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Protecting Student Athletes Through Estate Planning

As of July 1, 2021, college student athletes can profit from their name, image, and likeness (NIL).

This change in policy from the previous NCAA rule that prohibited athletes from making money has dramatically altered the landscape of NIL in collegiate athletics. For a long time, the NCAA has been criticized for generating billions in annual revenue from athletic programs while keeping athletes from sharing the profits. Many students have already begun cashing in.

NIL agreements will, of course, benefit many athletes and their families. But it also highlights the old problem of athletes’ financial planning. Most athletic careers are short, and athletes go bankrupt at an alarming rate. In light of these updated NIL policies, estate planning is more crucial than ever for student athletes.

How much revenue are NCAA athletes bringing in?

The NCAA’s leadership adopted an interim policy on June 30, 2021 that suspended previous NIL rules for all incoming and current student athletes in all sports. The sudden about-face, which stemmed indirectly from the Supreme Court’s ruling in Nat’l Collegiate Athletic Ass’n v. Alston, generated the following interim policies:

● Athletes may engage in NIL activities as long as they follow the laws of the state where the school is located.

● Students attending schools in states without an NIL law are permitted to engage in NIL activity without violating NCAA rules.

● Athletes may use a professional service provider to help them navigate NIL activities.

● Athletes must follow any NIL reporting requirements imposed by their state, school, or athletic conference.

Mark Emmert, NCAA president, said that the college sports governance body will “continue to work with Congress to develop a solution that will provide clarity on a national level.”

Student athletes have wasted no time in taking advantage of the rule changes. According to Yahoo Finance, NCAA athletes could bring in over $1.5 billion in earnings this year. The deals range from local endorsements with barbecue restaurants to video ads for national brands to athletes launching their own brands. Although Division I players’ earnings average less than $500, according to Yahoo, some earned more than their annual tuition in July 2021.

More Money, More Problems?

The top-earning NCAA Division I schools bring in around $8.5 billion of revenue per year, mostly from men’s football and basketball programs. Previously, less than 7 percent of that revenue was paid to athletes in the form of scholarships and living expenses stipends.

While student athletes’ ability to make money from activities such as signing autographs, endorsing products, and in-person appearances corrects a historical inequality, history is not on the athletes’ side when it comes to financial planning. College athletes play for four years at most, and across the three major American sports (baseball, football, and basketball), the average professional career is less than five years.

The brevity of the average professional athlete’s career helps to explain why, despite lucrative salaries, 78% of National Football League players and 60% of National Basketball Association players face bankruptcy or serious financial distress soon after leaving the game. However, a short earnings window is not the only issue. Bad investments, poor planning, trusting the wrong people, and other issues also contribute to athletes’ financial failures. And because many athletes never play professionally, college sports may be an athlete’s only opportunity to cash in on their NIL.

Financial decision-making and power of attorney. Athletes are legally adults once they turn 18, and their parents cannot automatically make financial decisions for them. So, if an 18-year-old athlete makes a deal with an agent, the deal is strictly between the athlete and the agent. If the athlete decides to buy a life insurance or disability policy, it’s up to the athlete and advisor who sells them the product to agree on terms and conditions.

Of course, many parents will have opinions on such deals and can voice them, but if the athlete wants their parents (or anyone else) to make financial decisions for them, handle transactions, or be formally involved in deal discussions, they must execute a financial power of attorney.

Gifts and tax consequences. There may be a temptation for many athletes to share their wealth with friends or family. But they must be mindful of how much they’re giving to avoid possible tax consequences. In 2021, taxpayers are allowed to give a maximum gift of $15,000 per recipient to as many people as they want, without gift tax ramifications. Any gift of more than $15,000 will require them to file a gift tax return. It also counts against the individual’s lifetime exemption amount.

Using Trusts for Asset Protection. While of course individuals vary, many young adults lack money management skills. This can lead them to being financially at risk later in life.

Sometimes, acting in our best interest means protecting ourselves from ourselves. In other words, athletes who haven’t been wise with money up to this point are unlikely to suddenly improve, so it’s crucial to put some structure in place.

By placing assets in a trust that is managed for their benefit, athletes can receive disbursements only for necessary costs such as tuition, housing, and medical care, or anything at the trustee’s discretion. Additionally, a trust can protect assets from creditors.

There are many different types of trusts, including revocable trusts that can be changed during the beneficiary’s lifetime and permanent (irrevocable) trusts that can be customized to an athlete’s specific circumstances.

Planning for the future and sports have a lot in common. If you want to come out on top, you’ll have to set goals, be a team player, and be dedicated. An experienced estate planning lawyer is an important member of your team. For help with estate planning for student athletes, contact our office. Call Santaella Legal Group, serving San Ramon, Danville, Dublin, Pleasanton & the Tri-Valley area, at (925) 831-4840 to set up a consultation.

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