Protecting Your Legacy: plan for estate planning and philanthropic ventures
As a professional athlete, it’s important to prepare for competition on the field, but it’s equally important to plan for your personal legacy. There are unique considerations to be aware of as you start the process of estate planning and deciding which philanthropic ventures you’ll invest your time in.
Planning for Family Legacy
The first step to creating an overall estate plan typically is making a will. If you don’t have one, the laws of the state of your “domicile” will determine where your property goes at death. Determining your domicile is an estate planning issue that athletes should pay particular attention to. While you may have more than one home (for example, one in the city where your team is located and another in your home town), only one of those locations would be considered your legal “domicile”—your permanent home and the place where you intend to return after being away. This determination can be critical for estate tax purposes given that about a third of all states impose an estate or inheritance tax on the transfer of wealth, and those states also maintain different exemption levels and tax rates.
As a cautionary tale, former NFL quarterback Steve McNair died without a will in 2009 at the age of 36, leaving behind a wife, as well as two children from that marriage and two children from a prior marriage. Under Tennessee law, McNair’s wife was entitled to a portion of the estate, as were his four children—but his beloved mother was left with nothing. This state-dictated scheme also triggered federal and Tennessee estate taxes—many of which could have been reduced or avoided entirely through properly drafted estate planning documents.
In preparing a will, you can choose who inherits your property, how they inherit the property (for example, outright or as the beneficiary of a trust) and who’s in charge of managing the property left to the beneficiaries of the will. You should be aware of and consider the impact that taxes have on the transfer of your wealth. These taxes can be in the form of federal and state estate and gift (i.e., transfer) taxes, as well as income taxes. Under current federal law, the first $5,450,000 of an individual’s assets is exempt from estate tax; this amount is scheduled to increase to $5,490,000 in 2017. However, the Trump Administration has proposed a complete repeal of the federal estate tax, so individuals should be on the lookout for tax-related alerts in 2017. A carefully drafted will and related estate planning documents can reduce, or in some cases, eliminate, the imposition of federal and state transfer taxes.
Since your situation as an athlete may change over time, it is important that you and your advisors stay in touch to make sure that the original estate plan remains appropriate. Changes such as family structure (marriage, children, or divorce), employment (moving to a different team or retirement), asset composition or relevant tax laws can impact your estate plan. Make sure that your family legacy is kept intact by making estate planning a part of your overall financial plan.
Planning for Philanthropic Legacy
Many athletes make the decision during their careers to venture into philanthropy—to support a cause that’s important to them, to give back to their communities, or maybe even to grow their individual brands.
When considering how you want to make an impact through your charitable efforts, you should first consider what level of engagement you’re interested in. While many athletes have their own foundations, there are a variety of ways to achieve your philanthropic goals. Your involvement could range from volunteering, to making gifts to other charities, to establishing a “donor advised fund” (essentially, a charitable giving fund managed by an independent public charity that re-grants funds to other qualified charities), to establishing a charity of your own—or all of the above.
If you decide that you’re ready to establish your own charity, be aware that forming and running such an organization is no small undertaking. At the outset, you’ll need to make an investment of time and funds to establish the entity and apply to the IRS for tax-exempt status under section 501(c)(3) of the Internal Revenue Code. There are also long-term issues to consider—oversight, maintenance and financial support. The charity will need a board of directors or trustees, which should hold regular meetings and run the organization in accordance with proper governance principles. And, while a charity’s staff members can receive compensation for their services, if your friends or family members are involved, then the charity’s board of directors must take great care that these positions and compensation packages are appropriately vetted, approved and monitored.
Also, because all 501(c)(3) tax-exempt charities’ recent annual tax returns are available to the public, and because donations to such organizations are generally tax-deductible, how a charity is run is very much the public’s business. A successful athlete who creates and funds a charity should fully expect its tax returns to be scrutinized thoroughly and regularly—if not always by the IRS and state regulators, then certainly by the public and the press. While your philanthropic works can lead to terrific publicity and good will, be prepared to invest the time and resources necessary to make your work a success.