Orange Catholic Foundation v. Arvizu

I am going to tell you the moral of Orange Catholic Foundation v. Arvizu up front:

If a trustee acts in good faith, like in Arvizu, the court can excuse them from liability

Arvizu is about a trust created in 1997 by Josephine. When she died, her financially unsophisticated niece, Rosie, became the trustee. Despite her shortcomings, Rosie knew her aunt well. The trust provided that a long term friend, Paul, could remain living in a home Josephine owned until Paul’s death. This is called a life estate. When he passed, the home would then go to Orange Catholic Foundation. Paul was given the ability to live in Josephine’s home and the only thing he was responsible for was maintenance.

However, Paul began to age. As he aged he became less capable of caring for the home. When it fell into disrepair, Rosie used trust funds to repair the property because she knew that Josephine would have wanted that. After Paul passed, Rosie fell ill and it took her two years to sell the property.

Orange Catholic v. Arvizu was brought against Rosie to excuse her as trustee and charge her because she breached the trust when she used the trust funds to help Paul with maintenance and because she took so long to sell the property after the life estate for Paul ended.

The appellate court found for Rosie. They said that when a trustee acts in a reasonable manner and with good faith, as Rosie had, they could excuse her liability from the breach. Rosie was a good actor. She did not benefit from helping Paul, she only helped with the maintenance of the home because she knew of Josephine’s wishes. In fact, because Rosie delayed in selling the home, the property increased in value substantially.

It was a win-win! Rosie had no liability, Paul lived out his life estate well, and Orange Catholic Foundation got a property worth $136,000 more than it had two years before.

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