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What the Donald Sterling saga says about estate planning

Even if you wouldn't consider yourself a sports fan, there is a very good chance that you are familiar with the legal drama surrounding Donald Sterling, the embattled 80-year-old former owner of the Los Angeles Clippers basketball franchise.

To recap, Sterling was banned for life by the National Basketball Association and fined $2.5 million after an audiotape surfaced of him making racial comments. After Sterling vowed to fight these actions, the NBA threatened to auction the Clippers. In response, Sterling granted his estranged wife, one of the co-trustees of a family trust that owned the team, the power to start entertaining bids.

While Sterling's wife eventually arranged a $2 billion sale of the Clippers to a former Microsoft executive, Sterling was dissatisfied with the deal and proceeded to revoke the family trust.

For her part, Sterling's wife removed her husband as co-trustee of the family trust, citing a diagnosis from multiple doctors indicating that he was in the early stages of Alzheimer's and therefore unfit to manage the trust.

Not surprisingly, this ignited a bitter legal battle in probate court, where the judge ultimately ruled in favor of Sterling's wife, holding that the diagnosis offered by physicians was appropriate and that she had not been working to take the team away. The sale of the Clippers was thus given the green light.

Legal experts indicate that the Sterling case can provide some valuable lessons from an estate planning perspective, particularly how it relates to incapacity, something most people don't always pay enough attention to when drafting their documents.

Some of these lessons include the following:

  • Be very specific as to what should be considered the catalyst for activating an incapacity clause; Furthermore, trust documents should set forth both the terms governing any transfer of power and the exact standard to be used in assessing whether you are indeed unfit to manage the trust.
  • Be careful to include language in the incapacity clause providing for the possibility of your regaining capacity (i.e., coming out of a coma), such that you can reassume control of the trust.
  • Be certain to appoint a separate trustee and execute a separate financial power of attorney if you own a business, and don't necessarily want a spouse or loved one running it in the event of your incapacity.

Trust-related issues like incapacity clauses are an inherently complex topic. As such, it can be highly beneficial to speak with an experienced legal professional who can examine your situation, explain the law and help you assemble a solid estate plan granting you peace of mind.

Source: Crain's Wealth "The lesson from Donald Sterling? Plan for incapacity," Darla Mercado, Aug. 5, 2014

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