An Interview with Attorney John Harris
Interview by Gila Hayes
Armed citizens are familiar with using trusts to own restricted types of firearms but less knowledgeable about trusts for asset protection. Most of us are people of ordinary means, and the idea of trusts for asset protection sounds like a means for multi billionaires to shelter their money. Firearms attorney John Harris has a broader viewpoint and in the following Q & A he explains the overlap between trusts for asset protection and the armed citizens’ concerns about personal liability.
Harris had hinted at a bigger subject in his response to our online journal’s June 2021 attorney question of the month. When I commented that I thought trusts were primarily a vehicle to own restricted weapons, he graciously explained the wider uses of this legal tool and agreed to give an introductory interview about trusts for armed citizens.
eJournal: I think my idea that trusts are for Class 3 weapons possession or as a tool of the very wealthy is inadequate. What is the applicability of trusts in today’s financial world?
Harris: I think there has been a history of trusts being used as you described by the rich and affluent, but for gun owners there are a lot of reasons why trusts are something that they need to be aware of and armed citizens need to consider how the trust can play a role in their asset planning.
For example, we do a lot of trusts for people who want to acquire items regulated by the National Firearms Act – the NFA – suppressors, short-barreled rifles, short barreled shotguns, even machine guns. With an NFA trust, they can have an alternative means of ownership and the benefits that go with that such as allowing more than one individual to be the “possessor” of the item and addressing the transfer of the item from generation to generation.
Another area where we see that gun owners and Second Amendment advocates can benefit from using or incorporating trusts into their planning is in asset protection. You need an understanding of how, in civil matters, assets can be subject to execution to collect judgments on liability matters. Say, for example, you’re involved in a self-defense incident. You can successfully defend the self-defense incident, but in the self-defense situation, you accidentally or negligently injure a third party, or damage a third-party’s personal property – say, for example, you put bullet holes in a car.
Defending the self-defense incident, itself, does not necessarily take care of the potential financial exposure – and we’re not talking attorneys’ fees, we’re talking literally, judgments for damages to an individual or to an individual’s property. By using trusts, it is possible, depending on each state’s laws, to make the individual’s or the family’s assets less available for judgment creditors.
eJournal: That may be of interest to Network members because – as we have stressed from the very beginning – the Network pays the attorney fees, the costs of expert witnesses, private investigators and all the other costs that go into defending legitimate use of force in self defense, but if, despite it all, a civil court rules that the member is liable for damages, we cannot pay a judgment on behalf of a member. That is an insurance product, and we are not insurance.
How do trusts address the multitude of ways personal resources are held? Many folks have checking accounts for daily expenses, hopefully a rainy-day fund, investments and retirement accounts. Others have homes, land, automobiles and other valuable possessions. Can it all be sheltered?
Harris: The answer depends on each state because each state’s statutes on assets with respect to enforceability of judgments can be different. What you do have is an opportunity by using planning and trusts to, essentially, change the ownership of your assets. In most instances, this needs to be looked at long before the self-defense incident arises.
For example, a husband and wife may own assets in their individual names. If they retitle those assets into joint names, that is a simple step toward asset protection. Many people do this with their homes but they may be unaware of the potential asset protection benefit that they are creating. For the gun owner, it would be rare for both the husband and the wife to be involved and exposed to a self-defense shooting. Jointly titling the assets could make it more difficult to execute upon their assets in the event that one of the spouses was involved in the self-defense incident and later found to be financially liable for causing harm to an innocent bystander or even liable on an “excessive force” claim.
Taking the situation of joint ownership a step further, the trust is viewed in all states as a separate legal entity. You could set up a trust with multiple creators, multiple, different trustees, or multiple people responsible for administering the assets in the trust. You could have multiple, different beneficiaries. The trusts can have other characteristics such as being revocable or irrevocable and those features can impact whether creditors can reach the trust assets.
For example, a common format that we see is that a husband and wife might create a trust and identify themselves as the primary beneficiaries, then they name their children and heirs as the remainder beneficiaries. That means multiple, different parties have an ownership interest or a remainder interest in that pool of assets. That pool of assets could include homes, real estate and investment accounts. It could include some life insurance policies; it could include some vehicles. All these assets could be pooled within this trust so that the trustees are the owners. The trust creates multiple tiers of ownership and possessory interests that, depending on how the trust is structured, makes it more difficult for a judgment creditor to reach those assets and collect upon them.
eJournal: You just mentioned some terms that I don’t completely understand: “revocable,” and “irrevocable.” When we are discussing trusts, what do those terms mean and how do they affect these multiple owners you’ve discussed?
Harris: In asset protection, the irrevocable trust – one that is permanent, so to speak – is clearly stronger because the people creating the trust, even though they may be a beneficiary of it, have given up the capacity to revoke or terminate it and draw those assets back into their personal ownership.
A revocable trust is better than nothing, but it does have a weakness. Depending on the facts, the court might find that the trust is still subject to the control or the discretion of the debtor and they could unwind or undo that trust to get to the assets. The question then becomes a much more complicated analysis of whether the court would consider an order to that effect, to take away rights that are vested in third parties like the beneficiaries or other people who contributed to the trust.
eJournal: Conversely, if the creator of the trust suffered a terrible financial setback or fell ill and needed to pay for medical treatment, can he or she access the resources held in the trust?
Harris: The settlor or the grantor is the person that creates the trust and is the person that puts some or most of the assets into the trust. Technically, the owner of the assets becomes the trustee once the assets are transferred to the trust. The trust would commonly have language in it that would say that the trustee has the discretion to distribute payment to or for the benefit of any grantor beneficiary on a spendthrift grounds, or to take care of health, maintenance, education, or support for the people who are named as persons to be benefited by the trust’s existence and purposes.
Even an irrevocable trust could have language in it saying that in the event one of the creators has, say, a severe medical problem – maybe he needs nursing home care or extended health care in a facility – the trustee, at their discretion, could pay for those benefits. The difference is whether the power is to be exercised by a trustee or a third-party, rather than the individual in his or her own capacity.
eJournal: Those variables suggest to me that setting up a trust could never be a one-size-fits-all endeavor. How technical is the establishment of a proper trust? Do we order a trust kit off the Internet or go down to Main Street and walk into a lawyer’s office and ask to have a trust established?
Harris: No, this is not typically a do-it-yourself project. Lawyers, like doctors have a wide spectrum of practice areas. You would not want to go to a podiatrist for cataract surgery while, in terms of their licensure, they may be legally capable of doing it. In my world as an attorney, you have attorneys that do real estate closings, that do bankruptcies, and that advertise on television to do car wrecks and truck and motorcycle accidents. The fact that they are an attorney does not necessarily mean that they are outfitted to do trust work. You are better off if you look around and find one that has a broader practice spectrum or perhaps one that specializes in estates and trust work.
Even some of the attorneys specializing in estate work or trust work may be geared more toward the affluent, high-end client as opposed to someone that is looking for an asset protection trust because that is a subset of general trust practice. Not everybody who has experience setting up a trust is looking at the asset protection element of it. A trust might be, like we said earlier, an NFA trust, or a trust that is set up for testamentary purposes or trusts set up to hold assets multi-generationally, or assets in trust for college education purposes – those are all different goals.
eJournal: Another new-to-me term: What is a testamentary trust?
Harris: Testamentary trusts are typically the ones that are created in and as part of a will. Many times, you will see language in a will that says, “I’m leaving all of my assets to my spouse, but if we die in the same incident or she predeceases me, I’m leaving my assets to my children. But if my children are under age 25, I am going to leave the assets with so-and-so as a trustee to manage those assets until my children reach the age of 25.” The example is a very simple formula, but that is it.
eJournal: Is that different than a multi-generational trust?
Harris: It can be. A testamentary trust could be complicated enough to be considered multi-generational, but it doesn’t have to be. Frequently, those just cover getting the kids or the grandkids up to a certain age before you turn them loose with unlimited resources.
eJournal: A lot of people view trusts as for the extremely wealthy. Let’s talk about common, everyday men and women. A lot of people really are living paycheck to paycheck. Maybe they rent an apartment, drive an old car, and really, they just don’t own much. Should that person worry very much about a judgment against them? Is it worth it to take half a month’s wages and pay an attorney to build an asset protection trust?
Harris: I will say this: a trust is something they need to be considering. A trust that has been in place for a while is more likely to be viewed by a court as being set up for appropriate, estate planning purposes rather than one that was set up recently when there has not been a change of circumstances – because you just won the lottery. Members and individuals who may live paycheck to paycheck are still accumulating assets. Maybe they are acquiring vehicles and those things aren’t cheap these days, or they are buying their first or second home or they are starting a college savings account for their children. It doesn’t take long to start accumulating significant assets, at least on paper.
Say a Network member gets involved in a self-defense incident. The issue is not the cost of the attorneys’ fees in terms of the civil claim or the criminal claim, but the ability to settle that case or to deal with a potential adverse judgment does become an issue. If that happens, a trust that has been in existence for a number of years, I think, is a better situation to be in than having a trust that was just recently created, but even the recent one is better than nothing.
eJournal: I have wondered if establishing an asset protection trust may cast a shadow of doubt over the legitimacy of an armed citizen’s actions. Did we shelter our assets because we were getting ready to kill someone? Of course, we were not, but false accusations can sure make you look suspect.
Earlier you painted the example of a perfectly legitimate self-defense shooting with pass through rounds that damaged a car. Worse, what if the bullet over-penetrates and goes through to harm an innocent bystander? Am I responsible for that harm? You bet I am, but does the existence of my trust make it look like I had a pattern of avoiding responsibility?
Harris: Well, that may be. Let’s use Tennessee, for an example. Tennessee specifically has created legislation in the last few years that promotes or makes it easier to create asset protection trusts as a specific category of trusts. That also exists in other states. It is useful for a lot of reasons. For example, people have automobile liability insurance. A lot of people carry $300,000-$500,000 in limits and some people carry $1 million or more because they have an umbrella policy.
I will give you an example: we recently had a case I was involved with because the family had a car policy with $300,000 in limits but unfortunately the other person in the other vehicle died. He was a young, military helicopter pilot and the financial projections of what that individual might have earned during his lifetime had he lived a normal life span and served as a commercial pilot the entire time was millions of dollars in terms of earning capacity. Even a $300,000 liability policy doesn’t go far if the earning capacity of the person – or their medical bills, say they become a quadriplegic – is millions of dollars.
People can set up this asset trust hedge against automobile claims, firearms-related liability claims, or contractual liability claims, as we have seen in the last year with COVID-19. People out there had formed their own businesses – restaurants and what not – that they were unable to operate because of COVID-19. They lost their businesses, and creditors and landlords, are suing them for tens of thousands of dollars for things like broken leases. Asset protection trusts can be a tool to plan for those kinds of risk contingencies. They are not just for gun owners. Trusts are for anybody that engages in activities from driving a car to running a business that has the potential to create risk exposure.
eJournal: The broader application is very good. Sometimes just the way we describe what we do and why we do it defeats the accusation before it’s ever voiced. As you indicated earlier, creating an effective trust is not necessarily a job for the Main Street lawyer who pretty much makes his or her living defending DUIs and filing divorces. If we work with a skilled trust specialist, what should we expect as an approximate cost?
Harris: What you need in an asset protection trust can vary from person to person quite a bit. It depends on the circumstances. You could be looking at a low range of $1,500-$2,000 to prepare a trust for a couple. It can go up from there. We have done trusts where, because of the number of trustees involved or the complexity of the trust, we were talking $25,000 to $30,000 for the attorney’s fees.
eJournal: That would seem like an extraordinary situation. Conversely, for an ordinary working gal or guy, $3,000 might equate to the amount we have saved up for our next AR 15 rifle. Maybe we should think about having a lawyer help us set up a trust as having as much lifetime value as putting that second or third rifle in the gun safe.
Harris: In many instances it is not going to cost more than that second or third rifle; it may not cost more than the gun safe.
eJournal: This is your world … Definitely, it isn’t mine! I had so much trouble trying to figure out what I needed to ask you, that I hope I have not missed the mark too badly. What questions did you hope to talk about? What else do we need to discuss?
Harris: I think one thing that people need to understand is this: if you are going to be engaged in public life – driving cars, contracting with third parties, carrying a gun for potential self-defense reasons, taking a gun onto a gun range where there is a possibility of accidental discharge, you need to do some estate planning. You need to do some asset planning. I think people need to be dealing with the contingency that if something goes wrong, can they afford to hire the attorney in a civil case, in a civil appeal; in a criminal case, in a criminal appeal?
Just affording the attorney fees is a big factor that they need to be able to deal with, but at the same time they could have another situation, just like with a car wreck that is purely an accident – you didn’t mean to hurt anybody, yet someone still got hurt. Do you have your assets arranged and your plans made to deal with that risk contingency? You might have to deal with a judgment. We can’t stop that possibility, other than through a bankruptcy, to wage garnish your assets, but we can protect against the judgment creditor’s ability to issue an execution against your bank accounts or savings account or your mutual funds or whatever other assets you have accumulated to this point.
The point is that the laws are written in such a way as to create potential liability when things go wrong and someone is harmed but they are also written in ways that provide that some assets, under some circumstances, are not subject to the claims of creditors.
eJournal: Thank you for explaining that the law balances that way. You have given us some very useful details to ponder. There’s something else that I keep hearing about you, so could you take a minute to tell me about your work with Tennessee Firearms Association?
Harris: In 1994, Tennessee passed its first shall-issue version of a handgun permitting law. The NRA came in and led the charge. What we realized almost immediately after they did that was that Tennessee had a large quantity of laws on the books that were written at a time when citizens couldn’t carry guns. These laws made the penalty higher in certain places like school grounds and public parks than if you were just carrying the gun on the street. Once it passed the permit law, the NRA didn’t really stick around and deal with the other issues. They sort of just abandoned us, as they have done in a number of other states, to the technicalities like what happens if you carry in a park even if you have a permit, and what happens if you carry in a restaurant that serves alcohol even if you are not drinking and you have a permit?
TFA was formed in 1996 to deal with the nuts and bolts of being a gun owner in Tennessee, a state that as of July 1st gives the capability through at least three mechanisms to carry a firearm. It has been primarily our mission to focus on Tennessee issues in terms of where you can carry, when you can carry, how do you get your rights restored, how do you protect gun rights, how do you build more gun rights?
Those are the issues the NRA really did not work with a focused effort to foresee or address after they came in and passed a permit law. That is mainly what TFA does, but TFA is also increasingly engaged in litigation since we know that some issues are better addressed in the courts than in the public policy arena of the legislature.
For 26 years now we have focused on those issues and developed expertise. The money that we have raised doing that stays in Tennessee. We are building relationships with legislators and financially supporting some of them when they need assistance to run or to hold office. More commonly we are trying to figure out which ones are the problems, who are not helping us to move things forward, and trying to find people that can replace them. We have great relationships with Gun Owners of America, Second Amendment Foundation, National Association for Gun Rights and have increasingly become allies of those organizations, primarily in federal litigation on Second Amendment issues. In three years, we have been involved in two Supreme Court cases that were initially brought by others and then we were asked to support them and then we did.
eJournal: What an excellent history of success, and a quarter-century into that story, you are still pushing forward so vigorously. Congratulations to you and TFA! You surely do keep busy, making me all that much more appreciative of the time you spent with us today helping us understand the value of planning for asset protection.
Learn more about our Affiliated Attorney John Harris and his work on behalf of TN gun owners at http://www.harrislawoffice.com/content/attorneys/john_i_harris.htm and his efforts at https://tennesseefirearms.com/ where he blogs, podcasts and posts news of concern to armed citizens.
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