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Playing out in a Los Angeles courtroom over the next few weeks is a battle between the Internal Revenue Service (IRS) and the executors of Michael Jackson's estate over how much value there was to his name and image at the time of the superstar's death in June of 2009.  At stake could be as much as $1 billion in estate taxes and penalties.

The decision of a Los Angeles probate judge this past Monday provides a glimpse not only into the private lives of owners of an NBA franchise, but also into arenas which often confront elderly couples – trusts, competency, accusations of undue influence, mental examinations, and conservatorships.

Judge Michael Levanas, in the Sterling Family Trust matter, evaluated the testimony of both Shelly Sterling and Donald Sterling, found Mrs. Sterling to be more credible and issued a tentative oral ruling giving her authority to move forward with the sale of the Los Angeles Clippers for $2 billion to former Microsoft CEO Steve Ballmer. Mrs. Sterling entered into the sale as the sole trustee.

Many husband and wife trust agreements contain trustee provisions similar to that found in the Sterling Trust, allowing one spouse to take over administration of the trust if two doctors find the other spouse to be mentally incompetent. An organic brain disease, such as dementia or Alzheimer’s disease, that results in progressive mental decline, often does not provide a clear line demonstrating lack of competence.  This leaves room for debate on when precisely an individual should no longer have a “say” in his or her affairs and whether decisions made during a time of vulnerability should be binding at a later time.

One issue Donald Sterling’s attorneys argued to Judge Levanas was that Shelly Sterling had tricked him into being examined by the two doctors. Earlier this month, Mr. Sterling’s attorneys had unsuccessfully argued that medical privacy rules such as those under HIPPA (the Health Insurance Portability and Accountability Act) and the California Confidentiality of Medical Information Act should keep out the doctors’ testimony. Counsel for Mr. Sterling also argued that Mr. Sterling had revoked the trust last month. That revocation, if upheld, would have caused $500 million in trust debt to become due. Yet another argument from Mr. Sterling ,which didn’t impress Judge Levanas last week, was that he should be allowed to put on testimony as to the ‘intent’ of the trust document.

The July 28th ruling was an oral decision, and like many probate orders is appealable, but Judge Levanas indicated there would not be a stay of the ruling during the pendency of the anticipated appeal. Since the NBA put a September 15th deadline on the sale, that aspect of the order was especially good news to Mr. Ballmer, Mrs. Sterling and the NBA.

 

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During most of his thirty-five years in the practice of law, Mr. Keeler has concentrated on estate and trust litigation. Licensed in Oregon and California, Mr. Keeler has tried cases involving estates, trusts and conservatorships throughout Oregon, California and neighboring states. Mr. Keeler is also certified by The State Bar of California Board of Legal Specialization in Estate Planning and Trust & Probate Law.

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