When Josephine Kennedy set up a trust in 1997, she wanted to help the needy, the elderly and abused children via the Catholic Church-eventually.
But first, Josephine wanted her charity to start at home. She created a life estate on her Orange County home for family friend Paul Senez after treating him like a son and allowing him to live there for four decades. The trust document required Paul to pay “ordinary maintenance expenses” on the residence with his funds after she died. After he passed, the trustee was to sell the house and distribute everything to the Orange Catholic Foundation, a nonprofit arm of the church.
When Josephine died a decade after signing the trust document, her beloved niece Rosie Arvizu, a onetime beautician, became the trustee and immediately found herself in a quandary. Paul was unable to pay the expenses, elderly, and had dementia. Following her aunt’s repeated wishes and what Rosie believed was “the right thing to do,” Rosie tapped trust funds to pay the property taxes and homeowners association fees on the deteriorating house to stave off foreclosure. By the time Paul died in 2012, Rosie had spent more than $40,000 of trust money to keep Paul in the home. While enduring cancer treatments and other family difficulties, Rosie took more than two years to sell the residence.
The Orange Catholic Foundation filed suit, claiming that Rosie should have evicted Paul when he ran out of money, and asking the court to remove Rosie as trustee-and it sought damages. The trial court shot down the church foundation’s petition and excused Rosie’s actions as it found she acted reasonably and in good faith. The church foundation appealed.
A Southern California appellate court affirmed the decision in Rosie’s favor, finding that the trial court had the discretion to excuse such a trustee from liability if it would be equitable to do. In its decision, the court said Rosie had presented substantial evidence that she followed her aunt’s wishes and had indeed saved the home from foreclosure and that none of her actions had benefited her personally. The two-year delay in selling the residence? The court found it neither unreasonable nor in bad faith, given Rosie’s health challenges. It noted that the home appreciated by $136,000 as a result of delay -and the church foundation received a net benefit from Rosie’s conduct.
This drama reminds us that the courts will divine the intent of the decedent to rewrite trust documents to get the right result. It illustrates the difficulties trustees and beneficiaries can face in navigating together to steer clear of the court system. A skillful estate-planning lawyer can help you in peacefully “doing the right thing”-legally and ethically. Orange Catholic Foundation v. Arvizu, G055189, Filed October 17, 2018, Fourth District, Div. Three.
About the author:
John O’Grady leads a full-service estate and trust law firm in San Francisco. His practice includes Estate Planning & Administration, Probate and Trust Litigation.