There is nothing "screwed up" about the form trust I analyzed in that thread. It is a perfectly valid trust in Texas (assuming the form is filled out correctly). It just doesn't deal with a lot of issues relating to NFA ownership because it is generic and designed to be as broadly used as possible. It is one of those tools that can be used for any job; but that doesn't do any particular job well.

And frankly, I disagree that your average person can draft a trust just as well. It is like any other professional service - you can cut your own hair; but it probably isn't going to look as good as it would if it was done by someone who cuts hair for 100 people every week. Just through experience and continued practice, that person is able to perform that task better (not to mention specific training and education in that regard). And just because you cut your own hair without cutting off your head doesn't make it the equivalent of a professional haircut.

How many people would have thought about the issues raised in that post? Even after I've pointed out the issues, how many people know the correct legal language to fix those issues? A form trust or a trust drafted by a layman is just not the equal of an attorney drafted trust - that is exactly why attorneys can and do charge more for the service.

ETA: As for "purposely trying to keep it a rich man's game", I think you are reading too much into it. It is expensive to be a lawyer. Three years of education (the only schools in Texas that offer that for less than $100,000 are public schools and even then, still not cheap and a limited number of slots). Once you have done that, you have all the costs of any other business: licensing, insurance, continuing education requirements, wanting to eat in between clients coming in the door, etc. Even assuming a bill rate of $150/hr (which is dirt cheap in the TX legal field), $500 gets you a little more than 3 hours time - meaning to break even on the lowest rate, a lawyer has to meet with his client, get the information, research any changes to the basic form he has already drafted (which probably represents anywhere from 20-40 hours of work in itself) and then explain both the drafted trust and NFA law to the client in about 3 hours - doable but tight.

And not infrequently, the reward for that will be the same person giving away your work for free on the Internet to others or trying to sell it themselves at a cut-rate price. This is one reason why I don't do gun trusts except for people that I personally know and I don't charge for them. It is just too much hassle for too little money. And while I agree that I probably wouldn't spend $600 to set up a trust for a $200 .22LR suppressor, you don't need too many NFA items to reach a point where spending $600 to protect your investment is a wise choice.