Wednesday, August 6, 2014

Trustee Incapacity and the Los Angeles Clippers

Donald Sterling and the Los Angeles Clippers have been in and out of the news for several months now.  There was some conclusion last week when Mrs. Shelly Sterling was successful in her attempt to take control of the Sterling Family Trust as sole Trustee.  This opens the door to Mrs. Sterling being able complete the sale of the Los Angeles Clippers basketball franchise to Steve Ballmer.  As an estate planning attorney it is a little bit exciting to have news relevant to our practice.

I obviously haven’t read the Sterling trust, but most trusts allow for a Trustee to be removed upon evidence of incapacity.  Our trust’s standard incapacity language requires one doctor’s note regarding a Trustee’s physical or mental incapacity.   In the case of the Sterling Family Trust, both Shelly and Donald must have both been Co-Trustees despite their separation.  According to news stories that I’ve read, Mrs. Shelly Sterling obtained notes from Donald Sterling’s physician(s) that he was incapacitated and demonstrating symptoms of Alzheimer’s disease.  After obtaining these doctors’ notes, Shelly took the position that she could serve as sole Trustee of the Family Trust and was therefore able to control the sale of the Clippers.
The question before the court was apparently whether Shelly Sterling was properly in place as the sole Trustee after obtaining the doctors’ notes.  The judge found the doctors’ notes credible and the judge also found that Shelly Sterling was acting in good faith and that she was not secretly trying to take over control of the team and the family trust.

So what are we to learn from the Sterling situation?  Well, in the context of estate planning, it may be worth reviewing your own trust and what the incapacity section requires for another person to take over as Trustee.  There’s a delicate balance required.  You want to allow a Successor or Co-Trustee to take control without too much effort and without great delay, but you also don’t want to make it so easy that someone can take control without determining that there is true incapacity.  We usually discuss this incapacity clause with our clients and let them decide whether one doctor’s note is sufficient or if they want to require two doctors’ notes.  An interesting alternative is to require a majority or unanimous decision of an “incapacity panel” made up of family members and perhaps a primary physician.  This allows some discretion by the panel (usually made up of family members) to remove a Trustee without the formality of a doctor’s note and this could also allow for easy reinstatement of a Trustee if there was only temporary incapacity.


 


 

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