Hello, this is TwistNHook from SBN's Cal site, California Golden Blogs. I know what you are thinking. Why am I here? I get that a lot, not just at ClipsNation.com, but all throughout life! So, why am I here? I'm not a Clippers fan, I'm a Warriors fan *ducks*. But I'm also somebody many years into a career dealing very closely with trust law.
So, when I saw these trust law issues start to bubble up in this Donald Sterling matter, I immediately messaged the SBN higher ups to see if I could help. They put me in touch with the geniuses over here at ClipsNation and that is why we are here today.
My goal is to hopefully illuminate the process here. Trust law can be extremely opaque and this case in particular seems very complicated. I want to provide both the "easily approachable" analysis along with the "in the weeds" analysis, so that people can have both. I'm also open to questions in the comments if people have them.
Before I get started, here is the TL; DR version: This lawsuit is about ensuring that Donald Sterling's consent is not required for the sale of the Clippers.
I want to go over some basics to the case and then in future posts discuss the specific law affecting the issues here and what was actually filed. I'm hopeful that I can follow the case and provide updates as they occur.
What Is A Trust?
The first question is fundamentally, what is a Trust and why get a Trust. Trusts are all about the cost of accessing assets. Normally, there is no cost to access assets. Most any asset worth anything has a title. A bank account may be in the name of Marshawn Lynch or a house may be titled in the name Marshawn Lynch, an unmarried man. There is no cost for Marshawn Lynch to withdraw money from that account.
However, what if Marshawn Lynch is incapacitated or dead. If I go to the bank and ask to take money out of Marshawn Lynch's account, they'll request government ID proving that I'm Marshawn Lynch. They won't give me any of his money. If he's dead, then I have to petition the Court for the Court to appoint me as an Executor who can access the account. That probate action can take months and months and will be very expensive. The base fees are a percentage of the estate and then there are additional hourly fees beyond that. I've had fees in the tens of thousands of dollars on hotly litigated Estate matters. However, even if you don't have litigation, the fees can still be high. The base fee for a million dollar estate is $23,000.00 each for the Executor and the Executor's Attorney (so, $46,000 total). That's just for the base fee!
Trusts lower the cost of access by re-titling the accounts into the Trusts. Instead of the account being titled in the name of Marshawn Lynch, it would be Marshawn Lynch, Trustee of the Marshawn Lynch Trust. The Trust owns the property and the Trustee manages it. In the Trust, Marshawn Lynch lists successor (i.e. backup) Trustees. If Marshawn Lynch is dead or incapacitated, then the first named Successor Trustee can go to the bank and have them re-titled the account to "Aaron Rodgers, Trustee of the Marshawn Lynch Trust." In that instance, no Court action is required. No tens of thousands of fees.
Now, Marshawn Lynch has no access to the money and Aaron Rodgers has total control over the money. He is legally required to manage the assets per the terms of the Trust (i.e. solely for Marshawn Lynch's care during his lifetime). If he fails to follow those terms, then a beneficiary can have him removed for breach of fiduciary duty.
Sometimes the Trustee is the person who set up the Trust, but not always. Generally, the Trustee has to manage the Trust and use the money for the well-being and care of the person who set it up (i.e. Settlor).
The Sterling Family Trust
Donald and Shelly Sterling created the Trust and they were the initial Co-Trustees. They placed the Clippers into the Trust, so the Trust owned the Clippers. What that means legally is that Donald Sterling did not own the Clippers, the Trust did. He was just managing them as Trustee of the Trust. The NBA may have another definition of "owner" that includes him as a direct owner, but I cannot speak to that. (Editor's note: Donald represented the Clippers on the NBA's Board of Governor's, which is essentially the "owner" in the league's eyes.)
This is important, because if you are a Trustee of the Trust, you can manage the assets. If you aren't a Trustee, you cannot. So, if Donald Sterling is removed as a Trustee, then he has as much access to the assets of the trust as you or I. The acting Trustee still has to manage the assets in there in the best interest of the beneficiaries (i.e. Donald and Shelly Sterling during their lifetimes).
So, if Donald Sterling is a Trustee, he can block the sale by not signing on the dotted line. If he is not a Trustee, he has no relevance to the sale and Shelley can sell as she sees fit (within reason).
I've already mentioned one way to remove a Trustee: breach of fiduciary duty. The much more common way is to declare the Trustee mentally incapacitated. Obviously, nobody who is mentally incapacitated should be managing money, especially billions of dollars worth of it.
So, how do you declare somebody mentally incapacitated and unable to act as Trustee. You can find a copy of the Trust in here if you go to page 60 of that PDF. The Trust is quite lengthy and the language regarding incapacity is set forth in Section 10.24 on page 89 of the PDF. It is as follows:
"Incapacity" and derivations thereof mean incapable of managing an individual's affairs under the criteria set forth in California Probate Code 810 et seq. An individual shall be deemed to be incapacitated if any of the following conditions exist:
(a) the individual's regular attending physician (provided such physician is not related by blood or marriage to any Trustee or beneficiary) examines the individual and certifies in writing that the individual is incapacitated,
(b) two licensed physicians who, as a regular part of their practice are called upon to determine the capacity of others, and neither of whom is related by blood or marriage to any Trustee or beneficiary, examine the individual and certify in writing that the individual is incapacitated or
(c) an order of the Court having jurisdiction over the Trust as to which the individual is serving as a Trustee or as to which the individual is a beneficiary, as the case may be, finds that the individual is incapacitated."
The lawsuit is essentially about (c). Shelly Sterling has gotten the doctors certifications, but Donald is contesting them, so Shelly has gone to Court to get the Court order as defined in incapacity.
Shelly Sterling is working to remove Donald Sterling as a Trustee. This will preclude him from having any authority over Trust actions. Since the LA Clippers are in the Trust, his signature would not be required on the dotted line to sell them.
In the next post, we'll look at the specific law relating to Cal Probate Code 810 et seq, which will be the underpinning of the lawsuit. We'll look at what Shelly has to prove and how she will go about proving it.
Thanks for reading! If you have any thoughts, comments, or questions, do not hesitate to leave them in the comment sections. Thanks and GO BEARS!