Don’t Leave It All on the Field – Why Athletes Require Special Planning
“The professional athlete needs the same sound foundation of financial and estate planning that all wealthy clients require. However, the professional athlete typically faces many unique circumstances that must be integrated into the planning process. Movie stars, musicians, entertainers, and others with ‘star’ power encounter some of the challenges common to athletes, so that the applicability of some of the planning ideas discussed here will be broader than merely for athlete clients.
There is potentially an important time pressure to planning for pro athletes that might require quick action. If the political balance of power changes in Washington in 2020, a Democratic administration might enact restrictive estate tax changes similar to that proposed by Senator Bernie Sanders in the Senate and Congressman Jimmy Gomez (CA-34) in the House. These bills reduce the gift tax exemption to $1 million and the estate tax exemption to $3.5 million. Discounts, GRATs, grantor trusts and GST planning may all be severely restricted. Thus, for athletes that have already amassed substantial wealth, planning should proceed before those changes might occur.”
In the wake of Sunday’s Super Bowl, it is appropriate that LISI shares with members the comprehensive outline authored by Eli Akhavan, Evan Bloom, Jonathan Shenkman, Martin M. Shenkman, and Eido Walny titled “Don’t Leave It All on the Field – Why Athletes Require Special Planning.” Each of our authors come at this issue from different perspectives (attorney, financial advisor, Super Bowl XLI Champion and Chief Performance Officer), and the result is a comprehensive guide that LISI members will find to be most helpful in their practices.
The professional athlete may face any, or all, of the following circumstances which practitioners need to consider:
• Early financial peak. Most clients tend to achieve peak earnings and savings in their 50s, 60s, or later. While there are exceptions, e.g., high tech and other entrepreneurs, the professional athlete trends towards the extreme with many reaching peak earning years at a very young age, perhaps e.g. in their 20s. Peak earnings at a such a youthful stage of life can create significant challenges for retirement, estate, and asset protection planning.
• Sudden wealth. The wealth of the professional athlete often comes quickly. Most clients have a build-up of years of increasing financial success that can prepare them for future high income years. Athletes are often thrust into wealth so quickly that there is no period for adjustment. On their rapid, sometimes literally overnight, ascent to wealth, they frequently and incorrectly perceive that they are protected from the vicissitudes of life and are impervious to insolvency, economic downturns, unethical advisers, and more.
• Injuries. The risk of injury is a paramount concern for the professional athlete. For many, there is a high risk of disabling injuries that can occur anytime during the athlete’s career. Those injuries may end what otherwise was an illustrious career trajectory. The average NFL career is only about 2 ½ to 3 ½ years because of injury creating turnover. The potential loss of income often cannot be insured against by the purchase of a disability income replacement policy that protects most clients. So unique planning steps are necessary.
• Lack of time. Most clients can meet with their advisors with just a little bit of planning and handiwork on a calendar. The average client can also take time to research people and concepts that are foreign to them so that they feel comfortable. But athletes must constantly deal with incredible time pressure of training and games and worry about a variety of risks including even losing their job and thus their income. Athletes are generally on a rigid, unforgiving schedule. This schedule can include team activities, training, and other required activities. The result is often limited free time that the athlete holds dear thus making meetings to review important planning quite difficult to schedule.
• Lack of financial literacy. Many athletes have limited financial and legal background, which adds an extra challenge to their planning. There really is no good educational platform to help athletes get a good understanding of business and finance. While the leagues have made efforts, time and practical experiences are significant limiting factors. The personal values of the athlete may also influence how they respond to financial matters. For example, an athlete that grew up in a Christian household imbued with values of stewardship may view financial matters from a different lens than an athlete that grew up in a different environment. Thus, practitioners who are trying to communicate with the athlete client, and educate that client about financial matters, the first step is to understand the client’s knowledge, perspective and views of planning, so that the discussions can be appropriately framed.
• Variable income sources. Endorsements and other intangible contractual rights constitute a variable and uncertain, but potentially lucrative, income stream that cannot be ignored. While adding a layer of complexity, these income sources also add potential planning opportunities if recognized and harness properly.
• Advisor team is broader. Many clients have an advisory board comprised of an attorney, CPA, and wealth advisor. But for the professional athlete, others are likely to also be involved including a sports agent, manager, or management team. Also, consider adding a “life coach” who can provide coaching, mentorship and guidance to the athlete on a more personal level. Ideally, such an executive coach would ideally understand the financial and legal issues in a broad non- technical sense and support the efforts of the rest of the professional.
• Friends. An entourage can become more than mere hangers-on and can actually undermine planning efforts. Some of the athlete’s friends are true well- wishers, but many might be manipulators, or worse. For some athletes, these purported friends turn out to be their most dangerous financial risk.
• Family and personal relationships. Too often, the people closest to the athlete may present the most serious financial threat. The high income, high visibility, and star power of an athlete can all lead to a wide range of different relationships, and costs associated with those relationships. Many professional
athletes have had children out of wedlock. New York Jets DB Antonio Cromartie is reported to have fathered 8 children by 6 different women. Former NFL running back Travis Henry is reported to have fathered 10 children from 9 different women. Like alimony, child support payments are often calculated based on the athlete’s earning power during his career. The child support exposure for these athletes can be tremendous.
• Spending habits. Most notably, this includes unrestrained spending habits pushed by teammates and others. Peer pressure on athletes to keep up with extravagant spending patterns of their more successful, established, and wealthier teammates can create a dangerous influence. These teammates themselves often spend without having taken even the minimal financial planning steps. The spending bar is often established at an unsupportable level for the wealthier athlete, and one which can be devastating for the younger athlete.
• Lockouts. Having to stop work with little notice and a cut-off of compensation can present a significant financial risk for athletes, especially young athletes that have not amassed any meaningful savings. In a limited duration, high earning career, many athletes earn significant compensation and other sports-related income over a short duration of time. This presents a challenge to save sufficient sums during that brief period to support lifestyle expenses over what might be a long post-career lifetime. For example, the average NFL player’s career span is less than four years and the median NFL income is $750,000. Lockouts will further compress this high-earning window.
• Privacy. Privacy is difficult for all clients in a world of technology and ubiquitous reporting requirements. For the athlete it is even more difficult. There is a greater need for privacy, and a more challenging task of maintaining it as the athlete’s success grows.
Each of these common characteristics affects every aspect of the planning, drafting, and plan implementation process. Practitioners need to tailor efforts on behalf of these clients to enable them to achieve the security that the planning process should provide. Our outline will provide some background on the common characteristics of professional athletes and review modifications to estate planning and drafting. These adjustments range from simple modifications in a living will, to more complex planning techniques such as utilizing a beneficiary defective irrevocable trust (“BDIT”) which might have unique benefits for the professional athlete.
Because of the length of their commentary, members should click this link to read their outline: Don’t Leave It All on the Field – Why Athletes Require Special Planning
HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!
Eli Akhavan Evan Bloom
Jonathan Shenkman Martin M. Shenkman
Ben Utecht Eido Walny
LISI Estate Planning Newsletter #2777 (February 3, 2020)
at http://www.leimbergservices.com Copyright 2020 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission. This newsletter is
designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that LISI is not engaged in rendering legal, accounting, or other professional advice or services. If such advice is required, the services of a competent professional should be sought. Statements of fact or opinion are the responsibility of the authors and do not represent an opinion on the part of the officers or staff of LISI.
To read the full article click here.
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