Love & Basketball? No, More Like Racism, Infidelity, Trusts, Dementia, and…a Revocable Living Trust

It’s a long way from court side seats  to front and center in probate court.

If you’re like us and more interested in estate planning than in basketball… ok, scratch that.

You’ve probably heard about the Donald Sterling/LA Clippers/racist rants saga by now, but you probably haven’t heard why they’re in probate court talking about the team’s sale, since nobody died.  We hear you. Here’s what happened.

According to reports (because trusts are private documents) Sterling and his wife, Shelly, were co-trustees of a revocable living trust that held their ownership interest in the Los Angeles Clippers. A provision of the trust allowed either of them to take over as sole trustee if the other became mentally incapacitated. After Donald Sterling’s, ahem, erratic behavior of late, Shelly had him evaluated by a neurologist who reportedly diagnosed him with mild dementia, which was enough per the terms of the trust to get him declared mentally incompetent. This left Shelly as sole trustee, enabling her to hastily arrange the sale of the Clippers to Steve Ballmer before the NBA stripped the Sterlings of their ownership rights due to Donald’s racist rants. Sterling contested this incapacity provision of the trust and his wife’s authority to negotiate the sale.

Per California law, a trustee or beneficiary can petition the court to settle, among other things, interpretation or enforcement of a provision of the trust.  The court is empowered to resolve the issue or issues presented in the petition. However, the law recognizes the purpose of a trust is, in part, to keep the court out of the trust’s affairs.  Such cases are heard in probate court.

In this case, the judge found that Donald Sterling’s actions both in and out of court supported the neurologist’s diagnosis and held that Shelly did have the authority under the trust’s terms, as the now sole trustee, to negotiate and complete the sale to Ballmer.

The crux of this case is the Sterling trust’s incapacity clause.  A trustee incapacity clause is useful, in that it would generally facilitate a smooth and court-free trust administration. As the Sterling saga demonstrates, that doesn’t always work perfectly, especially if the trustee found to be incompetent is a wildly litigious, California-licensed former divorce and personal injury attorney (shudder) like Sterling himself. Though he was reportedly a bit of a jerk (to put it kindly) before all of this, it isn’t unusual for dementia to alter a person’s personality, making them more difficult to deal or reason with. However, it is good practice to include such incapacity provisions. No matter how ornery your relative is, they’re probably a lot easier to deal with than Donald Sterling (at least we’d hope).

If you’re interested in setting up a revocable living trust, please discuss trustee capacity clauses with your estate planning attorney. Unless you’re dealing with the forced sale of an NBA team, racist comments caught on tape, infidelity, and LA property barons, it’ll probably help keep both you and the trust out of court.

But perhaps the biggest lesson of this tale is that if you find yourself calling your mistress to tell her not to bring people of any particular ethnic group with her to watch your basketball team play while you sit courtside by your wife of 60 years: Don’t.

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