What Does The Donald Sterling Saga Have To Do With Estate Planning?

Will Donald Sterling sell the Los Angeles Clippers or won’t he? That is the threshold question. The disgraced owner of the Los Angeles Clippers professional basketball team changes his position on a daily basis. Some journalists have noted that the Clippers were valued recently at 600 million dollars. He and his wife are looking at a 2 billion dollar offer. How could he turn such an offer down? He has sued the NBA and while it looked as if he was willing to terminate that litigation and accept the offer, he now wants to “fight for his rights” against the NBA which would stop the sale of the team. He was a former litigator and is now a billionaire. One would think he would act like a prudent businessman and take the generous offer and run. So the follow-up question is whether he is a “prudent” businessman or not. This ongoing saga took an interesting turn recently when it was revealed that Sterling co-owns the team with his wife, Shelly, as Trustees of their Family Trust. His wife, Shelly Sterling, twenty years younger than her husband, has asserted full control over the trust by virtue of a recent medical examination which revealed that Donald Sterling is suffering from dementia. While specific details of the trust are private (as all trusts are), we can draw a few conclusions from the Sterlings’ ownership of the team via a trust.

First, all trusts name a grantor (the trust’s creator) and a trustee (the trust’s manager). There can and often are multiple grantors and trustees for each trust. In this case, Donald and Shelly Sterling were co-grantors and co-trustees. However, most trusts provide conditions upon which trustees may be forced to step down from their management duties. Most commonly, where a trustee does not have the mental capacity to continue fulfilling his or her management obligations, the terms of the trust force the “removal” of that trustee, allowing either the other co-trustee or a successor trustee to continue with the trust’s administration.

It appears that this is precisely the scenario that has occurred between the Sterlings. Shelly Sterling has assumed full control over the trust as its sole trustee, and is now attempting sell the team on behalf of the trust, relying on her husband’s recent medical diagnosis for authority to act alone in the sale. Generally, such trustee changes due to the medical condition of one of the trustees are without dispute. Where family cohesion is present, all parties are usually on board with a “changing of the guard” in trusteeship when an original trustee becomes incapacitated. Clearly, administration of a trust by someone who is not of sound mind would be detrimental to the trust and its beneficiaries.

Here, that decision is likely to be disputed by Donald Sterling, and he may well have a valid case. Dementia or diagnoses of other medical impairments alone are not enough to relieve a trustee of his or her duties. One can have dementia and still be perfectly able to administer the trust properly; it all depends on the degree of impairment.

Usually, the trust language will specify the specific conditions and procedure whereby a trustee may be forced to step down. In one of our many types of trusts, the language reads as such:

“A trustee shall cease to serve in the event of his or her incapacity. A trustee’s incapacity shall be established by a certificate signed by two licensed physicians and delivered to the trustee being removed and the remaining trustee, or if none, to the succeeding trustee, stating that the trustee is not capable of managing the financial affairs of the trust.”

Donald Sterling might not back down. He doesn’t need the money. He very well mighty retain a team of attorneys and doctors in an attempt to retain control of the trust with his wife. As that fight ensues, he will also continue his litigation against the powerful NBA. Whether he will prevail in either forum remains to be seen. We know that it will all be very interesting. He is facing an arduous and expensive legal battle. Will potential buyers be scared off? The ultimate outcome might turn on his capacity to retain some control of the trust. If he is removed as trustee of the trust due to his medical condition, he would not have status to sue the NBA and his wife would be free to sell the team. A trustee owes a fiduciary duty to the beneficiaries of the Trust. Does turning down a two billion dollar offer for a 600 million dollar team fulfill his fiduciary responsibility? Is that rejection proof positive that he lacks capacity to remain as trustee? When the trust was written, who would have thought that millions of dollars and enormous lawsuits would turn on the boilerplate language of the trust?