In Luna v. Brownwell, the California Court of Appeal ruled that a deed executed in anticipation of the creation of a trust is effective to transfer property to the trust as soon as the trust is created. In Luna, a property owner initially attempted to plan his estate by adding his sisters to title. Later, the property owner decided to create a more traditional estate plan by creating a testamentary trust. His sisters deeded the property back to him to transfer to the trust. However, at the time his sisters signed the deeds, the trust had not yet been created. The property owner completed the creation of the trust about two weeks later.
The property owner’s estate plan was apparently not to his sisters’ liking. After he died, his sisters filed suit alleging that the deeds they signed were void because the trust did not exist when the deeds were signed. The Luna court reviewed the decisions of other state courts considering similar circumstances and concluded that the deeds were not void, but instead became effective upon creation of the trust.
The rationale of the Luna decision will likely apply to other situations in which a transferor signs a deed transferring title to an entity prior to completion of the entity (for example, a corporation). The deed will be deemed effective once the entity is created.