Estate Plan:
Your First Step Often times, estate planning for professional athletes is different than for most other individuals. Most individuals accumulate wealth over many years and try to preserve their assets for their later years. Professional athletes on the other hand accumulate wealth over a shorter period of time at a much younger age. As most professional athletes accumulate their wealth in their 20's and 30's, they will need their money to last for a very long period of time.
The professional athlete like most individuals has to preserve wealth throughout their lifetime and determine how they would like for their estate to be distributed upon their passing. In order to determine how to distribute assets and how to preserve wealth, a professional athlete should have a Last Will and Testament and trusts.
A Last Will and Testament guides how the individual's assets are distributed at the time of their death. Without a Last Will and Testament an athlete's estate, especially one of great wealth, can spark legal battles amongst relatives which can be costly.
Irrevocable/Revocable Trusts can also be utilized to determine how an athlete's estate is distributed at the time of their death. Additionally, a trust can be used to handle finances for a professional athlete during their lifetime. Using a trustee, who handles the professional athletes' finances in the best interests of the athlete, can protect the athlete from hangers-on who see the athlete as an easy target to obtain money. The trust can also protect an athlete from frivolously spending their wealth and can rather preserve the athlete's funds by properly investing the athlete's funds with an eye on their future. These funds could support the athlete during their lifetime. The athlete can act as a co-trustee in determining how to invest their funds.
Other estate planning issues concerning professional athletes include:
Domicile: Where the athlete resides is critical for estate planning purposes. If the athlete does not have a Last Will and Testament, the dispositions of the athlete’s assets are determined by the state in which the athlete resides at the time of their death. Furthermore there may be both income tax implications during the athlete's lifetime and estate tax implications at their death which are determined by the athlete's residence. It is important that the athlete's domicile is made clear.
Federal and State Gift and Estate Taxes: Federal and state gift and estate taxes act as a road block to an athlete sharing his or her wealth with their family members.
Prenuptial Agreement: As many athletes accumulate money when they are young they often time have substantial estates at the time they get married. A prenuptial agreement is a contract entered into prior to marriage, civil union or any other agreement prior to the main agreement by the people intending to marry or contract with each other. The content of a prenuptial agreement commonly includes provisions for division of property and spousal support in the event of divorce or breakup of marriage.
Disability Planning: In the event the athlete's career ends prematurely the athlete needs to plan for their future. Certain documents should be in place such as durable powers of attorney, medical powers of attorney and living wills or health care proxies.
There are highly publicized reports of professional athletes who have found themselves facing insolvency due to poor investments or frivolously spending their hard-earned money. This emphasizes the need for sound financial and investment strategies. As the athlete's career is short it is imperative for the athlete to have an estate plan in place in order to preserve their assets over the course of their lifetime.
Your First Step Often times, estate planning for professional athletes is different than for most other individuals. Most individuals accumulate wealth over many years and try to preserve their assets for their later years. Professional athletes on the other hand accumulate wealth over a shorter period of time at a much younger age. As most professional athletes accumulate their wealth in their 20's and 30's, they will need their money to last for a very long period of time.
The professional athlete like most individuals has to preserve wealth throughout their lifetime and determine how they would like for their estate to be distributed upon their passing. In order to determine how to distribute assets and how to preserve wealth, a professional athlete should have a Last Will and Testament and trusts.
A Last Will and Testament guides how the individual's assets are distributed at the time of their death. Without a Last Will and Testament an athlete's estate, especially one of great wealth, can spark legal battles amongst relatives which can be costly.
Irrevocable/Revocable Trusts can also be utilized to determine how an athlete's estate is distributed at the time of their death. Additionally, a trust can be used to handle finances for a professional athlete during their lifetime. Using a trustee, who handles the professional athletes' finances in the best interests of the athlete, can protect the athlete from hangers-on who see the athlete as an easy target to obtain money. The trust can also protect an athlete from frivolously spending their wealth and can rather preserve the athlete's funds by properly investing the athlete's funds with an eye on their future. These funds could support the athlete during their lifetime. The athlete can act as a co-trustee in determining how to invest their funds.
Other estate planning issues concerning professional athletes include:
Domicile: Where the athlete resides is critical for estate planning purposes. If the athlete does not have a Last Will and Testament, the dispositions of the athlete’s assets are determined by the state in which the athlete resides at the time of their death. Furthermore there may be both income tax implications during the athlete's lifetime and estate tax implications at their death which are determined by the athlete's residence. It is important that the athlete's domicile is made clear.
Federal and State Gift and Estate Taxes: Federal and state gift and estate taxes act as a road block to an athlete sharing his or her wealth with their family members.
Prenuptial Agreement: As many athletes accumulate money when they are young they often time have substantial estates at the time they get married. A prenuptial agreement is a contract entered into prior to marriage, civil union or any other agreement prior to the main agreement by the people intending to marry or contract with each other. The content of a prenuptial agreement commonly includes provisions for division of property and spousal support in the event of divorce or breakup of marriage.
Disability Planning: In the event the athlete's career ends prematurely the athlete needs to plan for their future. Certain documents should be in place such as durable powers of attorney, medical powers of attorney and living wills or health care proxies.
There are highly publicized reports of professional athletes who have found themselves facing insolvency due to poor investments or frivolously spending their hard-earned money. This emphasizes the need for sound financial and investment strategies. As the athlete's career is short it is imperative for the athlete to have an estate plan in place in order to preserve their assets over the course of their lifetime.
What are the types of life insurance policies available?
There are many types of life insurance including; Whole Life, Universal Life, Indexed Universal Life, Variable Life and Term Life:
Whole life:You generally make level (equal) premium payments for life. The death benefit and cash value are predetermined and guaranteed (subject to claims paying ability of the issuing company). Your only action after purchase of the policy is to pay the fixed premium.
Universal life:You may pay premiums at any time, in any amount (subject to certain limits), as long as the policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be changed, and the cash value will grow at a declared interest rate, which may vary over time.
Indexed Universal life:You may pay premiums at any time, in any amount (subject to certain limits), as long as the policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be changed, and the cash value will grow at an interest rate declared annually and based on the performance of a stock index, which may vary over time.
What is Indexed Universal Life: Indexed universal life insurance is a lot like universal life insurance. An indexed universal life insurance policy gives the policy holder the opportunity to allocate cash value amounts to either a fixed account or fixed index account. Indexed universal insurance policies typically guarantee the principal amount in the indexed portion, but cap the maximum return that a policy holder can receive. Since these policies are seen as a "hybrid" universal life insurance policy, they are usually not very expensive (due to lack of management), and are safer than an average variable universal life insurance policy. However, the upside potential is also limited when compared to variable policies.
Variable life:As with whole life, you pay a level premium for life. However, neither the death benefit nor cash value are predetermined or guaranteed; they fluctuate depending on the performance of investments in what are known as subaccounts. A subaccount is a pool of investor funds professionally managed to pursue a stated investment objective. You select the subaccounts in which the cash value should be invested.
Term Insurance:Term insurance will last a specified amount of time based on it's term. If you were to purchase a 20 year term policy it would last for 20 years. If the policy owner was to pass away within the 20 year term the death benefit would be paid to the beneficiary. If the policy owner was to decease after the 20 year term there would be no death benefit. The premium payments are at a very low cost and there is no cash value. You are purely purchasing for the death benefit only. There is also (ROP) Return of Premium Term Life Insurance which comes at a much higher cost.
How do I determine the amount of coverage I need? There are many factors that need to be considered before purchasing Life Insurance. It's affected by how many people depend on you, what your current budget is, and how much you can afford. It's best to consult with a qualified licensed professional agent before making these types of decisions. Example: I ran into an old friend that is now 40+ years old that had purchased a 20 year term policy back when he was in his mid-20's, before he had any children. I asked him, why did you buy only a 20 year term policy? His answer was "that is what my agent told me I needed". He now has 3 children all under 10 and he needs to go through underwriting again in order to purchase the necessary insurance. The new policy will most likely be much more expensive because he is much older and could possibly have health issues. That is just one minor example of how important it is to purchase the correct policy and the correct amount from the start.
Why should I purchase permanent insurance?
Permanent coverage is a way for you to regularly save money and a way for you to leverage wealth. Your policy builds up value as you grow older. In many cases, it's more flexible than term life and is designed to change according to your changing needs. It will also help you take care of the people who depend on you financially. A permanent policy may bring more value to a person that has good cash flow. A permanent policy is significantly more expensive than a term policy.
When should I purchase a term policy?
Term life lasts a certain period of time and then must be renewed or replaced in order to continue. This makes it a good choice if you are unable to afford a permanent policy and only foresee a need for a certain time. Term life is an excellent choice for young families who have a greater need for insurance when their children are young.
Why do people own life insurance?
People own life insurance to provide death protection, or to increase their savings. The cash surrender value accumulation can be used as a disciplined savings plan. The money accumulated could also be used to provide for education, retirement, emergencies or any opportunities that may arise.
What are some advantages of permanent insurance?
- You gain long-term cash accumulation.
- The values for your premium and death benefit can be guaranteed.
- You have an increasing death benefit.
- You can receive funding during disability.
- You get life-long insurance protection.
- The values may be sheltered from creditors.
- The proceeds at death are generally tax free.
- You have more flexibility and higher funding limits than some qualified plans.
- There are no early withdrawal penalties or forced distributions.
The benefits of whole life are:
- The policy never has to be renewed as long as premiums are paid.
- The premiums remain the same through the payment period.
- The accumulating cash values act as a savings element.
- Some policies include the possibility of receiving dividends.
- Non-forfeiture options allow the policy holder to retain some benefits even if unable to pay the premium.
- There are guarantees which last for the life of the contract if premiums are paid.
- The amount and frequency of premium payments is flexible although there are certain requirements.
- There is also flexibility in the amount of the death benefit, but it is subject to rules requiring the policy to maintain its status as insurance.
- You have the ability to take partial withdrawals from the cash value of the account.
- In most contracts there are guarantees which, if premiums are paid, will last for the length of the contract.
A beneficiary is the person or entity you name to receive your death benefit. Beneficiaries are often spouses, children and other family members, but you can name a friend or even a charity. Usually you name a secondary or contingent beneficiary to be next in line to receive your benefit if your first beneficiary dies before you.
Keep Money Safe and Enjoy Retirement
Professional athletes have unique skills in a highly competitive market. They work hard to be influencers on the field or court. They have the ability to build significant wealth from earnings, endorsements, and publicity deals. But when a career comes to an end, retirement comes with challenges of its own.
It’s a tragedy: Most professional athletes are hit with financial turmoil once they’re retired. In fact, many sources show the vast majority of former NFL and NBA athletes within the NBA and NFL file for bankruptcy within five years (Source: From Stoked to Broke: Why are So Many Professional Athletes Going Bankrupt?, Ross Crooks, February 2013, Blog.Mint.com). But this doesn’t have to be the case for you.
Wouldn’t it be nice to keep your hard-earned money safe and have a high-end lifestyle in later years? Well, you can. By building the right trust structured for your specialized needs as an athlete, you can stay wealthy and live the good life. The right investment vehicle will help preserve your wealth, give you a safety net, and provide a healthy, guaranteed lifetime income for your retirement.
The Value of a Guaranteed Lifetime Income
Over his 15-season career, Allen Iverson earned more than $154 million. Upon retirement in 2010, he fell in financial turmoil. Ultimately the money trouble boiled down to a simple case of overspending.
According to TMZ, Iverson’s monthly expenses included:
• $10,000 for clothes
• $10,000 for groceries & household goods
• $10,000 for restaurants & entertainment expenses
At one point in 2012, Iverson was burning through $360,000 monthly. Of that $360,000 per month, $126,000 was going to creditors and mortgages! That comes out to $4.3 million in expenses per year! Eventually Iverson foreclosed on two of his homes and was ordered to meet numerous obligations, such as $850,000 owed to a jeweler in Atlanta (Sources: Allen Iverson Goes Broke: 3 Money Lessons for You, Leo Sun, May 2015, MotleyFool.com; Report: Allen Iverson is not Broke Because a Friend was Smart, Kurt Helin, March 2012, NBANBCSports.com).
Despite these troubles, Iverson is well-secured for the future. Thanks to deals with Reebok, he built up funds of $32 million. These funds are safely stored in an annuity account. He can’t touch these funds until he’s 55, but in the meantime it pays out $1 million in income per year. Iverson enjoys the benefits of having his money protected, being sheltered from taxes, and enjoying potential for investment growth over time (Source: Report: Allen Iverson is not Broke Because a Friend was Smart, Kurt Helin, March 2012, NBANBCSports.com).
What can The Right Retirement Vehicle Do for Me?
As a professional athlete, you worked hard throughout your career. You deserve to have your money well-protected. And you should be able to preserve your wealth for the future and meet your current expenses. Of course professional athletes have unique financial needs. So any financial vehicle they adopt should be specialized for those requirements. Some of the individualized costs a professional athlete has include:
• Management & agent fees
• Income taxes at federal & state level
• Any taxes for cities in which you play
• Trainer costs
• Hefty insurance costs
• Players union dues
• And more