Unfortunately today privacy is an ever eroding concept. Private companies and the government have ever more resources to track our movements and transactions. From GPS units in cellphones to compilations of credit card purchases, our privacy is compromised in more ways than we can imagine.
Fortunately, the use of a trust allows you to protect your privacy in several ways. First, the trust is not registered with state or local governments in South Carolina, second, a trust does not become a public document upon your death, and third, a revocable trust is a pass through entity for tax purposes during the settlor’s life.
Creating a trust in South Carolina is a simple process that does not require filing papers with the local government. A trust can be created by executing a trust instrument, or even by verbally placing a piece of property in trust. (Verbal trusts, however, are very difficult to prove, not recognized by the ATF, and therefore outside the scope of what we will consider.) The relaxed requirements to create a trust keeps the terms of the trust private. Additionally, in South Carolina, there is not a requirement to file a copy of the trust, pay a yearly fee, or file an accounting of trust property with a government entity. The only time a trust must be made public is when a dispute occurs among the parties to the trust. Unfortunately this cannot always be avoided, but through the use of a clear and properly drafted trust such disputes can be minimized.
Upon your death any will to be probated must be submitted to the probate court and made public. Everyone, and I mean everyone, can access the court records to see what property you had upon your death and to whom you left it. This creates obvious problems when you leave a favored relative more assets than another similarly positioned person, but there are many other reasons you may wish to keep a loved one’s inheritance private. Would you really want everyone in your community to know who received your firearms, especially if they are about to be away on a long vacation? Unlike financial assets or real property, firearms are both highly liquid and tangible, and unfortunately this makes them a target for theft.
For tax purposes, during the life of the settlor a revocable trust is treated as a non-existing entity, and any income or capital gains resulting from trust property is taxable directly to the settlor. After the death of the settlor the trust must file with the IRS for a tax identification number and pay any income taxes due on a yearly basis. From a practical standpoint, most NFA Firearms Trusts will not hold assets that generate income, and without income, current law does not require a tax filing. (Such laws are subject to change, I am not a tax attorney, and I advise any trustee liable for filing tax forms to seek the advice of a competent tax attorney, CPA, or both.)
The only reporting a NFA Firearm Trust must make is the one time transfer tax filing with the ATF. Unfortunately, this filing is required any time you wish to purchase a NFA Firearm regardless of how you do it.
Through the use of a trust you do not disclose your purchases and other transactions to local governments, you shield your loved ones from having critical information exposed in probate court after your death, and this is accomplished without increasing your tax filing obligations or paperwork. The NFA Firearm Trust is a win-win for privacy allowing you to discreetly purchase NFA Firearms. If you are interested in NFA Firearms and would like to learn more about the use of trusts in South Carolina please contact me.