Boilerplate Trust Clauses

By Annino, Patricia M. | Journal of Accountancy, November 2014 | Go to article overview

Boilerplate Trust Clauses


Annino, Patricia M., Journal of Accountancy


Many clients sign estate planning documents without paying much attention to the clauses they contain. One clause that few clients pay attention to is the one governing how that client's incapacity could be determined--and therefore how the client could be removed from serving as a fiduciary or trustee. A high-profile case on this topic recently played out in California probate court between former Los Angeles Clippers owner Donald Sterling and his estranged wife, Shelly. Here are several lessons from that case, whose outcome ultimately allowed Shelly Sterling to sell the team:

[check] Review all "boilerplate" clauses in estate planning documents. Make sure that clauses that may seem benign when the donor is healthy and competent would also apply later.

[check] Plan for disability or incapacity. This planning should be as important to a client as planning for death. Thinking through who will serve as successor trustee if the donor/trustee is removed for reasons of incapacity is important. Nuances, such as whether spousal estrangement should disqualify a party from serving as sole trustee, really do matter. (The Clippers were owned in a trust. The trust agreement contained a provision, which Donald Sterling agreed to when he signed the trust, that authorized his removal as trustee based on an expert's determination that he lacked mental capacity.)

[check] Put in place checks and balances to avoid conflicts. Conflicts may arise down the road. For example, should someone who has a vested economic benefit in the outcome of such a critical decision be able to overrule the donor? Should Donald Sterling have designated someone to replace him so there would always be two trustees? Shelly Sterling assumed the role of sole trustee after two doctors determined that Donald Sterling was mentally incapacitated and no longer able to conduct his legal or business affairs. …

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