Estate Planning for Athletes
How Does An Athlete's Estate Plan Compare to the Average Person's?
The Paris 2024 Olympics are well on their way. Across the globe, people are tuning it to watch athletes from their respective nations compete against others for gold & glory on the world stage. Many of these athletes have been training their entire lives for this moment. They’ll only get one shot, one opportunity. Will they be able to capture it? Or just let it slip?
All jokes aside, I was watching the Olympics and, being the estate planning attorney that I am, started to wonder what special considerations would need to be accounted for in an athlete’s estate plan? That is, what would be the same in an athlete’s estate plan when compared to the average person’s estate plan? What would be different? What would cause those differences?
What Would Be The Same
The Risk of Probate
Probate is the name of the default legal process for people who pass away without an estate plan. It is also the legal process for those who die with only a will in place.
In a probate case, your Personal Representative (also called an executor in other states), gathers your assets together and lets your creditors know you’ve died. Your creditors then line up and collect whatever they can from your estate. Whatever’s left, if there is anything, is then distributed according to your will, if there is one, or your state’s intestacy statute, the law that states how an estate should be distributed.
You can named your preferred Personal Representative in your will. And while, according to law, there are only a few easy requirements to be a personal representative (1. Be over the age of eighteen; 2. Don’t be a felon; 3.Don’t be convicted of abusing the elderly or a disabled adult, 4. Be mentally and physically able to perform the duties) there’s one more that makes become a personal representative way more strenuous: you must be able to qualify for a bond and pay the premium upfront. If you cannot qualify for this bond, or it hasn’t been waived, you run the risk of having a professional fiduciary appointed as the personal representative. How much will that cost? It varies, but it could be as much as 3% of your estate. Just as an example, if your estate is worth a million dollars, 3% of the estate would be $30,000.00.
However, there are more expenses that need to be paid! Your personal representative will almost always need to hire a lawyer. Those fees could be ANOTHER three percent of the value of your estate. What’s more, the probate fee schedule for the personal representative and the probate attorney is provided by law. And it’s a floor, not a ceiling, meaning they could always charge your estate more if justified.
The Need for the Core Four (a Revocable Trust-based Plan)
No matter who you are, the best way to avoid probate is through a Revocable Trust-based estate plan, which can be called the Core Four, because it is made up of four core documents. They are:
The Revocable Living Trust: This is how the Core Four avoids probate. When you establish a Trust, you create an agreement with instructions on how your property should be managed and to whom your property should be distributed when you pass. After that happens, those instructions are followed so that the property controlled by the agreement is transferred without a probate proceeding. The creator of a Trust and the agreement is called a Grantor. The person or entity that agrees to manage and distribute the property is called the Trustee. The people who receive your property after you die are called your Beneficiaries.
The Pour-Over Will: A Revocable Living Trust will control the distribution of all assets that are funded into it. To “fund” something means to change the name on the title to the name of the trust. But what if there’s property that is not funded into the trust? Perhaps there’s a bank account you forgot or some of real estate you accidentally took title to in your own name, well, that’s where the Pour-Over Will comes in. A Pour-Over Will is a will that names your Revocable Living Trust as its beneficiary. So, after probate is finished, the property will be funded into the trust and distributed accordingly its instructions, instead of by your state’s intestacy statute.
A Power of Attorney: This document allows someone to make binding decisions on your behalf. These would be decisions unrelated to healthcare, like those over business, banking, or real estate. The person giving decision-making authority is called the principal. The person receiving decision-making authority is called the agent or attorney-in-fact. The principal keeps the ability to make decisions for themselves but allows the agent to have decision-making authority as well. Also, the principal has the ability limit the agent’s powers. A Power of Attorney does not survive the incapacity of the principal unless there is language in the Power of Attorney stating otherwise. Having a Power of Attorney that survives incapacity is important if the principal has obligations that need to be managed, like paying bills, rent, or a mortgage payment.
An Advance Healthcare Directive: Often called a “medical power of attorney” in other states, In Florida, an advance healthcare directive is the name for a document that allows someone to make binding healthcare decisions on your behalf. An advance healthcare directive is usually made up of a living will, a designation of healthcare surrogate, and a uniform donor form. A living will is used to communicate the circumstances under which you’d want to stop receiving life-sustaining care, these are situations where you’re incapacitated and unlikely to ever regain capacity. This can also be referred to as deciding to “pull the plug.” A designation of healthcare surrogate is used to allow someone else, known as a healthcare surrogate, to make medical decisions in the event you are incapacitated. Finally, a Uniform Donor Form is used to make your wishes regarding organ donation known.
The Risk of Guardianship
You end up in probate if you pass away without an estate plan designed to keep your loved ones out of it. But what happens in the event you end up incapacitated? That is, you haven’t died, but you are unable to make decisions for yourself. Well, guardianship is the answer. And, like probate, there are parts of it you’d want to avoid.
In a guardianship, there are three parties. The first is the Guardian, who has the legal right to make personal and legal decisions on behalf of another person, called the Ward. Second is the Court, who decides how much authority to give the Guardian. Third is the Ward, who is someone that the Court decides does not have the ability to manage their property and/or their basic health and safety needs.
So, in a guardianship, a someone files a petition with the court to be appointed Guardian of a potential Ward. The Court then decides whether to approve the guardianship and how much authority to give the Guardian over Ward. If the court approves the guardianship, the Ward loses legal decision-making authority, and it is given to the Guardian.
There are a few requirements to being a Guardian, as long as those requirements are met, anyone can apply for guardianship. So, as you can imagine, it’s incredibly important to be able to choose who your Guardian would be should you ever need one. Under Florida law, you can do so with a Pre-Need Designation of Guardian, which allows you to list who you’d like to be your Guardian if needed. In the event you do, the Court still makes the final decisions, but will always strongly consider the people listed in the Pre-Need Designation of Guardian because you listed them, if they meet the requirements.
What Would Be Different (And Why)
Agents & Other Fiduciaries
There are many roles in an estate plan that involve other people. The Personal Representative, the Trustee, Agent, Attorney-in-Fact, Healthcare Surrogate, etc. For many people, these roles are typically held by their spouse first, and then an adult child or other trusted relative as a backup. And, even for an athlete, some of these roles would be the same, however, it may be ideal to have certain professionals in some roles. Two in particular come to mind:
The Healthcare Surrogate: Many athletes are on special diets and supplement regimes. And, because of the physical nature of their work, they are more likely to get injuries. Depending on the sport, these injuries could be quite serious and would require particularized medical care. If an injury occurs and medical decisions need to be made, like those covered by a Designation of Healthcare Surrogate, it would be advantageous to have a sports medicine professional listed as a healthcare surrogate to make sure the diets are followed, the recovery protocol is adhered to, and everything goes as smoothly as possible.
The Power of Attorney: Another role that might look different for an athlete is the agent or attorney-in-fact in their Power of Attorney. It’s not uncommon for athletes to have business dealings. Even college athletes, who were forbidden from any business dealings until very recently, could have NIL (name, image, and likeness) deals worth millions of dollars. Due to the complexity of these deals, athletes may have business managers and financial advisors who would need access to their financial and banking information and accounts to best serve them and manage the requirements of these contracts. Accordingly, these professionals may need to be appointed the athlete’s Attorney-in-Fact or agent to do their jobs..
Estate Planning for Their Business Interests
As mentioned above, many athletes have business dealings which would need to be accounted for when designing their estate plans. This could be brand endorsements, where the athlete is paid to publicly support a company or product. Or investment opportunities, where there is no hands-on involvement in the operation of the business, just the contribution of capital. These deals can be quite lucrative and, in some cases, be one of the athlete’s biggest source of income. While a detailed discussion of the optimal tax strategies for business owners and high-net worth individuals is beyond the scope of this article, creating an estate plan that accounts for these business dealings will involve using business entities, like LLCs and corporations. There are several reasons for this, one of them is to limit the athlete’s personal liability if anything goes wrong. Another reason could be to avoid probate. While this is best handled by a trust, under Florida law, the operating agreement of an LLC can be used to transfer a member's ownership interests outside of probate. Accordingly, any operating agreement should have probate avoiding provisions as a backup to make sure those business interests are transferred to your chosen beneficiaries.
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