Gun Trusts

Guns are a hot topic right now. Probably too hot, actually. I think we can all agree, whatever side of the fence you are on, that some sort of reform needs to be done, while respecting the Second Amendment. Either with background checks, closing the private seller loophole,  funding for mental health, or something else. But enough politics.

That said, guns are still legal to own in Texas, and many of my clients have guns. Some of these guns are already required to be specially registered with the Bureau of Alcohol, Tobacco, and Firearms (ATF) as they fall into a special class of items under the terms of the National Firearms Act (NFA).

Background:

The 1934 National Firearms Act was essentially a tax levied by Congress, but the real purpose was to thwart and curtail possession of "gangster" type weapons, some thought to be a specific response to the St. Valentine's Day Massacre allegedly orchestrated by Al Capone. All sound suppression devices, short barreled rifles and shotguns (less than 18 inches in length), machineguns, and a catch-all class of "other weapons" were listed, and a $200 tax stamp was imposed on any transfer.  That was a lot in 1934 dollars, and it worked. Weirdly,  it has not changed since.

The registration also required detailed data that the government then used to prosecute registrants who lived in states where possession was illegal, or that could not possess the items for other reasons. Sound like entrapment? Well it was.  This lasted until the Supreme Court held that using the self-supplied information for prosecution violated the 5th Amendment protection against self-incrimination.

A 1968 amendment fixed the problem, and you now cannot be prosecuted for a violation prior to or concurrent with your application to register an item. However, after a 90 day moratorium, this also took away the mechanism to register a currently unregistered NFA item, interestingly enough. So, if you have, or come upon, an unregistered NFA item, run away. You're breaking the law. And call a lawyer.

Current Status:

The NFA is still in effect. You still have to go through this process if you want any of the above listed items. Recently, Texas, along with a number of other states, has approved the use of sound suppression devices/silencers for hunting use.  This has been met with some controversy, as many people think of "silencers" as something assassins use in movies to kill people. Hence, why they are included in the same category as a machine gun. Others, (such as the Finnish Government, where you can apparently purchase a silencer at any hardware store) think that silencers/sound suppression devices should be mandatory,  due to the noise associated with firearms and the potential for hearing loss of those nearbye, and are very much different than machine guns. With that, and the current rush to try and buy any and all firearm related items before any new legislation, many individuals are purchasing items listed under the NFA.

NFA Application process:

Should you decide to purchase a NFA item, there is a process to go through. A long process. Once your item arrives from a licensed dealer, you must complete an ATF form 4 transfer.  It is not very complicated, but you will need the serial number of the item, a valid description, and some more identifying information.

If you decide to apply for the item in your name, then after your dealer fills in the required info, you have to submit a photo, fingerprints, and have the chief law enforcement officer (sheriff or police chief) sign off on your application. This can be a pain. Further, only you can possess the NFA item. If you let someone borrow it, they are breaking the law. If you pass away, then your heirs might be breaking the law if the proper structure is not in place.

Here is where a "gun trust" comes in. With the trust format, you apply as settlor/trustee of a trust. This way, you do not have to give your photograph, fingerprints, or have the chief law enforcement officer sign off. This saves a little time in the application process. The real benefit, however, is that it allows any of your named trustees to possess the item outside of your presence. This allows your family and hunting buddies to share in your item and not break the law. Further, many trusts set out a beneficiary designation, so you can dictate exactly who the item will go to, instead of just to your estate. All good things.

Regardless of what route you take, the background check process is extensive. A gun trust will not, I repeat, WILL NOT, allow someone who would otherwise be disqualified from possessing an NFA item to acquire it. They still run a background check on you. Either way, several months or more are common wait times to hear back.

Conclusion:

A "gun trust" is what it sounds like, and it is also not what people think. It is not an asset protection device, and it is not a place to put all your guns. I get lots of calls asking for both of these, but that is not the purpose of this specific trust. The best use, until the law changes one way or the other, is for the responsible use and acquisition of NFA items. Nothing more. That said, it is a very useful tool for those who have that specific need.

Protect your ASSets.

Pun intended. Watch Nightline lately? Or most any other news program or paper?  Who do you trust with your privacy? Yes, I'm talking about racy photos you send to your paramour(s). Be careful with these (see the links above). But I am also talking about your passwords to digital accounts.

The point here, is not just to protect your ASSets, but all your assets.  Where we have discussed in earlier posts the ways to attempt to safeguard your real, physical assets, we have seldom taken on discussing your digital ones.

Ever been locked out of your email? Its a pain. What if your parent/partner/sibling passed away, and had essential information on their email? How would you access it? What about accessing their social media profiles? Banking records and accounts? Ever thought about this?

Like so many things planning related, a checklist is usually the best way to go about things.

• Financial and business accounts passwords. Seems obvious, but do you have these written down somewhere? And have a backup to these? How will anyone know about your online stock account, if you don't tell someone, or have a list written down?

• Email Account passwords. You should change these regularly, but also have them written down, just in case. Gmail, for example, offers some recourse, but like anything you have to mail or fax a request in to, don't hold your breath.

• Social Media. Some people live on social media, others make their living from it. This can be a real estate asset. Facebook will memorialize an account for you, but I think that is a little creepy. Twitter has a similar policy for deleting an account.

• Itunes, music, pictures, etc. Bruce Willis did us a favor. Anyone every read those ten page contracts you AGREE to when you buy something on Itunes? Yeah, me either. I guess we should have just gone to the local music store and purchased a CD though, because when you die your song library is going to be worthless. WORTHLESS. How many millions/billions of dollars has itunes made, only for a life estate in the music? What a joke. I get it, from a business standpoint, similar to how, originally, you couldn't just transfer your itunes to someone else's computer or ipod. Now, they charge you $0.30 more. Genius? Maybe, but now when I die, my family has to pay for the same bad one-hit-wonder again at inflation adjusted, 2067 prices? Criminal. In all seriousness, this is the easy one. Back up your hard drive. Then back it up again. Keep the backups in different locations. (Houses burn down. Trust me).

Take Away: The easiest way to accomplish all this is have a pen and paper and a couple of extra hard drives. Every month, back up your stuff, update it, and keep one (or more) off site. Keep it in a safe deposit box. It is not that hard, and it is not that expensive. There are online companies you can pay to have real time, online access and storage, but you probably don't need that. I thought that would be a great business idea: maybe it is, but I was convinced my malpractice insurance wouldn't go for it.

Like any good boy scout/doomsday prepper/zombie apocalypse afficionado, the motto is the same. Just be prepared. Same goes in estate planning.

Also, Valentine's day is coming up. Remember, if you want to forever memorialize your most private and itimate moments via digital media, just make sure you trust who is on the other end. It could come back to haunt you, and you could end up in a class action lawsuit.

What happens now

Illustration by Victor Juhasz

Estate planners were busy at the end of 2012 with the Fiscal Cliff. We all were worried about the

 "death tax" coming back, at lower levels, but it didn't. I called that in November.  Now, everyone has $5.25 million they can keep tax free, and the annual exclusion is up to $14,000 per year, so gifting is easier/cheaper than its ever been. All that fuss, all those trusts, seemingly for nothing. Who has $5 million to worry about, anyway?

We do have higher income taxes, we have more taxes built into dividends and capital gains.  Who knows what our income tax returns will look like come tax season, but if you get a paycheck, you already know that you somehow just got a reverse raise. All for, what, exactly? Deficit reduction? Universal healthcare?

With the "death"/estate tax taken care of for now, planning is pretty straight forward.  Have your affairs set in order for the unexpected (via a will, and maybe a trust) and have your other assets
(bank accounts, insurance policies, investments) styled with beneficiary designations so there is no issue at death. Easy stuff. Now comes the hard part, in acquiring enough wealth to have to worry about any estate or gift taxes down the road, but that's another story.

So, what do I need to worry about now? Not much, but healthcare costs will continue to rise. How is your insurance situation? Are you looking at long-term care, or a government program, like medicare or medicaid? Do you have an elderly parent, or relative that is going to need assistance? "Uncle Steve is in fine health..." for now. If he has a stroke next year, Steve's estate is toast if he ends up on medicaid. Its just not that hard to plan ahead, and you have to do it now, as there is a five (5) year look back period to worry about.  Steve's house? At least the heirs will get that after he passes away, right? Gone, unless you plan ahead or use a LadyBird Deed.

Congress seemingly did us a favor, in restoring the estate tax, but it's a favor that doesn't help too many normal folks.

So, where, exactly, are we? The new taxes, that are supposed to help reduce the deficit? A huge chunk are already spent in the $51 Billion Hurricane Sandy Relief Bill, through earmarks that don't have anything to do with helping the communities affected by the storm.  How hard is it to help those in need, without sneaking in unnecessary, "pork" spending?  We have another debt ceiling crisis coming (we already hit it), which the house just pushed down the road another three months, but at least they didn't have to make that $1 trillion coin. Yet.

Want to get even more upset? Read Matt Taibi's article in the Rolling Stone about the back story and current status of all the Wall Street Bailout Money.  "It's all paid back...taxpayers will make a profit..." all these feel-good success stories seem to be just smoke and mirrors accounting tricks, by taking lower interest loans from the government to pay back their higher interest, TARP/bailout loans and calling it a victory for the common man. "There will be strict rules against paying big bonuses..." yes, but don't worry, there are loopholes as big as Long Island to get around that, and the executives whose risk hurt so many across the country were rewarded handsomely on the back burner.  When I heard a conservative quote that somewhere between 10-30% of the TARP money was just assumed to end up going to "fraud, just because." I was irate. Now that I know more...I'm just disappointed, and frustrated at our leadership.

But that is where we are.  Just make sure you have a plan. 

Post Fiscal Cliff Recap

I'm not going to say I told you so, but I told you so.

Estate and Gift tax wise, we have the same thing as we had before: ~$5 Million exemption amount for estate and gift, portability between spouses, only wrinkle is it is 40% beyond that (up from 35%).

Yes, taxes went up. Yes, payroll tax cut went away. Yes, medicaid/care related taxes went up. This is all bad, but at least you won't have to worry about getting taxed on giving your money away.

The real takeaway is that to preserve your portability between spouses, you will now have to fill an estate tax return, even if you don't owe anything, 9 months after the death of the decedent spouse. This little piece of paper will save you a potential $5 million in exemption, so don't forget to bring it up with your attorney.

Else, its business as usual, except we are all going to take home less money. On to the next debt ceiling debate, and hopefully some serious talks about cutting the deficit and reducing the budget/spending.

Fiscal Cliff Deal Passes the Senate

Here it is: the bill the senate passed, and now its on to the house.  I read most of it.

The "American Taxpayer Relief Act of 2012" is a compromise, but its pretty much what we thought it would be.

The highlights:

·      The level at which tax rates will go up is $450k for families $400k for individuals. Not the $250k/$200k limit initially discussed. Capital gains and dividends rates go up for these people too.

·      Estate tax stays at a $5 million applicable exclusion amount, but the rate above that goes from 35% to 40%. The exclusion amount will go up, as it is indexed for inflation. 

·      Personal exemptions and itemized deductions are phased out at $300k for a family, and $250k for an individual. 

·       Mortgage interest deductions, tuition deductions, stay in place. 

·       Unemployment will be extended for a year. 

·       There are extensions for medicare/aid, clean energy companies, agri-business, indian owned businesses.

·       Payroll tax cuts were not extended. 

The lowlights:

·      Doesn't address the "sequester," the big federal budget cuts that are mandated to kick in to balance the budget, just delays it 2 months. 

·      Doesn't address the debt ceiling, which we apparently hit again, yesterday. That will need to be address in the coming months, AGAIN. 

Summary:

Income taxes go up, but it won't affect many people. Payroll tax cuts will affect a lot of people. Most everything in this bill just kicks the can down the road, a year or two, a month or two, we will have this battle again. We still don't have the budget cuts needed to pay down the national debt. 

And the real kicker: the house swears in a new batch of representatives on Thursday. So, if they don't pass this by Thursday, we start from scratch. Again. Make it happen, Boehner.