The Incapacity Issue – How to Remove an Incapacitated Trustee
Next week in Los Angeles County Probate Court, a trial will occur to determine if Donald Sterling, the now infamous owner of the Los Angeles Clippers, was properly removed as a trustee of the Sterling Family Trust. Sterling’s removal paved the way for the Clippers to be sold to former Microsoft CEO Steve Balmer for $2 billion. Sterling was removed after two doctors determined that he was mentally incapacitated and, as a result, no longer able to manage his own legal and business affairs, nor that of the Trust. The Trust provided for a removal in such instances. Sterling has now sued to be re-instated as the Trustee.
One of the often overlooked benefits of a living trust is the ability to decide how incapacity will be determined and to have your chosen successors in control when you are no longer able. I often describe a living trust as being similar to a pick-up truck. You can load all of your possessions in the pick-up truck and drive it as long as you are able. If you are no longer drive, instead of stopping off at the court house to get a new driver, your pre-selected driver just steps in and takes over. Without a living trust, the court will decide whether or not you are incapacitated and who is in charge of your affairs. With a living trust, you decide how your incapacity will be determined and who will be in charge of your affairs.
In living trusts we draft, a person is deemed to be incapacitated if a court has declared the individual to be disabled, incompetent or legally incapacitated. An individual is also deemed to be incapacitated whenever he or she cannot effectively manage his or her property or financial affairs due to the individual's unexplained disappearance or absence for more than 30 days, or whenever he or she is detained under duress.
However, we encourage our Clients to add an option that allows them and their families to avoid the need for probate court intervention when possible. For example you could elect, similar to Mr. Sterling, that you will be deemed incapacitated, if in the opinion of two licensed physicians, you are unable to effectively manage your property or financial affairs. I personally prefer an option we refer to as a “Disability Panel.” By choosing this option, a panel of individuals pre-selected by you and that you trust implicitly, determines whether you will be treated as incapacitated for purposes of the Trust. You can require a unanimous decision or some other minimum number of votes. Of course, just like Mr. Sterling, we provide you with an opportunity to challenge the determination of the physician or disability panel if you disagree. We include a process to initially avoid court intervention where possible.
One of the goals of estate planning should always be to maintain control over your assets as long as reasonable. But, in the event you become incapacitated, you want to have the ability to avoid the ongoing costs of court intervention and to have those people you decide in control.
If you are interested in discussing your situation further please give us a call.
