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Frequently my Texas NFA gun trust clients ask whether their adult children may be listed as both trustees and beneficiaries of their NFA gun trust. The answer to this important question involves a legal doctrine known as “merger.”
One of key features of a properly drafted NFA gun trust is the separation of the legal title in the NFA firearms from the equitable title in the NFA firearms, with the trustee holding legal title and the beneficiary holding equitable title. Whenever legal title and equitable title to trust property are joined in the same person, the two interests merge, and the property is no longer in trust. In other words, if the trustee and the beneficiary ever become the same person, such as for example, due to the death of the remaining trustees and beneficiaries, the legal and equitable titles to the NFA firearms “merge,” and the NFA gun trust is terminated.
The doctrine of merger is expressly set out in Section 112.034 of the Texas Trust Code, which provides:
If a settlor transfers both the legal title and all equitable interests in property to the same person or retains both the legal title and all equitable interests in property in himself as both the sole trustee and the sole beneficiary, a trust is not created and the transferee holds the property as his own . . . . Except as provided by subsection (c) of this section, a trust terminates if the legal title to the trust property and all equitable interests in the trust become united in one person.
Tex. Prop. Code § 112.034.
Merger can occur at the outset of the trust, as a result of a design defect in the trust instrument, or it can result from subsequent events or act of the beneficiary.
For example, suppose a husband and wife, as settlors, establish an NFA gun trust, appoint themselves and their adult son as trustees, and name the same adult son as the sole beneficiary. When the husband and wife die, the adult son is now the sole trustee and the sole beneficiary. In this example, the NFA gun trust terminates upon the last to die of the settlors.
As another example, suppose the husband and wife in the previous example instead named their adult son as a trustee and their adult daughter as the sole beneficiary. When the husband and wife die, the adult son is now the sole trustee and the adult daughter is the sole beneficiary. If the adult daughter conveys her equitable title in the trust property assigned to the NFA gun trust to the adult son, so that legal and equitable title are merged in the trustee, the NFA gun trust is terminated.
Note that the merger provision of the Texas Trust Code speaks of merger of legal and equitable title in one person. Also, note the Code’s use of the words “sole trustee” and “sole beneficiary.” The general view is that, where there are multiple trustees and multiple beneficiaries, a unification of legal and equitable title in the trustees and beneficiaries collectively does not constitute merger.
As a result, the answer to the question of whether adult children may be listed as both trustees and beneficiaries of the NFA gun trust is as follows:
- One of several beneficiaries of an NFA gun trust can be one of several trustees of the NFA gun trust;
- One of several beneficiaries of an NFA gun trust can be the sole trustee of the NFA gun trust;
- The sole beneficiary of the NFA gun trust can be one of several trustees of the NFA gun trust;
- If there are several beneficiaries of an NFA gun trust, the beneficiaries may be the trustees of the NFA gun trust; and
- The sole beneficiary of an NFA gun trust cannot be the sole trustee of the NFA gun trust.
In a recent order, dated March 28, 2013, in the U.S. District Court for the Western District of Texas, San Antonio Division, U.S. District Judge David Ezra applied the doctrine of merger to determine that an attempted transfer of property into a revocable trust, which is similar to an NFA gun trust, was invalid, because the sole beneficiary of the trust was the sole trustee of the trust. In a footnote, the judge stated:
This case is a poster child for the proposition that one should not rely on prepaid legal forms with boilerplate language for important legal matters. … It is also clear that a properly drafted trust prepared by a competent lawyer would have accomplished the goal she sought in the first instance.
See Tex. Prop. Code § 112.034; Jameson v. Bain, 693 S.W.2d 676, 680 (Tex. App.–San Antonio 1985, no writ); Moody v. Pitts, 708 S.W.2d 930, 934 (Tex. App.–Corpus Christi 1986, no writ); Denton v. Seals (In re Denton), 169 B.R. 612, 615 (W.D. Tex. 1994); Becknal v. Atwood, 518 S.W.2d 593 (Tex. Civ. App.–Amarillo 1975, no writ); Restatement (Second) of Trusts § 99 (1959).