On April 29, NBA commissioner Adam Silver banned Donald Sterling from the league for life and declared that the NBA would take away Sterling’s franchise.  As it has played out, though, it wasn’t Adam Silver’s edict or any action taken by the NBA that actually removed Sterling from the league.  Instead, it was a small, but important, provision tucked away in the Sterling Family Trust that severed Sterling’s control over the team and allowed his wife, Rochelle Sterling, to sell the Los Angeles Clippers to Microsoft billionaire Steve Ballmer for $2 Billion.

Like many families, regardless of estate size, the Sterlings created a Revocable Living Trust to hold their assets, avoid probate, and allow for incapacity and tax planning.  The Sterlings likely have an assortment of assets and property in this Trust including bank accounts, investment accounts, real estate, and their ownership interests in various companies.  Importantly, the Sterling’s also put their most valuable asset into the Trust; namely, the Los Angeles Clippers basketball franchise.  By placing this asset in a Trust, the trustee(s) of their Trust have full legal authority to manage and sell the asset, so long as they do so for the benefit of the trust beneficiaries.

Next, like most married couples the Sterlings named themselves as co-trustees of the Trust for so long as they both possess the mental capacity to properly manage the trust assets.  Once one of them becomes incapacitated, the healthy spouse becomes the sole trustee.  As sole trustee, that healthy spouse no longer needs the consent of the incapacitated spouse to manage the trust assets.  Therefore, if Mr. Sterling becomes incapacitated, he steps down as trustee, and Mrs. Sterling gains complete legal authority to manage or sell the Clippers, regardless of Mr. Sterling’s feelings on the matter.

As an estate planning tool, trusts are highly customizable and almost every provision can be tweaked to fit the family’s needs and desires.  For example, what constitutes “incapacity” is a definitional matter within the trust.  There are a number of different ways that a lawyer can define incapacity.  So, one has to look at the specific wording in the trust to determine what is required to find a trustee incapacitated under that trust.  Based on the available news articles, it appears that the Sterling’s Trust defines incapacity as the written opinions from two independent medical doctors that find the trustor (Mr. or Mrs. Sterling) to be medically incapacitated and unable to perform his or her duties as co-trustee of the trust.

As it turns out, over the last couple of months, two neurologists met with Mr. Sterling on separate occasions and administered the necessary tests to determine his mental capacity.  According to news reports, those neurologists found that Mr. Sterling suffers from mild dementia consistent with the early stages of Alzheimer’s disease and that he is incapable of performing his duties as trustee of the Trust.  Therefore, based on the language of the trust, Mr. Sterling is no longer a trustee of his trust and Mrs. Sterling is now the sole decision-maker regarding all trust assets.  On May 29, using her power as the sole decision-maker Mrs. Sterling agreed to sell the Clippers to Steve Ballmer.

Obviously this situation brings up some interesting issues for estate planning and how incapacity is defined in your trust.  On the one hand Mr. Sterling wanted to turn down a $2 Billion offer for the Clippers (a franchise which Forbes valued at $575 Million just five months ago), which some would argue in-and-of-itself proves his incapacity.  On the other hand, while his words and behavior have been abhorrent, he does not fit the image that most people think of when they envision someone who is incapacitated.

At Myatt & Bell, we typically do not use the definition of incapacity that the Sterlings’ used in their trust.  Instead, we prefer a private family solution to the problem of determining when a family-member is incapacitated and we draft our trusts accordingly.  If you have a trust, we encourage you to look at your trust to see how incapacity is defined.  At the end of the day, the words in the Trust rule, so make sure that you have the trust you want.

By Attorney John M. Boylston of Myatt & Bell, P.C.

Myatt & Bell, P.C. is a boutique estate planning firm in Portland, Oregon.  We would be happy to answer any questions you have about estate, tax, and incapacity planning, including helping you determine whether a Will is sufficient for your family or whether you should have a Trust.  We can be reached at 503-641-6262 or info@myattandbell.com.