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Footballer Financial Follies

A leading industry publication interviewed estate attorneys and a financial advisor about the estate planning mistakes made by professional athletes. We can avoid the same errors.

I have summarized their conclusions below, and have added insights on how life insurance can help prevent these problems.

1. Living in the present.

“By far the biggest mistake people make is to do no planning,” Walny says. “It’s an epidemic problem among the general population and it’s worse among pro athletes. Statistics show that 60 percent to 70 percent of Americans don’t do any estate planning. It’s probably closer to 80 percent to 90 percent for pro athletes.”

In order to buy life insurance effectively, one has to calculate the amount needed. In order to do this, one must have a general idea of all financial needs, current and future.

2. Partnering with the wrong financial team.

Though they have played their entire careers as part of a team, pro athletes may struggle building a team of financial advisors and estate planners. Or more accurately, the right team of advisors. Many times, a professional athlete relies on family members or friends to guide their financial decisions, a path that can sometimes lead to ruinous consequences. Accordingly, it’s critical they hire professional estate and financial advisors, Walny stresses.

Financial advice must come from specialists. The person who sells you life insurance must be a specialist in that marketplace. This way you will be guided to the right company and pay the right price.

3. Spending outside their means.

The first step, Nasser relates, is educating NFL players about some basic financial concepts like cash flow management and liquidity. That $2 million-a-year contract may seem like a hefty number, but in reality, it factors out to $800,000 when taxes and fees are subtracted and without taking into account any withdrawals for savings. Yet most players base their lifestyle on that $2 million figure and “their cash flow usually gets out of control,” Nasser says. “They tend to live outside their means.”

You must have a rough idea of your budget when you buy life insurance. This way, when you buy a policy, you will keep it in force for as long as you need it.

4. Not staying liquid.

In light of their relatively short playing careers that condense their peak earning years and typically non-guaranteed contracts, NFL players require some special estate and financial planning techniques. A career-ending injury (always a distinct possibility in the physically demanding sport of football) or being suddenly cut from the team means any financial plan must include a cash cushion the client can access when they are unexpectedly left without a paycheck.

Permanent life insurance can provide cash values that are available immediately. Upon the demise of the insured, the survivor benefit can be available in just a few days.

5. Leaving assets exposed.

Here comes another NFL analogy: Just like a player wouldn’t step out on the field without a helmet, an estate plan for that same player should incorporate asset protection. Pro athletes typically own many material assets,like real estate or even car collections, that could be targeted by creditors.

There are two tiers of asset protection, Passananti details. One is statutory protection, whereby in some states equity within a personal residence or cash build-up in annuity or life insurance contracts are shielded from creditors by law.

The next tier is what he terms entity-based asset protection. That could come in the form of a business arrangement like a LLC or LP, or an irrevocable trust.

Yep. Life insurance can be shielded from creditors by law. Your cash reserve and survivor benefit can remain under your control.

6. Failing to see the bigger picture.

Every client faces that inevitable question: What will I do after I stop working? For pro athletes, that conundrum comes much earlier in life than most.

Consequently, the planning process for his pro athlete clients must include an evaluation of their strengths and skills outside of football, Nasser says. What are they good at (besides catching a pigskin)? What do they like to do outside the gridiron? Do they want to be an entrepreneur or a passive investor?

Your privately owned life insurance policy is yours. You take it with you regardless of any number of job or career changes.