Trusts and Estates

Orange Catholic Foundation v. Arvizu

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Cite as G055189
Filed October 17, 2018, Fourth District, Div. Three

By Matthew R. Owens
Withers Bergman LLP

Josephine created a trust in 1997. When Josephine died in 2007, her niece, Rosie, succeeded her as trustee. Rosie was neither legally nor financially sophisticated, but had been close with Josephine and knew her wishes. Under the trust Josephine left a life estate in a residence to her long-time family friend, Paul, and the residue to Orange Catholic Foundation. The trust required Paul to pay “ordinary maintenance expenses” on the residence. Paul was elderly, had dementia, and was unable to afford the expenses. Instead of evicting Paul, Josephine used trust funds to pay the expenses because she thought it was the right thing to do and what Josephine would have wanted. After Paul died in 2012, it took Rosie two years to sell the residence. Orange Catholic Foundation petitioned the court for Rosie’s removal and surcharge based on these breaches of trust. The trial court denied the petition and excused Rosie’s conduct because it found she acted reasonably and in good faith. Orange Catholic Foundation appealed.

The appellate court affirmed. If the court finds a trustee has acted reasonably and in good faith the court has discretion to excuse the trustee from liability if it would be equitable to do so. Substantial evidence supported the trial court’s finding that Rosie acted reasonably and in good faith because she felt her use of trust funds to pay the expenses was consistent with her aunt’s wishes and also helped avoid foreclosure. Her two-year delay in selling the residence was neither unreasonable nor in bad faith, given the health issues she was facing at the time. This was not a case of self-dealing and none of Rosie’s actions benefited her personally. Notably, the two-year delay in selling resulted in $136,000 in appreciation in the value of the house. The trust sustained no damage, and Orange Catholic Foundation received a net benefit from Rosie’s conduct. Therefore, the trial court did not abuse its discretion in excusing Rosie from liability.

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