The Two Steps to Take For An Executed Deed To Be Effective; & What Happens When the Grantee Does Not Yet Exist.
In order for a deed to be effective in California, it must be "delivered" and "accepted." These terms do not have their normal meanings in this context. Delivery does not mean the physical act of transmitting the deed to the grantee. Delivery refers to the intention of the grantor that the deed be presently operative, with the grantee immediately becoming the legal owner. Delivery can be inferred if the deed is recorded or is in the grantee's possession. The deed also must be accepted, which again refers to the grantee's intent. The grantee must have the intention to become the legal owner of the property. Usually, these issues do not come up, except in unusual circumstances in which a party to a deed should consult an experienced real estate attorney. Such an unusual case came up when deeds were prepared for a trust that had not been created. After the grantee's death, the grantors' heirs wanted the property back. The grantors' heirs were disappointed to learn that, nonetheless, the deeds had been delivered and accepted, and the property was not theirs.
In Gloria Luna v. Erica Brownell, the dispute arose regarding a house in Monterey Park. An attorney was involved and had the parties sign too many deeds, confusing everything. Al owned the property and wanted to plan for his passing. He signed a deed granting the property to himself, brother, and two sisters as co-owners. Later (here's where the attorney got involved) the two sisters each signed two deeds, one granting their interest back to Al as an individual, the other to Al as trustee of a trust (that had not been created). Several weeks later, Al executed the Declaration of Trust. The sister's deeds to the Trust were recorded, and Al died 11 days later.
The sisters' heirs filed this lawsuit claiming that the deed to the Trust was void because the trust did not exist when the deeds were signed and delivered to the Lawyer. The defendant argued that the sisters, when they signed the deeds, had the intent to return title to Al, either as an individual or as trustee of the trust.
The court first reviewed the law of deeds and delivery and acceptance, discussed above. The fact that deeds were not recorded immediately is of no consequence to effectively transfer title. This was a case of first impression, meaning nothing identical had been ruled on in California before, so the court had to review decisions from other states. These discussed deeds to corporations that were executed before the corporation was created. They found that the deeds were valid as between the parties, and title passed to the corporation immediately on creation of the corporation. However, it is void when asserted against third parties prior to the incorporation.
The Court concluded that, in California, a deed transferring property to the trustee of a trust is not void as between the grantor and grantee merely because the trust had not been created at the time the deed was executed, if (1) the deed was executed in anticipation of the creation of the trust and (2) the trust is in fact created thereafter. Such a deed is valid between the grantor and grantee on the date the trust was formed.
This is a good result in the face of some greedy heirs. It was apparent that the sisters intended that their brother get his house back, and presumably never felt that they had a share in it while Al was alive.