Family members often try to simplify a real estate transaction by avoiding the use of professionals. However, a transfer of a piece of real estate can and usually does have legal, practical and tax implications, even when done correctly.
When done incorrectly, the result can be a costly, prolonged litigation.
In the recent case of Luna v. Brownell (Los Angeles County), what was meant to be a quick and easy real estate transfer had a trifecta of problems – 1) multiple versions of the deed were prepared; 2) some of the deeds granted the land to a trustee of a trust that had not been formed yet; and 3) when the grantor died, his two sisters disputed the deed that would transfer the property to the next generation of the family.
In 1983, Mr. Alfonso Luna had granted his property to himself and his siblings as joint tenants. This is shortcut estate planning device that should have left the property to his siblings on his passing.
However, over twenty years later, Al changed his mind and asked his siblings to grant back the property to him. They did so and executed 4 grant deeds to Al, one set to Al as individual and one set as to Al as trustee of his trust.
One wrinkle was at the time of these deeds, Al’s trust hadn’t been formed yet. Eventually it was formed and the deeds to Al, as trustee were recorded. The trust’s beneficiaries were actually Al’s nephew and nieces. After Al’s death, his siblings sued to revoke the transfers to Al on many grounds, the most viable of which being that the transfer to Al as Trustee was void because the trust did not exist yet.
The law in California is that a deed does not transfer title to the grantee until it is delivered. The “delivery” is a term of art that 1st year law students learn about as the stemming from the feudal days when lords transferred possession of land by “livery of seisin” by giving a clump of dirt to the grantee. The actual transfer or delivery was necessary to effect the transfer.
However, in today’s modern era of escrow companies, deeds and recording, delivery is determined by intent and the circumstances of the transfer. Could a person deliver title to something that did not exist yet?
This was a case of first impression and the Luna Court held that the transfer was NOT void because 1) the deed had been executed in anticipation of the creation of the trust; and 2) the trust was in fact created thereafter. Accordingly, the Deed was valid on the date the trust was formed, the date of “delivery.”
This result was not surprising, in light the concept of springing interesting, or other executory interests. However, things would have gone a lot smoother for Mr. Luna’s intended beneficiaries if things had been in the right order and to the right entities. [Luna v. Brownell, California Courts of Appeal Second Appellate District, June 11, 2010.]