What the Buss family Lakers dispute can teach the wealthy about trusts
Jerry Buss structured his estate to keep the Los Angeles Lakers in the family after his death. But some of the safeguards meant to preserve that legacy have driven his children apart, according to trusts and estates attorneys. Five of Buss' six adult children want to sell the family's remaining stake in the basketball team, valued by a separate recent transaction at $12.5 billion. Meanwhile, their sister Jeanie contends that her siblings do not have the legal authority to give up ownership and is opposing the sale, which would result in Jeanie Buss losing her position as governor of the Lakers. The Buss stake in the franchise is owned by a family trust, which includes a "last man standing" clause, as described by sister Janie Buss to ESPN in 2017. That provision transfers a sibling's equity upon their death to their surviving siblings rather than their own children, incentivizing the siblings to sell during their lifetime, Janie Buss told ESPN at the time. Steven Fox, partner at Buchalter, said it's common for parents passing down a business to want to limit the number of stakeholders. However, this type of clause is unusual, he said. "I rarely draft that into estate plans, because just because one sibling has cancer and all of a sudden is going to die young, it's not fair for their children to be divested," he said. Fox, like the other attorneys who spoke to CNBC, has not seen the terms of the Buss family trust. While few family businesses are like the Lakers, the broad strokes of the Buss family's predicament are familiar, according to lawyers who spoke to CNBC. These succession conflicts are also likely to grow more common with the great wealth transfer underway and baby boomers passing on businesses to their children, said Sean Weissbart, partner at Blank Rome LLP. Trusts and estates attorneys pointed to three steps that can make family business transitions smoother. The impulse behind the "last man standing" clause makes sense, Fox said. Without limits on inheriting equity, a family business can end up with dozens of shareholders. However, there are ways to avoid having too many cooks in the kitchen while compensating the next generation fairly, he said. Fox and Weissbart each recommended using life insurance to essentially buy grandchildren's equity. Typically, the trust would take out policies on the children of the patriarch or matriarch. After the child dies, their shares revert to their surviving siblings while the grandchildren receive cash from the life insurance payout. If the death benefit isn't sufficient to compensate the grandchildren, the trust can provide them with a secured note, placing a lien on the family business, according to Fox. The secured note can be paid out over time and paid in full if the business is sold. Even before the business is sold, "there's plenty of money for them to have a great lifestyle," he said. This approach can also be used a generation earlier to buy out children of the wealth creator who do not wish to be involved in the business. However, first-generation entrepreneurs are rarely able or willing to take out expensive life insurance policies while they are still relatively young, according to Fox.