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And Then There Was One: When Removal Clauses Backfire
The well known and complicated litigation involving the sale of the Clippers by The Sterling Family Trust has revolved primarily around one simple clause in a trust agreement. The clause agreed to by Shelly and Donald Sterling, one year ago, states that either one of them could be involuntarily removed as a trustee if he or she showed signs of mental incapacitation. On the face of it, such a clause seems not just logical, but protective as well.
The trust involved in this case, however, is quite large and there are many valuable assets at stake – not least of which is the Clippers basketball team. As a result of Donald Sterling’s racist comments that became very public, the National Basketball Association placed a lifetime ban on Donald Sterling from the sport and voted to seize and auction off the team without the Trust’s consent unless it agreed to sell the team by September 15, 2014. While Sterling rejected the NBA’s ability to do so, and was likely to take the NBA to court if it tired to, his wife was much more inclined to follow the NBA’s instructions.
In May, Shelly ordered two doctors’ evaluations of her husband to determine his mental state. Both doctors concluded that Sterling displayed early signs of Alzheimer’s disease and is currently unable to manage his finances. As a result, Sterling’s wife removed Sterling as trustee of the Family Trust and unilaterally initiated a sale of the Clippers.
For some, this is a rather familiar scenario. Surely, most people are not billionaires fighting over the trust ownership of a basketball team, but many create a powers-of-attorney in favor of relatives and friends that often contain similar clauses to the one used in the Sterling Trust. These often present a difficult challenge for those who are designated to act under a power-of-attorney, especially when it is a family member over whom such power is granted. Deciding how to stop a person susceptible to fraud and possibly incapacitated mentally in order to protect that person and his or her assets can be tricky and may be contested in court. Likewise, it is equally, if not more difficult, for the person over whom the power is exercised to see his or her control of his or her own affairs wane. After all, it is their assets to begin with and they should be able to decide how to manage the assets as long as they are able.
The benefit of having such provisions and legal protections can be immense; especially in fragile situations where someone’s rapidly declining mental state might lead to unfavorable (sometimes gratuitous) alienations of property. The best way to handle such situations on both sides of the aisle is to make it clear how it is to be determined that a person no longer holds sufficient mental capacity to manage his or her own affairs. Given the complexity of inter-family relations, a good practice is to create your own panel of people you trust to make that decision if need be in the future. While the people on that panel still have a difficult decision to make at least you have designated the persons to participate in that process which may be able to avoid costly and traumatizing litigations.
If you are facing similar difficulties and require legal advice, please contact the Estate Planning Attorneys of Gunderson, Denton and Peterson.
40 N Central Ave #1400
Phoenix, AZ 85004