RECENT LAW CHANGE NOTE:

On January 4, 2016 U.S. Attorney General Loretta Lynch signed ATF Rule 41F. The Rule administratively changes federal regulations regarding firearms regulated by Title II of the Gun Control Act (GCA), specifically known as the National Firearms Act, 26 U.S.C. Chapter 53 (the NFA). 

The NFA regulates six types of firearms including machine guns, destructive devices, sound suppressors (commonly referred to as “silencers”), short-barreled rifles, short-barreled shotguns, and “any other weapons”, a subcategory further defined by the NFA. Non-NFA or “conventional” firearms, i.e., handguns, rifles and shotguns are not regulated by the NFA but instead by Title I of the Gun Control Act, (also known as State Firearms Control Assistance 18 U.S.C. Chapter 44). Title I was the “original” Gun Control Act prior to incorporation of the NFA as Title II of the GCA.

Rule 41F affects the making and transfer of NFA firearms for individuals and entities and was specifically intended to address those firearms made or received by trusts or other legal entities. The Rule was published in the Federal Register on January 15, 2016 and becomes effective on July 13, 2016, 180 days after publication. Trusts and LLCs are the most common legal tools used in planning for a private gun collection, and the Rule is a concern in both drafting and administration. Rule 41F amends 27 CFR part 479 for trusts and legal entities (partnerships, associations, companies, and corporations). It adds some definitions, procedures, and clarifies some issues. It purports to clarify which persons involved with a trust or legal entity must provide documentation and undergo a background check when an application to make or receive an NFA firearm is made by the trust or legal entity. 
 
Gun Trusts:  How can they protect you?

Recently American gun owners are trending toward owning their firearms in trust as opposed to ownership individually or through an entity.  This trend has been accelerated by mass casualty events and the increased government regulation proposals which have followed.  This trend toward trust ownership of guns is primarily driven by government regulation and the risk that is posed when one fails to follow state or federal laws relating to ownership, possession and transfer of firearms. 
 
There are over 350,000,000 privately and publicly owned firearms in the United States.  Of that, there are about 240,000 "machine guns" registered under Federal law.  Gun owners are rightly concerned about risks associated in giving friends and family members access to their guns.  That concern is proper since any person who is a “prohibited party” possession a firearm might be violating Federal law. 

Because of safety concerns, gun ownership is growing in the United States and it is currently at an all-time high number.  Growth is driven in part by the growth of the population, at about the rate of 3,000,000 guns per year.  In fact, about  47 to 50 million U.S. households have at least 1 firearm and about 70 to 80 million adults in U.S. own a firearm.  Further, in the last quarter‐century or so, many unnecessary and overly restrictive federal, state, and local gun control laws have been eliminated or reduced in their restrictiveness.


Applicable Federal laws

There are two basic Federal laws regulating firearms, the Gun Control Act of 1968 (18 U.S.C. §921(a)(3)) (known as “GCA” or “Title I”), and the National Firearms Act of 1934 (known as “NFA” or “Title II”).  States are allowed to regulate firearms under Title II.

Title II regulates both the possession and the transfer of certain firearms.  In order to be regulated under Title II, a firearm must fit within the definition of “firearm”.  A firearm is “[a]ny weapon…which will or is designed to or may readily be converted to expel a projectile by the action of an explosive.”  This definition includes the frame or receiver of any such weapon, a suppressor or “silencer” and any destructive device.

The term “firearm” does not include an “antique firearm”.  An “antique firearm” is a firearm manufactured before 1899 or a replica of a weapon manufactured before that time, as long as the replica does not shoot rim fire or center fire ammunition, or which only shoots rim fire or conventional ammunition that is not manufactured in the U.S. and is not available in the ordinary streams of commerce.   This definition includes a muzzle loading rifle, shotgun, or pistol which is designed to use black powder and cannot use fixed ammunition.   

Title II was passed in 1934 primarily as a means for collection of revenue.  Hence it is codified in the Tax Code at 26 U.S.C. §5801 et seq.  Title II is basically a gun control law written into the tax code and enforced by the ATF, within the Department of the Treasury. One provision of the NFA imposes a $200 transfer tax on restricted firearms in an attempt to cut down on gangster and mob violence in the 1930’s.  The amount of the tax has not changed since 1934.
 
The transfer of the following firearms (“NFA Firearms”) is restricted under Title II, at 26 U.S.C. §5845(a):

            -           Short Barrel Shotgun: A shotgun having a barrel or barrels of less than 18 inches in length; A weapon made from a shotgun if such weapon as modified has an overall length of less than 26 inches or a barrel or barrels of less than 18 inches in length;  
            -           Short Barrel Rifle: A rifle having a barrel or barrels of less than 16 inches in length; A weapon made from a rifle if such weapon as modified has an overall length of less than 26 inches or a barrel or barrels of less than 16 inches in length;
            -           Machine gun; Defined in 26 U.S.C. 5845(b). This is basically a firearm that shoots multiple rounds with a single pull of a trigger. Included within the definition of machinegun is any part designed and intended solely and exclusively, or combination of parts designed and intended, for use in converting a weapon into a machinegun. (§2.1.6 ATF Handbook, Crime Control Act of 1990 – 18 U.S.C. §921(r));[1]
            -           Any “silencer”: Defined in the Gun Control Act of 1968 - 18 USC § 921(a)(24);
            -           Any “destructive device”: These include explosive devices like hand grenades, bombs, and large caliber weapons like RPG launchers and mortars. “Large caliber” refers to any weapon having a barrel diameter of more than ½”; and
            -           “Any Other Weapon”: Defined in 26 USC §5845(e). E.g., pen gun, umbrella gun, camera gun, palm gun, etc. This also includes pistols designed with a smooth bore to fire a shotgun shell. It can also include a pistol with a detachable fore grip.  
            If you suspect a firearm is restricted under the NFA, you may want to hire a gunsmith to travel to the location where the firearm is stored to inspect the item in order to avoid transporting an illegal weapon.


“NFA Firearms” must be registered with the ATF
 
The National Firearms Registration and Transfer Record or “NFRTR “is a registry kept by the ATF which records the ownership of NFA Firearms. It is a criminal offense (evasion of the transfer tax) to receive or possess a firearm not registered to oneself (or to a trust of which someone is a trustee) in the NFRTR.
 
“Contraband” under the NFA
 
Under the NFA, “contraband” is a term or art.  Any NFA Firearm not lawfully registered in the NFRTR as required by the NFA is “contraband” and may NOT be registered or legitimized by its possessors.  Further, the NFA contraband is permanently unlawful to possess.

Estates sometimes become owners of NFA Firearms owned by decedents.  Such firearms are contraband and may not be lawfully possessed or transferred.  If these are found by a fiduciary for an estate (a personal representative, trustee or executor), that person should contact the nearest ATF office and arrange for disposal.

Contraband silencers and machine guns cannot be “made legal”.  Any such firearms should be surrendered to the nearest NFA Firearms, except machineguns and silencers, fall within the various definitions based on their specific features. If the particular feature that causes a firearm to be regulated by the NFA (to be an “NFA Firearm”) is eliminated or modified, the resulting weapon is no longer “covered” or regulated as an NFA weapon. (§2.5 ATF Handbook).  For instance, permanently installing a rifled sleeve in a shotgun pistol would convert it from a "any other weapon" designation (an “AOW”) to a regular pistol.

Any person delivering a contraband firearm to the ATF is shielded from prosecution.   


Non-NFA Firearms can still be regulated under state law

Firearms not regulated by the NFA are referred to as “non-NFA firearms”.  A non-NFA firearm would be illegal only if it is banned by a particular state.  

Under the NFA, states may restrict ownership beyond the restrictions imposed by the NFA, subject to the protections of the Second Amendment of the U.S. Constitution.  As an example, some states do not allow the ownership of machine guns which can be legally owned under the NFA. 

Because each state has its own laws regarding prohibited firearms, including prohibitions on firearms that are not federally regulated under the NFA, it is important to check the laws of a gun transferor’s state to determine if possession within the transferor’s jurisdiction is legal.  For example, Connecticut has a ban on “assault rifles” (which are basically defined as any “cool looking rifle”) and California restricts the types of “assault rifles” that can be possessed.  Thus, firearms which might be legal in a transferor’s state cannot be transferred to a state where such a firearm is prohibited.  

Also, various cities (New York City, Chicago, Washington, D.C.) have laws further restricting ownership of certain firearms which are otherwise legal under federal and state law.  


Under Federal law, “Prohibited Persons” may not possess firearms

Under 18 U.S.C. §922(d) et al, it is unlawful for a person to possess, or any other person to sell or otherwise dispose of any firearm or ammunition to a person knowing or having reasonable cause to believe that that person is:

            a.         Under indictment for, or convicted of a felony;
            b.         A fugitive from Justice;
            c.         Unlawful user of, or addicted to any controlled substance. (This is a federal requirement. A Colorado resident who legally uses marijuana in the state of Colorado is still prohibited from possessing a firearm under Federal law.);
            d.         Adjudicated as mentally defective or has been committed to any mental institution.[2]  
            e.         An Illegal Alien;
            f.          An Alien who is in the United States under a non-immigrant visa;
            g.         Discharged from the Armed Forces under dishonorable conditions;
            h.         An expatriate who, having been a citizen of the United States, has renounced his citizenship;
            i.          Subject to a restraining order (with specific requirement as to the reason for the R.O.);
            j.          Convicted of a misdemeanor crime of domestic violence.[3]   
            k.         Under Twenty-one years of age for NFA firearms and under 18 for Non-NFA firearms.

A transferor’s or transferee’s state or local laws may have additional prohibitions on possession. Further, some jurisdictions prohibit certain firearms that are not otherwise federally prohibited.  Thus, there are obvious risks and concerns even with the transfer of non-NFA Firearms.


Ensuring lawful transfer of a firearm
 
If a transferee is a prohibited person, a court order can restore a person’s right to possess a firearm. 

Another option is for a Personal Representative to sell a firearm and give the proceeds to a beneficiary instead of the actual firearm.

For larger collections, the National Rifle Association offers a Charitable Gift Annuity program where it agrees to sell firearms without the large commission charged by most dealers. The proceeds can then be distributed to the beneficiary as an annuity. This is a good option where surviving family members are not interested in retaining firearms.

If a potential transferee is prohibited from possessing a firearm under his local or state law, he can “own” or “possess” a firearm in a “Gun Trust”, so long as the trustee can possess the firearm.


Ownership of NFA Firearms by a Gun Trust is a safe option

For “NFA firearms”, a trust must be the owner of record in the NFRTR in order for a trustee to accept the firearm for safekeeping. By its terms, the trust must allow for multi-jurisdictional ownership of NFA firearms and the trust must comply with all NFA transfer rules.
 
Gun Trusts are private, informal and flexible and have no annual filing requirements.  Further, Gun Trusts are easy to amend, avoid probate and allow many options in passing firearms.  Gun Trusts have thus become the preferred solution for private firearms ownership.

A Gun Trust holds legal title to both NFA and non-NFA firearms (which may still be regulated under state or local law).  Legal transfers are made by gifting, sales and by “sharing”.  The creator or “settlor” of the Gun Trust retains control of the Trust, and provides protection to her loved ones.  For instances, the settlor retains the power to “amend” the trust to comply with ever changing laws.  The Gun Trust provides “gun-specific” guidance to help successor trustees and beneficiaries.  A proper Gun Trust can eliminate the risk of a claim for negligent entrustment or maintenance, for transfer to a prohibited person, for criminal possession and for violations occurring for transfers to states where firearms are otherwise banned.

Gun Trusts are one of the options we offer to our clients. 


Contact DRC for a further discussion regarding setting up a Gun Trust for you and your family.
 

 


[1] Prior to 1990 these items were legal, so it is possible something like an “Autosear” will show up.
[2] If a beneficiary appears to be incompetent but has not been adjudicated such, a Personal Representative could petition a court to allow a transfer, which would protect the Personal Representative. 
[3] This subsection was added by the Violence Against Women Act, and the statute lists specific elements that must be part of the crime the individual was convicted of in order to constitute a disqualifying misdemeanor domestic violence conviction.