Hunting, target shooting and guns in general are a big part of our culture in Wisconsin.  Do you know what will happen to your guns upon your incapacity or death?  If you own Class 3 firearms, transferring them to a beneficiary can be complicated and even illegal.  If this is the case, then it’s probably time to consider a Gun Trust (“Gun Trust”).

What is an NFA Trust?

The National Firearms Act (“NFA”) was enacted in 1934.¹  The public was told that the purpose of the NFA was to collect taxes, but its actual function was to limit and hopefully prohibit the sale, manufacture and use of certain types of firearms.²  This was largely a response to the gangland violence of the era of Al Capone and Bugs Moran.³  The NFA regulates the manufacture, sale, transfer and possession of certain types of firearms (“NFA firearms”) including short-barrel shotguns and rifles, machine guns, silencers, destructive devices, explosive devices, large caliber weapons and any other weapons (“AOWs”).⁴

Why do I need an NFA Trust?

In Wisconsin it is legal to own NFA firearms provided that the owner has complied with the licensing and registration requirements under the NFA.⁵  However, any individual that wants to obtain an NFA firearm, either from another individual or from a dealer, must complete the application process.  The requirements involved in the application process can make transferring NFA firearms from an individual to family members difficult.  However, trusts are legally allowed to purchase and possess NFA firearms and are subject to less rigorous constraints, making it much easier to transfer your NFA firearms to your loved ones.

One NFA requirement is that every individual must get approval from the Chief Law Enforcement Officer (“CLEO”) in their city.  CLEOs, however, are not required to sign off on the forms and many times refuse to give consent.  When dealing with a Gun Trust, there is no CLEO signature needed.⁶

Photographs and fingerprints are another part of the application process.  Neither of these things are needed to acquire NFA firearms when using a Gun Trust.  This decreases the cost and can reduce the amount of time it takes for a family member to take possession of the firearms.⁷

Other benefits of using a Gun Trust can be seen upon incapacity or death.  If you become incapacitated, your family may come into contact with your NFA firearms.  This puts them at risk of violating the NFA, which carries with it a fine of up to One Million Dollars ($1,000,000.00), imprisonment of up to ten (10) years or both.⁸  Additionally, when you pass, any guns you own individually may be subject to probate and become part of the public record.⁹  Concerns about legality and privacy are better addressed by using a Gun Trust.

One of the final reasons to use a Gun Trust is that when an individual purchases an NFA firearm, that individual is the only one that can legally use or have access to it.  Even allowing a friend or family member to use one of your NFA firearms in your presence is considered a violation of the NFA.  With a Gun Trust, you can appoint co-owners and authorized users, effectively protecting your friends and family from unknowingly violating the law.

How We Can Help

The experienced estate planning attorneys at Epiphany Law, LLC can help you plan for the future.  We can help you make sure that your NFA firearms are easily and legally transferrable to your friends, spouse, or children.  For more information on Gun Trusts or to meet with one of our attorneys, please call us at (920) 996-0000.

ENDNOTES

1  National Firearms Act, Public Law 474, approved June 26, 1934.

2  Bureau of Alcohol, Tobacco, Firearms and Explosives.  National Firearms Act Handbook, ATF E-Publication 5320.8, Revised April 2009.  Bureau of Alcohol, Tobacco, Firearms and Explosives.  http://passthrough.fw-notify.net/download/717480/http://www.atf.gov/publications/download/p/atf-p-5320-8/atf-p-5320-8.pdf  (accessed July 22, 2011).

3  Bureau of Alcohol, Tobacco, Firearms and Explosives.  National Firearms Act Handbook, ATF E-Publication 5320.8, Revised April 2009.  Bureau of Alcohol, Tobacco, Firearms and Explosives.  http://passthrough.fw-notify.net/download/717480/http://www.atf.gov/publications/download/p/atf-p-5320-8/atf-p-5320-8.pdf  (accessed July 22, 2011).

4  Bureau of Alcohol, Tobacco, Firearms and Explosives.  National Firearms Act Handbook, ATF E-Publication 5320.8, Revised April 2009.  Bureau of Alcohol, Tobacco, Firearms and Explosives.  http://passthrough.fw-notify.net/download/717480/http://www.atf.gov/publications/download/p/atf-p-5320-8/atf-p-5320-8.pdf  (accessed July 22, 2011).

5  Wis. Stat. ss. 941.26, 941.27, 941.28 and 941.298.

6  Goldman, D.  Why Do I Need an NFA Firearms Trust?.  Retrieved July 15, 2011, from http://www.guntrustlawyer.com/2009/10/why-do-i-need-an-nfa-firearms.html.

7  Goldman, D.  Why Do I Need an NFA Firearms Trust?.  Retrieved July 15, 2011, from http://www.guntrustlawyer.com/2009/10/why-do-i-need-an-nfa-firearms.html.

8  Bureau of Alcohol, Tobacco, Firearms and Explosives.  National Firearms Act Handbook, ATF E-Publication 5320.8, Revised April 2009.  Bureau of Alcohol, Tobacco, Firearms and Explosives.  http://passthrough.fw-notify.net/download/717480/http://www.atf.gov/publications/download/p/atf-p-5320-8/atf-p-5320-8.pdf  (accessed July 22, 2011).

9  Goldman, D.  Why Do I Need an NFA Firearms Trust?.  Retrieved July 15, 2011, from http://www.guntrustlawyer.com/2009/10/why-do-i-need-an-nfa-firearms.html.

Succession planning can seem like an overwhelming process, especially when you're in the early stages of considering the transition.  The following list of questions is designed to help you organize your thoughts as you determine the proper strategy for transitioning your business.

Personal Goals

• What are your goals for retirement and how much money will you need on an annual basis to achieve these goals?
• Besides your retirement savings, what sources of income will you have in retirement (e.g. rents, social security, pension, etc.)?  Will these sources be sufficient to meet your retirement goals?
• If not, how much additional retirement savings will you need to ensure that you can meet your goals?  -Do you already have a sufficient nest egg or, if not, how far short are you?
• Are you comfortable spending a portion of the principal of your retirement savings each year or do you desire to simply let earnings on those savings make up the shortfall?
• When do you want the succession planning process to begin?  When should it be completed?

Business Goals

-Do you know how much your business is worth?  Do you have an independent estimate of value?  When was it completed?

-How important is it to you that, after your retirement, your business remains an independent entity?  Is that an emotional or perceived financial issue?  Do you want your business to remain in your family?

-If your deisre is for the business to remain independent:

     -Who are your successors (managers and owners)?

     -What roles will they play?

     -What training will be required?

     -Will you remain involved?  In what capacity?  For how long?

Estate Planning

-Is your estate plan updated (i.e. living trust, powers of attorney, etc.)? Does it ensure your that your estate will avoid probate?

-If there are other owners in your business, do you have a buy-sell agreement?  When was it last reviewed?

-If you have a family owned business, are there family members who are not active in the business?  If so, will they inherit an equitable share of assets?

Tax Considerations

-How will the transfer of the business affect your taxes? The business' taxes? The successors' taxes?

-Will you run into estate tax issues upon your death?  If so, have you figured out how to pay for those, or how to avoid them?

Method of Transfer

-If you're planning to sell the business to a third party, will you sell the actual stock or the assets of the business?  How will the buyer finance the purchase?

-If you're planning to retain the business, can you take advantage of gifts?  Bequest?  Discounted sales?  Options?  Combination of choices?

You don't have to have all the answers before you start putting your plan in place, but the more you consider these issues, the easier the process will be.  Ultimately, a proper succession plan will: 1) leave you in control for as long as you wish, 2) set expectations for all involved, and 3) avoid unnecessary taxes on the transfer.

As a business owner, have you ever worried about what would happen to your business if one of your partners became disabled, got divorced or died? If you had a Buy-Sell Agreement in place, you could sleep a little easier.

Simply put, a Buy-Sell Agreement is a contract that dictates how, when and for how much a company or its remaining owners will be required to pay to acquire the interests of a departing owner. This kind of agreement is essential if your business has two or more owners, but it makes sense for any kind of business entity, from LLCs to corporations and everything in between. In addition to the peace of mind it provides, business owners with a Buy-Sell Agreement in place can avoid costly court battles, or worse, total business failure.

An effective Buy-Sell Agreement should address how the funds needed to buy out an owner will be provided. This funding needs to align with the triggering events. Often, insurance is maintained to fund purchases in the event of death or disability. Other situations are often covered by structuring a purchase over 5 to 10 years.

There are different types of triggering events that Buy-Sell Agreements address. For example, if an owner dies, the surviving business owners may inherit heirs for business partners who care little whether the business survives. The death of a spouse, disability, bankruptcy, termination of employment and retirement are other types of triggering events that put a business at risk.

There are also three forms of such an agreement. They include Cross-Purchase, Entity-Purchase and a hybrid of the two. An experienced business attorney can help you determine the appropriate type for your situation. To have an effective Agreement, the owners must agree upon a mechanism to set the future value of the business. Possibilities include: book value, multiple of earnings, appraisal and annual valuation by owners. Again, these are things you should discuss with your attorney.

Your business needs protection from the unknown and ensuring that critical events are properly covered is essential to the long-term survival of your business. A Buy-Sell Agreement can provide just that.

It is an essential requirement to the long-term survival of your business.