Protecting Your Family from the Inevitable: Estate and Inheritance Planning

A number of people prefer not to focus on their mortality; others simply do not believe that it is a necessity.  In both cases, not planning for your departure from this world can be a major mistake.  You should put in place an estate plan to ensure that what you have built in your life so far will be there to provide for your children and perhaps later generations as well.  The absence of a will and an estate plan, will give rise to legal battles between those who want to fight for what they think you may have wanted or those who feel that they are entitled to receive from you.

As a sports professional, you should start planning your estate from a young age, when you are at the peak of your performance and at the height of your earnings.  The truth is that the relative youth of athletes when at the height of their earnings, makes it necessary to utilize planning strategies that do not require irrevocable decisions, as such decisions will have a much longer time horizon for athletes than that of older people planning their estate.  In addition, while the amount of wealth you have accumulated from your professional sports career may be substantial, you may need to rely on that wealth to maintain a desirable lifestyle for a substantial amount of time, therefore your estate plan should cater for that.

An estate plan provides you with the ability to spell out your wishes and intentions, how you want those wishes carried out, and by whom you want them carried out.  In the event of your incapacity or death, a proper estate plan will:

1. Provide structure for your beneficiaries inheritance by maximizing the amount of your money and assets that will be transferred to loved ones while minimizing the taxes your beneficiaries must pay on those assets
2. Set forth your desires as to how your assets will be managed and distributed
3. Avoid public disclosure of the size and distribution of your estate as well as avoid the cost and delay of a probate
4. Utilize gifting strategies, irrevocable trusts and other planning techniques to potentially save your estate large amounts of taxes
5. Safeguard your minor children as you will have a final say in who serves as their guardian should you and/or your spouse die prematurely or unexpectedly
6. Minimize the emotional and financial burden placed upon your heirs, while minimizing arguments among heirs over your estate.

Below, we list what we consider as the basic components of a proper estate plan with the objective of assisting athletes to realize both lifetime and at death goals, from a tax and a non-tax perspective.

1. A Last Will and Testament through which you will designate how assets are distributed. Aside from directing the disposition of assets, a will enables the athlete to:
   1. Choose a guardian for children if a spouse does not survive
   2. Choose an executor
   3. Direct how and by whom taxes are to be paid
   4. Provide for the management and control of assets through trusts
   5. Give discretion over distributions of income and principal to trustees
   6. Avoid misunderstandings and conflicts among family members over the athlete’s intentions
   7. Provide for any special needs of dependents, especially minor children
   8. Coordinate the distribution of various employment benefits
   9. Provide for charities

Your will should always be up-to-date.  Major events in your life such as marriage and divorce may render some or all of your will invalid if the will is not updated accordingly.  Also, you should be very careful about disinheriting children because a disinherited child might very well challenge the claims of others and create family chaos.

2. A Trust where you will transfer assets. Property that you place in an irrevocable trust is no longer considered part of your estate, meaning that the property is not included in your estate’s value when it comes to determining the amount of death taxes you owe.  Also, a trust can offer protection against bankruptcy or divorce proceedings.  By passing your estate to your children, it will form part of their estate.  Should they face hostile creditors, bankruptcy, divorce, or require care, the estate passed to them might be diluted.  It might also be the case where your children are unable to look after money themselves.  Alternatively, you can make a will by passing everything to a trust for the benefit of your children and their descendants.  Your children can have the use of the trust property, without it forming part of their estate thereby offering protection against hostile creditors.  Finally, you can obtain a term life insurance policy and put it in a trust, to provide liquidity upon death for estate taxes.  You do not want your heirs to be forced to sell assets to pay for resulting estate taxes.
3. Powers of Attorney
   1. A health care power of attorney nominates and authorizes a particular person to make health care decisions on your behalf in the event you are incapacitated and cannot make such decisions yourself.
   2. A financial power of attorney authorizes a different person to make financial decisions concerning your assets, if and when you become incapacitated.
4. A Living Will which specifies your wishes about provision, withholding or withdrawal of life sustaining medical treatments, if you are in a terminal condition or permanently unconscious.

 

When it comes to dealing with the inevitable you should always remember that preventive planning and preventive action are critical.  Your best bet is to talk to a specialized lawyer who can help protect your assets and pass them on to your loved ones and your favorite charities with the least tax implications, while fully respecting your wishes.