Did you hear the news? Michael Carter-Williams,a 22 year old professional basketball player for the Philadelphia 76ers, is creating headlines for what he is doing off the basketball court. And believe it or not, unlike most of the news regarding the personal lives of professional athletes, he is making news for being responsible and planning for his future. Who knew a 22 year old could do that?
So, what is Michael doing that is such big news? He created a trust which will hold some of his guaranteed $4.5 million salary, moving control out of his hands and into the hands of someone with more maturity and experience in life. Apparently, he doesn’t want to be like the 60% of NBA basketball players who file for bankruptcy after their playing days are over.
As reported in the news, with Michael’s trust someone else will have control for the next three years. By that time, the hope is Michael will have a few more years of maturity so he’ll make better decisions regarding his finances when he resumes control.
It might be hard to believe, but we can learn several lessons from this amazing young man. First, Michael understands young adults often don’t have the maturity and experience to make wise decisions about their finances. Recent research has shown a young adult’s brain doesn’t fully develop until his mid-20s, and the last part of the brain to develop is the judgment center. The law says you are an adult at age 18, but common experience tells us otherwise.
Second, trusts are very effective tools to control a young or inexperienced beneficiary’s access to funds. A properly drafted trust can allow the beneficiary to get the benefit of the trust assets, but still prevent the beneficiary from misusing the funds.
What Michael did is remarkable because there are so few young people who would do the same thing. All of us know of a young adult who received a sizable inheritance and ended up blowing everything within a few years—maybe even within a few months.
You can do the same thing for your loved ones, even if they don’t have the foresight Michael has. It is never a good idea to give money outright to a minor child or grandchild. Because minors are not legally permitted to own assets, a conservator must be appointed in a court proceeding to handle the minor’s funds. To make matters worse, when the minor turns age 18, he or she is entitled to the funds without any restrictions. According to the law, if you are age 18 or age 80, you are treated the same.
I often tell my clients the only thing worse than giving money to an 8 year old is giving it to an 18 year old. For the 18 year old, a court process is not required, but there are absolutely no controls over what the 18 year old does with the funds.
If you want to give assets to your young child or grandchild, the best way is to set up a trust ahead of time. You get to decide how and when your beneficiary will receive money. You decide how old your beneficiary must be before getting control of the funds.Otherwise, it’s “Hello sports car—goodbye money!”
If you want to make gifts to your family while you are alive, you can set up a separate trust now. If your family won’t receive anything until after you die, your revocable trust can have provisions to protect your family. Either way, your trust can—and must—include provisions that keep young beneficiaries from getting their hands on the money.
You can even include provisions to protect your beneficiaries from losing their inheritance to divorce or other creditors later in life, even if they are mature enough to handle their own finances. That’s another topic for another day, but it is amazing how powerful a trust can be when set up correctly.
Don’t wait until your grandson signs an NBA contract to start planning. Talk with one of the experienced attorneys at Morris Hall about how you can protect your hard earned assets for your children or grandchildren.
About Morris Hall:
At Morris Hall, we have focused our legal practice on estate planning for over 40 years. Along with estate planning, our attorneys help clients and their families with matters of probate, trust administration, wills, power of attorneys, business planning, succession planning, legacy planning, charitable gifting and other important legal aspects. We also have divisions in financial, real estate and accounting to help you incorporate all of your planning together, ensuring that everything works perfectly for your needs and situation. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, Tucson, Prescott, Flagstaff and Arrowhead. Contact us today at 888.222.1328 to schedule an appointment!
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.