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Wife of Donald Sterling Used Family Trust To Cut Him Out

It seems that everyone wanted Los Angeles Clippers owner Donald Sterling to sell the team, after his racist remarks about Magic Johnson and African Americans became public knowledge.  The NBA Commissioner, owners, players, Clipper fans, and Sterling’s own family did everything in their power to force him out.  Last week, the news broke that Sterling’s estranged wife, Shelly Sterling, reportedly accomplished what everyone wanted — an agreement has been reached for the Clippers to be sold for a reported $2 billion dollars to former Microsoft CEO Steve Ballmer.  Sterling

But how did Shelly manage to do this without going to court — which would undoubtedly air Sterling family dirty laundry that no one in the Sterling family or the NBA would want to see made public?

Reportedly, Shelly Sterling relied on a fairly standard provision in the Sterling family trust, which owns and controls the Sterling’s interest in the Clippers.  According to ESPN and others, Shelly and Donald were co-trustees with equal authority over their trust.  This gave them equal say in running the Clippers, including when to sell the franchise.  But, after the recent events, Shelly had her husband evaluated by doctors to determine if he was mentally competent to remain serving as one of the co-trustees.

TMZ reports that the trust agreement signed by the Sterlings included a provision that if either of them were found, by two qualified doctors, to have, “an inability to conduct business affairs in a reasonable and normal manner” then he or she would be removed as a co-trustee.  This would leave the remaining Sterling in place as the sole trustee, with legal authority to sell the team and otherwise manager the business.  While not specified by TMZ, normally a clause like this would include language indicating that such a finding would have to be due to mental incompetency or a similar condition (otherwise, it could be invoked over anyone who is a bad business manager).

Again according to TMZ, two neurologists conducted a battery of tests on Donald, including a CT and PET scan.  Competency testing would normally include some form of neuropsychological or other mental questioning designed to measure competency.  Both neurologists determined Donald is incompetent under the standard of the trust agreement due to Alzheimer’s disease, which he may have been suffering from for the last five years.

One of Donald Sterling’s attorneys told ESPN that reports of the neurologists findings have been “grossly exaggerated” and that Donald is “far from mentally incompetent.”  Recently, Donald has vowed to fight against any sale of the Clippers, even though he previously signed a letter to the NBA agreeing that his wife could do so.

So what happens next?  Donald and his legal team have to decide if they want to start a court action to challenge the reported findings of the neurologists.  California law presumes competency, but that law must be applied consistent with the terms of the trust agreement.  Depending on how that document is worded, Donald Sterlingmay or may not have legal grounds to challenge the reported doctor findings.  Even if he can challenge it, he would have to provide other medical testimony to contradict and overcome the findings of incompetency.

Even if Donald Sterling does bring such a legal challenge and prevail, that still does not mean he would stop the sale.  Rather, the NBA owners have the option of taking control of the situation and forcing a sale under the NBA owners’ agreement, which gives them the right to do so in the best interests of the league, upon 75% vote of the owners.  Sterling could try to challenge that action in court too, but only if he can first reinstate himself as a co-trustee.  As long as his wife remains as the only trustee, Sterling likely has no legal standing to challenge the NBA’s actions in court.

Will Sterling continue to fight by filing a court proceeding to determine if he really is competent?  If so, he would have to be prepared for many details of his personal life to be exposed in a public court process.  This would likely include other embarrassing actions and decisions he’s made, which could be brought up in court to help support the neurologists’ conclusions.

And there is another reason for him to back down — two billion reasons, actually.  This staggering sum is more than has ever been paid for an NBA team, and is almost four times the recent sale price of the Milwaukee Bucks.  Even though Sterling is — at least for now — out as a co-trustee, that doesn’t mean he won’t get his share of the money.  That figure, plus the reality of how messy a public court fight about his competency would be, means that Sterling will likely back off his his threats, sooner or later.

Certainly everyone affiliated with the NBA hopes he will.

Donald Sterling’s situation is a prime example of why everyone with a significant amount of assets (even in the hundreds-of-thousands of dollars range, not just millionaires and billionaires), would benefit from a well-drafted revocable living trust.  Without the trust language in place, Shelly Sterling would have been required to go to court to have her husband removed from controlling the team, even if it was clear that he was not mentally competent to act as an owner.  Donald could simply have refused to sign off on any sale agreement, and the NBA would have been forced to take control.  The Sterling family trust helps resolve a very messy situation.

Trusts can provide a similar benefit for everyone with assets, because passing control of a lifetime of savings is always better down outside the court system, using a document created based on the wishes of those involved.  Even without control of a two billion dollar sports franchise on the line, no one wants to have control of their assets decided by a judge.  A well-drafted revocable living trust can alleviate that concern for anyone.

By Danielle and Andrew Mayoras, co-authors of Trial & Heirs: Famous Fortune Fights!  For the latest celebrity and high-profile cases, with tips to protect yourself, your loved ones, and your clients, click here to subscribe to The Trial & Heirs Update.  You can “like” them on Facebook and follow them on Twitter and Google+.

For legal help in Michigan, visit Danielle and Andy's law firm.