Who is a “Responsible Person” on an NFA Trust?

ATF Final Rule NFA Trusts

(Jan 15, 2016: this article has been updated with the final definition)

I recently posted an article exploring the new rules by the ATF concerning NFA trusts.  One of the multiple changes discussed in the article, which include the removal of CLEO approval and new rules for handling firearms in an estate, is extra paperwork and approval requirements for “responsible persons.” These “responsible persons” on the trust will need to fill out a special form (Form 5320.23) and submit it along with fingerprints and photographs to the ATF with each application/form to make or transfer an NFA firearm.  A copy of the “responsible person” form (Form 5320.23) and the NFA firearm application/form will also need to be sent to each “responsible person’s” local Chief Law Enforcement Officer (CLEO).  The copies of the forms submitted to each respective CLEO are a notification to law enforcement only – no approval from the CLEO is required.

This will significantly increase the paperwork burden – as many different CLEOs may be notified across the country as there are “responsible persons” on particular trust.  It is important, therefore, to determine who is a “responsible person” on an NFA trust so that the proper paperwork can be filed with the ATF and the appropriate CLEOs may all be notified.

Here is the definition of a “responsible person” according to ATF’s Final Rule on NFA Trusts.

Responsible person. In the case of an unlicensed entity, including any trust, partnership, association, company (including any Limited Liability Company (LLC)), or corporation, any individual who possesses, directly or indirectly, the power or authority to direct the management and policies of the trust or entity to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the trust or legal entity.

In the case of a trust, those persons with the power or authority to direct the management and policies of the trust include any person who has the capability to exercise such power and possesses, directly or indirectly, the power or authority under any trust instrument, or under State law, to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the trust.

Examples of who may be considered a responsible person include settlors/ grantors, trustees, partners, members, officers, directors, board members, or owners. An example of who may be excluded from this definition of responsible person is the beneficiary of a trust, if the beneficiary does not have the capability to exercise the powers or authorities enumerated in this section.

In short, anyone who may lawfully posses an NFA firearm in the trust is now a “responsible person” and is subject to the new application, photograph, fingerprint, and CLEO notification requirements.

The new definition includes two groups of people: (1) those who are in charge of the trust (or other legal entity) and (2) in the case of trusts, those who may lawfully possess the trust’s NFA firearms.

Group #1 – First, the definition establishes a “responsible person” as someone who has “the power or authority to direct the management and policies of the trust or entity to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the trust or legal entity”  This means that anyone who actually controls the trust language and has the power to modify it is a “responsible person.”

Group #2 – Then, when an NFA trust is involved, the ATF expands the definition to include certain persons who have the “capability to exercise such power and posses[] the power or authority . . . to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for or on behalf of the trust.”  This means that anyone who has the power or authority to possess an NFA firearm in the trust, and who has the capability to exercise that power, is also a “responsible person.”

These first two sections of the definition could be interpreted by some to include only those people who are in charge of the trust who may also possess the trust’s NFA firearms.  That interpretation is being used to say that trustees who are not “in charge” of the trust but instead may only possess the trust’s NFA firearms are not “responsible persons.”  I think that interpretation is incorrect.

The most common argument I hear for the interpretation that trustees (or other possessors of NFA firearms in the trust who are not “in charge” of the trust) are exempt from this new requirement is that the trust-specific part of the ATF definition includes the word “and” instead of “or” and therefore includes only those who are in charge of the trust and those who may possess NFA firearms in the trust.  This argument was persuasive.  Essentially, the argument was that the first part (before the “and”) referred to those in charge of the trust and the second part (after the “and”) included those who may possess the NFA firearms in the trust.

The first part (before the “and”) reads: “In the case of a trust, those persons with the power or authority to direct the management and policies of the trust include any person who has the capability to exercise such power . . .”

The second part (after the “and”) reads: “. . . possesses, directly or indirectly, the power or authority under any trust instrument, or under State law, to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the trust.”

The crux of the debate is whether the language “capability to exercise such power” from the first part refers to the earlier language “direct the management and policies of the trust” or the later language from the second part, “power or authority . . . to . .  possess.”  If it refers to the first part, trustees aren’t responsible persons.  If it refers to the second part, they are.

I argue that it applies to the second part.  As an example, I am going to include the entire trust specific part of the definition below with a substitution of some words and with the controversial “and” italicized and bold.  Before the trust-specific section, the ATF already defined “those persons with the power or authority to direct the management and policies of the trust” as “responsible persons.”  Therefore, in the trust-specific language below I am going to replace the words ” those persons with the power or authority to direct the management and policies of the trust” with the words “responsible persons.”

In the case of a trust, [responsible persons] include any person who has the capability to exercise such power and possesses, directly or indirectly, the power or authority under any trust instrument, or under State law, to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the trust.

With the substitution, it makes it more likely that the “power” before the “and” is referring to the “power” after the “and.”  Effectively, it would read: those that have the capability to exercise the power, and have the power, to posses an NFA firearm of the trust are responsible persons.  Of course, I have taken some liberties with the language to try to make my point.

To help my position, I refer to the last part of the definition published by the ATF:

Examples of who may be considered a responsible person include settlors/ grantors, trustees, partners, members, officers, directors, board members, or owners. An example of who may be excluded from this definition of responsible person is the beneficiary of a trust, if the beneficiary does not have the capability to exercise the powers or authorities enumerated in this section.

The ATF includes “settlors/ grantors, trustees, partners, members, officers, directors, board members, or owners” in the possible definition of a “responsible person.”  The ATF can’t conclusively include exactly who is  a”responsible person” by their title under/in the trust because each trust is written differently.  According to this last part of the definition, it is true that a trustee may not be a “responsible person” in some circumstances.  However, conversely, it says that sometimes they will be.

If the alternative argument above is true and only those lawful possessors who are also in charge of the trust are “responsible persons,” then a trustee could never be a “responsible person.”  Instead, only settlor/grantor would be a “responsible person.”  Therefore, I think that because it is possible for a trustee to be a “responsible person” in some circumstances, it is not necessary that someone be in charge of the trust to be considered a “responsible person.”

 

 

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