[WSBARP] Transfer of title to entity that did not exist

Fri Mar 20 19:30:05 PDT 2015

Thanks very much for the very detailed analysis. I really appreciate it. In the midst of all this, H passed away, so it’s a bit messy. The surviving parties are currently in agreement so I think a QCD to the intended recipient, as you suggested, may work. I will read the caselaw and see if the facts match.

Thanks again very much.

Best regards,

Jennifer Y. Sohn

Attorney at Law 

(Licensed in CA and WA)

Sohn Law PLLC

10900 NE 4th Street, Suite 1850

Bellevue, WA 98004

Tel: 206.617.7874

Fax: 425.732.9748 

Email:  <mailto:jennifer at sohn-law.com> jennifer at sohn-law.com

 <http://www.sohn-law.com/> http://www.sohn-law.com

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From: wsbarp-bounces at lists.wsbarppt.com [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Eric Nelsen
Sent: Friday, March 20, 2015 9:45 AM
To: WSBA Real Property Listserv
Subject: Re: [WSBARP] Transfer of title to entity that did not exist

I think yes, the deed of real property to corporation in Year 1 probably becomes effective in Year 3 when the corporation is formed. But I didn't read the John Davis & Co opinion so I don't know how well the facts match; maybe there are other factors necessary to reach that result. The first post mentioned an 8-year gap between the deed to corporation and formation of the corporation. The length of delay might be relevant. Also what Rob Wilson-Hoss said--third party interests like judgments that might have attached in the interim could be an issue.

Assuming that's correct, though, then the Year 4 deed transferred nothing and is outside the chain of title. The deed is a cloud on title and can be removed via quiet title action, or the Trustee could issue a QCD to the corporation and recite that it's to clear title only. Recitals might also refer specifically to the Year 4 deed as transferring no actual title due to prior transfer by Year 1 deed.

If for some reason the Year 1 deed was not valid, though, then Year 4 deed might have been valid and the above solution is no good.

I hope everybody involved is in agreement about what they actually want. In that case, QCDs of the real property to the intended recipient, from each of those among H, W, Trust, and corporation who aren't supposed to hold the property, all "to clear title," might ensure that all possible rights are transferred to the right place. If there is any disagreement, I think a quiet title action would be needed to resolve it.

Sincerely,

Eric

Eric C. Nelsen

SAYRE LAW OFFICES, PLLC

1320 University St

Seattle WA  98101-2837

phone 206-625-0092

fax 206-625-9040

From: wsbarp-bounces at lists.wsbarppt.com <mailto:wsbarp-bounces at lists.wsbarppt.com>  [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Jennifer Y. Sohn
Sent: Thursday, March 19, 2015 10:05 PM
To: 'WSBA Real Property Listserv'
Subject: Re: [WSBARP] Transfer of title to entity that did not exist

Thanks for the information. So the sequence of events is as follows:

Year 1.  H&W transfers to corporation (non-existent at this point).

Year 2. H&W gifts shares of the corporation to children.

Year 3. The corporation is actually formed.

Year 4. W transfers part of the property to a trust.

So, based on the info below, the transfer to corporation became effective at Year 3. And, in Year 2, the gifts of the corporate share were possibly valid, but just had no values to the gifts because the corporation owned nothing. Possibly, the gifts had value in Year 3 and they should have filed gift tax returns then (which I have to discuss with the client and CPA). 

My question then becomes what effect does the transfer that occurred in Year 4 have? Since neither H nor W had any interest in the property in Year 4 (because the transfer to corporation became effective in Year 3), this transfer is void – is that right? If that is the case, what can I do to un-do this transfer?

From: wsbarp-bounces at lists.wsbarppt.com <mailto:wsbarp-bounces at lists.wsbarppt.com>  [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Eric Nelsen
Sent: Thursday, March 19, 2015 5:03 PM
To: WSBA Real Property Listserv
Subject: Re: [WSBARP] Transfer of title to entity that did not exist

Interesting. I think the answer is in the intersection of pre-incorporation acts of a corporation, and in conveyance rules regarding status of a grantee.

>From the WSBA Real Property Deskbook, Vol. 1, Sec. 5.5(3):

As a general rule, the grantee must be a legal entity at the time of the grant; otherwise the transfer is void. Loose v. Locke, 25 Wn.2d 599, 171 P.2d 849 (1946). It seems, however, that courts will go to some length to avoid this result. In a later decision, a court held that a deed to a corporation, made prior to its organization, was valid between the parties, and title passed when the corporation was legally incorporated. John Davis & Co. v. Cedar Glen No. Four, Inc., 75 Wn.2d 214, 450 P.2d 166 (1969). By analogy, this reasoning should apply to limited partnerships and limited liability companies, which also come into existence when the articles of formation are accepted by the state.

But, also from the Deskbook, Sec. 5.6(3):

As a general rule, unincorporated associations (such as fraternal lodges, churches, or other religious, patriotic, or social organizations) cannot hold title to real property because they are not legal entities. Grand Grove of U.A.O.D. v. Garibaldi Grove, No. 71, of U. A.O.D., 105 Cal. 219, 38 P. 947 (1894). Real property held in the name of this type of association generally is recognized as being owned by the members of the association. When one or more members take action with respect to such property, they are considered to be trustees, acting on behalf of the membership, in accordance with the by-laws and regulations of the organization.

I know that's not directly on point, but what is a group of people acting like a corporation, without the formalities, but an "unincorporated association"? See RCW 23B.02.040:

Liability for preincorporation transactions.

All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under this title, are jointly and severally liable for liabilities created while so acting except for any liability to any person who also knew that there was no incorporation.

[1989 c 165 § 29.]

Plus, case law on the status of "corporate acts" made prior to actual incorporation. I don't have cites but I'm sure it's out there.

Plus, will the IRS really be governed by state law when it comes to determining whether the pre-incorporation gifts were effective. If the John Davis & Co rule holds, does that mean that all the pre-incorporation gifts suddenly "became effective" upon incorporation, and so were all made simultaneously in the same year?

That's what I've got.

Sincerely,

Eric

Eric C. Nelsen

SAYRE LAW OFFICES, PLLC

1320 University St

Seattle WA  98101-2837

phone 206-625-0092

fax 206-625-9040

From: wsbarp-bounces at lists.wsbarppt.com <mailto:wsbarp-bounces at lists.wsbarppt.com>  [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Jennifer Y. Sohn
Sent: Thursday, March 19, 2015 4:33 PM
To: 'WSBA Real Property Listserv'
Subject: [WSBARP] Transfer of title to entity that did not exist

I have an interesting situation where the clients (H&W) transferred their interest in real property to a company that was not formed until about 8 years after the transfer. During those 8 years, for purposes of estate planning, the H&W made various gifts to the children of the company interests. The company was actually formed about 8 years after H&W deeded the property to the company. Does this mean the transfer that the H&W made 8 years ago is void? The clients were confused too, and they also transferred some of their interest in the property to a trust too. I’m just trying to untangle this. 

Any insights would be appreciated.

Thanks.

Best regards,

Jennifer Y. Sohn

Attorney at Law 

(Licensed in CA and WA)

Sohn Law PLLC

10900 NE 4th Street, Suite 1850

Bellevue, WA 98004

Tel: 206.617.7874

Fax: 425.732.9748 

Email:  <mailto:jennifer at sohn-law.com> jennifer at sohn-law.com

 <http://www.sohn-law.com/> http://www.sohn-law.com

Confidential. This electronic mail transmission and any accompanying documents contain information belonging to the sender which may be confidential and legally privileged. This information is intended only for the use of the individual or entity to whom this electronic mail transmission was sent as indicated above. If you are not the intended recipient, any disclosure, copying, distribution, or action taken in reliance on the contents of the information contained in this transmission is strictly prohibited. If you have received this transmission in error, please delete the message. Thank you.

Circular 230 Disclaimer. Any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the internal revenue code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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