A personal trust set up by rookie NBA player Michael Carter-Williams is making the news as a surprisingly wise decision from a first-time professional athlete. Players from the NBA declare bankruptcy at a startling rate of 60 percent within their first five years of retirement, indicating that financial management may not be a top priority for players in the league.
The young man’s trust will set aside his salary from his first contract and prevent him from accessing it for three years, according to reports. Trusts are often set up to provide for children, benefit charities, or as a part a tax minimization plan. In this case it is not clear what the player’s long term intent is with the trust since he does not yet have any children. However, he could certainly change the terms of the trust and add beneficiaries over time, such as charities, friends, or close relatives.
Trusts can also be used effectively by high-asset individuals to manage taxes and to protect assets. There are very specific regulations that go along with setting up trusts to delay tax liability, so it is important to be up-to-date and seek the advice of an experienced professional who understands both estate planning and tax regulations.
Setting up a trust to delay the receipt of money is something that a lot of parents and grandparents do in order to give a gift to their children or grandchildren. By putting time limits or other restrictions on a trust, families can help protect younger members from potentially foolish financial decisions that they may regret later. In this case, Mr. Carter-Williams is being advised by his mother, who told reporters that they are creating a plan for long-term financial health for the 22-year-old professional athlete.
Source: ABC News, “Philadelphia 76ers Rookie Puts Salary in Trust: A Smart Choice?” Susanna Kim, Dec. 3, 2013.