The historical popularity of hunting and other shooting sports in North Carolina insures that firearms are often a valuable part of a client’s estate. Firearms owners typically must manage two types of risks related to their collections: property risk (risk of firearms loss, theft, or damage), and liability risk.
Revocable Living Firearms Trusts Remain Popular, But They Do Not Protect Against Property or Liability Risk
For various reasons, including privacy, avoidance of probate, more careful control of firearms possession, better management of federal, state, and local transfer restrictions, and a reduction in administrative burdens for NFA firearms, it may make sense to place firearms into a stand-alone revocable living trust (an NFA gun trust should be used if any NFA devices are present or to be purchased), or, where appropriate, into a more general revocable trust along with other assets.
But there are some misunderstandings about this approach. For example, many believe that isolating the grantor’s firearms into a firearms trust shields the grantor’s other assets outside the trust from liability. Unfortunately, this is not the case.
Stand-alone firearms trusts in North Carolina are typically set up as “revocable living trusts.” In North Carolina, because the “grantor” who sets up the trust has the right to dissolve the trust at any time by “revoking” it, the grantor is just as liable for accidents involving the guns owned by the trust as if he personally owned the guns himself. The monetary liability would extend to all of the grantor’s assets, including assets held in revocable trusts.
Since gun trusts provide neither property nor liability protection, it is important to use insurance to minimize risk, as is discussed at the end of this article.
LLCs or Other Corporate Forms Typically Are Not a Good Choice for Private Gun Owners
It is legal for LLCs (limited liability corporations) and other corporations to own guns in North Carolina. There are several reasons, however, why LLCs and other corporations are not frequently used to protect private gun owners from firearms liability.
Someone who makes a mistake with a gun is not going to be able to escape personal liability. Liability will attach to the person making the mistake, regardless of whether an LLC owns the gun or not, and typically all of the individual’s assets will be available to pay any award. If an LLC employee (not the founder) has an accident however, and the founder is not involved, the founder’s liability would typically be limited to the assets of the LLC.
LLCs and other corporations have more administrative costs than trusts. The initial filing fee for either an LLC or a corporation is $125.00 in North Carolina, with a $200.00 recurring fee to the Secretary of State ($25 for corporations) each year. The Secretary of State also requires an annual report, which can be cumbersome.
LLC’s and other corporations must exist and be run for a “business purpose.” An individual who places all of his firearms in an LLC merely in an attempt to protect himself from liability probably is not doing enough to assure that the LLC has a business purpose. If a user has an accident with a firearm held in an LLC with no clear business purpose, a court may be able to bypass the liability protection of the LLC, and find members personally liable, through a doctrine known as “piercing the corporate veil.”
Use Insurance to Protect Against Property and Liability Risks
The best way to reliably protect a gun collection’s monetary value is to utilize property and casualty insurance. Most homeowner’s insurance policies cover the value of guns and related equipment, and offer specialized riders (where more protection is needed). If guns are kept in a revocable trust, it is necessary to inform the insurance company so that they will extend property coverage to the trust.
Insurers are also available to help gun enthusiasts reduce liability risk. The National Rifle Association, for example, endorses firearms personal liability insurance. See https://mynrainsurance.com/insurance-products/liability-personal-firearms. As above, make sure to inform the liability insurer where the guns being insured are held in a trust.