NBA Rookie of the Year Uses Irrevocable Trust to Protect His Financial Future

We have all read stories of movie stars, athletes, and other celebrities shoved into the spotlight of fame and wealth, only to end up broke after a successful career because they did not plan for their economic future.

One good example is former NBA Rookie of the Year Allen Iverson of the Philadelphia 76ers. Iverson, a 15-time NBA All-Star, had a great career that reportedly earned him more than $200 million. However, according to Forbes[1], he was often broke or on the brink of filing for bankruptcy even while still playing.

Iverson is not the only professional athlete that has faced financial difficulties; others have included Olympic skater Dorothy Hamill, Major League Baseball players Lenny Dykstra and Jack Clark, heavyweight champion Mike Tyson, and pro golfer John Daly, just to name a few.

But, one young pro athlete is determined not to fall into this same pattern of behavior — NBA rookie Michael Carter-Williams (Philidelphia 76ers,) the 22 year old winner of the 2014 Kia Rookie of the Year Award[2]. (Coincidentally, Allen Iverson is the only other player in Sixers history to win the award.)

In December of 2013, Carter-Williams announced that he was setting up an estate plan (rare for someone his age) to ensure his financial future. At the time, CBS Sports reported that the young rookie agreed to put his salary from the 76ers into an irrevocable trust to be managed by his mother and a close family friend who is a financial planner[3]. At this point, Carter-Williams is earning a guaranteed $4.5 million for his first two seasons in the NBA. He could make a total of $10 million if the 76ers pick up the final two seasons of his contract.

But Carter-Williams won’t see that money for a while. According to the terms he established in his estate plan, his NBA salary is deposited directly into the trust, which he can not access for three years. Until then, he will be living off income from endorsement deals he made with Nike and Panini trading cards. (After winning Rookie of the Year, he will probably add other endorsements to that list.)

“What we have here is a very smart young man who is choosing responsibility over the temptations of earning more than 99.9% of his peers at an early age. For this reason we want to nominate him as well as a financial role model of the year,” explained Rocco Beatrice of UltraTrust.com[4].

By planning his financial future early, Carter-Williams is striving to avoid the economic problems so many athletes have faced in the past, and with good reason. The statistics about athletes and their money are shocking, according to Sports Illustrated[5]:
  • By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.
  • Within five years of retirement, an estimated 60% of former NBA players are broke.
  • Numerous retired MLB players have been similarly ruined.

We applaud Mr. Carter-Williams for his maturity and forethought. Not many 22-year olds see the need to plan for the future, which no one can predict. By using an irrevocable trust, he will reduce his tax liabilities to better retain the value of the trust. Even if he were to suffer a career-ending injury, his multi-million dollar nest egg should help lessen the pain and ensure a bright future for himself and his family.
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References:
1. “Allen Iverson Earned Over $200 Million In His NBA Career. Now He’s Reportedly Broke. Say, What?”; John Marshall Crotty, Forbes.com, February 21, 2012
2. 76ers guard Carter-Williams wins Kia Rookie of the Year; May 5, 2014, NBA.com
3. “Michael Carter-Williams has put his rookie salary in a trust fund”; Matt Moore, NBA writer, December 2, 2013, CBSSports.com
4. “NBA Phenom and Irrevocable Trust Advocate Wins the Rookie of the Year Title from the NBA and Financial Role Model of the Year From UltraTrust.com”; PRWEB, May 13, 2014, PRWeb.com
5. “How (and Why) Athletes Go Broke”; Pablo S. Torre, March 23, 2009, SportsIllustrated.cnn.com