ATF 41F, the final implementation of ATF 41P, has raised many issues. None of them are more confusing or more important than who is a ‘Responsible Person’. The exact meaning of this term, or more importantly who is included, decides just how much paperwork a trust must submit for a transfer.
The Definition
For starters, consider the definition found in 27 CFR 479.11:
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.
The first sentence, which affects all entities, hinges on who has “the power or authority to direct the management and policies” of the entity as they relate to firearms. This is in keeping with the definition of responsible person for Federal Firearm Licensees and would exclude employees who cannot control a company.
This is a narrowing of the proposed definition which included any individual who possessed “the power or authority . . . to receive, posses, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the trust or entity.” (AG. Order No. 3608-2016, P. 16). Under the final rule, it appears at first brush that mere ability to possess a firearm is not the determiner of a ‘Responsible Person’.
The Extended Definition for Trusts
The ATF, feeling that a single, complicated, sentence was not enough, went ahead and ‘clarified’ further the definition as it relates to trusts.
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.
The meaning of this sentence is ambiguous at best. The operative word is the underlined “and” and how it is interpreted.
So Who Is Included?
Some have read the additional sentence specifically directed at trusts and interpreted the “and” as an “or” and concluded that anyone who can “receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the trust” is a ‘Responsible Person.’
Others have recognized that it is possible to have a lower class of trustees, much like lower level employees, who have the ability to possess firearms but do not have “the power or authority to direct the management and policies of the trust.” (This is exactly the position of “Possessory Trustees” in Firearm Collector Trusts drafted by R.K. Merting.) Therefore, some argue, the definition as written does not include these individuals because they cannot both possess firearms AND control the management and policies.
When we look to the ATF’s response to comments to clarify the definition we find they waffle on their interpretation! In the draft of the final rule released by the Attorney General, AG Order No. 3608-2016, the ATF places emphasis on the “power and authority to direct the management and policies of the entity insofar as they pertain to firearms.” (P. 4. See also, P. 14, 32, 114, 124, 145, 210-11). However, at other points, the ATF places emphasis on “individuals with a trust or legal entity that will exercise control over NFA firearms” (P. 100) or are “able to control firearms” (P. 105). See also P. 177
This ambiguity in interpretation is best discussed on P. 118 of AG Order No. 3608-2016. Here ATF states clearly that ‘Responsible Persons’ “applies to those who possess the power or authority to direct the management and policies of an entity insofar at they pertain to firearms.” But, the ATF asserts that “Trusts differ from legal entities in that those possessing the trust property – trustees – are also the individuals who possess the power and authority to direct the management and policies of the trust insofar as they pertain to trust property, including firearms.” This single sentence appears as the lynchpin in the ATF’s reasoning that anyone who can possess a firearm in a trust can ergo control the management of the trust. However, trusts are complicated contracts that the settlor can draft with minute details and multiple roles: Thus this is not necessarily true.
The ATF further muddles their reasoning claiming that a beneficiary, who by definition has limited to no control over the trust, may be a “responsible person because of their capacity to control the management or disposition of a relevant firearm.” Here, the ability to appoint who receives a firearm could, arguably, require inclusion as a ‘Responsible Person.’
Unfortunately, I do not have a definitive answer on whether a special designed class of trustee, i.e. Possessory Trustees, can possess NFA firearms, not control the management and policies of the trust, and therefore not be a responsible person. I certainly see the logic in each argument, but I am inclined to believe “and” means “AND” and that the trust can be artfully drafted to create Possessory Trustees. Unfortunately, such an interpretation raises the question as to why the ATF included this sentence at all?
One answer to that question is to exclude “Trust Protectors” from the definition of “Responsible Persons.” A “Trust Protectors” is a person with high level checks on the trust and the trustees powers. In some instances, these people can guide the trust, remove trustees, and appoint trustees. However, Trust Protectors almost never have the power and authority to directly control the assets of the trust, and therefore they would not be able to “receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the trust.”
However, the strict language does not exclude people who don’t meet the extended definition. Rather it only clarifies who is included. Therefore, it is again not clear that a person who does not meet the extended definition for a trust, but meets the basic definition for all entities, would not be included as a ‘Responsible Person.’
More Clarification!?!
Almost as in recognition of this confusion, the ATF continues their definition with examples of who is, and is not, a ‘Responsible Person.’
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 the first sentence, it is noteworthy to point out that employees are not included. Certainly there are times when employees would be ‘Responsible Persons.’ However, there are many others when they would not. In most FFL applications, only the owner, and not the employees, are Responsible Persons. The ATF explicitly notes that beneficiaries are excluded where they do not have “the powers or authorities enumerated in this section.” This note of exclusion lends credence to the argument that not all trustees are automatically ‘Responsible Persons’ if it can be shown they do “not have the capability to exercise the powers or authorities enumerated in this section.”
So, What’s a Man to Do?
Wait and see is the best advice of the day. We cannot submit applications under the new rule until July 13th, and I do not expect responses from applications submitted at that time until 2017. Therefore it could take a year or more to determine if a properly drafted trust will allow for ‘Possessory Trustees’ who can use the firearms but not guide the trust. Of course, the safe option is to submit ‘Responsible Person’ forms for every trustee, but I am sure somebody will want to push the issue to learn just who is a ‘Responsible Person’ when it comes to trustees. If that’s you, then we can discuss your Form 4 in private after July. Until then, avoid the whole issue and get your transfers submitted now!