A recent article in the New York Times on the Donald Sterling saga illustrates the uses and effectiveness of incapacity planning as a part of estate planning.
Although this case is by no means a model for how any of us would want our incapacity handled, it underscores how incapacity planning may work in the event of a spouse who loses some capacity but is not willing to give up control of assets.
Mrs. Sterling attempted to get Mr. Sterling to give up control of his team, the Los Angeles Clippers, voluntarily – but he refused. Mrs. Sterling says that after Mr. Sterling’s poorly-received interview on CNN, she helped him make an appointment for a neurological evaluation at Cedars-Sinai Medical Center a few days later. Mrs. Sterling received an offer from Microsoft billionaire Steve Ballmer to purchase the team for $2 billion. Mr. Sterling refused to accept it.
The neurological testing found that Mr. Sterling was affected by cognitive impairment. The couple’s trust stated that if one of the creators of the trust (“trustors”) were found incapacitated by two physicians, the other spouse would become the sole trustee. Mrs. Sterling sent over these doctor’s reports to Mr. Sterling’s attorney and invoked the trust’s clause stating that she was now the sole trustee. Not surprisingly, Mr. Sterling has contested this argument.
Most families don’t have billions of dollars on the line with respect to these issues, but we can take a couple important lessons from this sordid tale:
1. Understand the triggers for a declaration of incapacity in your estate plan. The more trust you have in your spouse or successor trustee, the more flexible you want those triggers to be. If you have a great deal of trust in your spouse, you might want to state that a simple declaration of your incapacity (with your right to object) would be sufficient. If you do not have a high level of trust, requiring the declaration of two independent, licensed physicians would be more appropriate.
2. Consider the use of a third-party professional or corporate trustee. While third-party trustees are more expensive than family members or friends, they are impartial and experienced professionals who often have “no dog in the fight” and can be relied on to make difficult decisions when family members or friends may have a conflict of interest.