In October, singer Aaron Carter, 25, the younger brother of Backstreet Boys member Nick, filed for bankruptcy. The travails of Lindsay Lohan, 27, and her courtroom drama often involved her need to support her family financially.
"Even if an athlete has a million dollars today, it has to last until you're 65," Phillips Erb said, adding Carter-Williams will be 27 in five years, which can be considered old for an athlete.
Phillips Erb said her "gut" was that Carter-Williams and his parents created the trust to protect his money from himself.
A self-settled trust would have certain protections but would have to have been blessed by a court, she said. A standard irrevocable trust is typically created for estate planning purposes. These can be broken but there would be tax consequences.
"In professional sports in particular, you're going to have health problems and your knees are going to go out," she said. "His parents are very smart to know he has a shelf life though they hope he'll go on to good things. But they don't want him to blow his money on a Lamborghini."
While putting money in a trust will prevent Carter-Williams from spending away his money immediately, it may also protect him from creditors after his assets. As a professional athlete, he could be the target of licensing and royalty lawsuits, Phillips Erb said.
Because many professional athletes are coming either straight from high school or only after a year or two in college, it may not be surprising that they need serious financial guidance with their million-dollar salaries.
Earlier this year, the father of Golden State Warriors rookie Klay Thompson said that he was going to ding his son's allowance after he was fined $35,000 for a fight during a game against the Indiana Pacers.
Though Thompson later said that his father was just joking about giving him an allowance, how to handle newfound wealth is something the National Basketball Association takes seriously.
The association hosts its NBA Rookie Transition Program to educate new players about financial literacy and planning for sometimes short-lived wealth, health management, and other challenges that the neophytes face.
One of the most difficult challenges to first-generation wealth creators thinking about succession strategies is how to pass wealth from one generation to the next without destroying incentive or dividing the family, Friedman said.
"The most successful families have strategies that look at platforms such as philanthropic giving and family foundations as a way to inculcate and transfer family values to withstand the challenges presented by wealth," he said. "The structures that are created to optimize tax benefits need to be an outgrowth of broader strategies for passing wealth and values to the next generation to optimize the financial capital and human capital of the family."
Andrew W. Mayoras, attorney and co-author of Trial & Heirs: Famous Fortune Fights!, shared a case that showed sometimes setting up a trust to protect your assets can backfire in an unexpected way.
One young adult was convinced by his parents to set up a trust when he received a large sum of money in a personal injury lawsuit.
"At first, his father was trustee and everything was fine," Mayoras said.
Then the father passed away, and a new trustee took over.
Mayoras' client ended up suing the new trustee because he was overly restrictive releasing the money.
"Years later, my client very much regretted his decision to set up the trust," Mayoras said. "Hopefully Carter-Williams won't end up in the same boat. While it's certainly a unique approach for the young athlete to safeguard his money, it does carry risk with it that it will be overly restrictive."
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