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Baseball’s 300 Million Dollar Players: A Look At Estate Planning for High-Net-Worth Individuals

Baseball’s 300 Million Dollar Players: A Look At Estate Planning for High-Net-Worth Individuals

June 07, 2021

The San Diego Padres signed infielder Fernando Tatis, Jr., to a 14-year, $340 million contract roughly one year after the Los Angeles Dodgers inked outfielder Mookie Betts to a 12-year, $365 million deal. That brings the total to 8 baseball players who have signed long-term, $300+ million contracts.1

From an estate strategy perspective, you might be surprised to hear that these baseball stars may face similar issues as other Americans as they prepare for the future.These high-net-worth individuals are a great example of the challenges in estate planning. While these 8 and many other professional athletes have signed “generational” contracts, it’s not unlike windfalls generated when selling a business or compensation packages for key executives. Whether you have $300 million or $1 million, here are some estate planning best practices that you should be aware of.

Minimizing Estate and Gift Tax

To begin with, all 8 millionaire players will need to understand that the estate and gift tax exemptions are $11.7 million per person. But those exemptions are set to expire and revert back to $5 million in 2026. While those current limits only address a fraction of their net worth, they can start to explore other choices for the balance.Life insurance can be especially helpful here to offset the cost of estate tax. I'm always surprised at the amount of people who don't know that the death benefit of a life insurance policy is tax-free. At the current 40% estate tax rates, a $225 million estate would owe around $90 million in estate taxes. With an adequate life insurance policy, you can work it out so that the life insurance covers most of that tax.*

Establishing a Trust and Other Strategies

High-net-worth individuals should consider working with an estate planner simply because an expert will know the best strategies to fit their specific needs. For example, analyzing a Will versus a Trust can help you avoid probate, reduce legal challenges and court fees. Establishing a Family Limited Liability Company (FLLC) or a Family Limited Partnership (FLP) – For families that have significant wealth or complex dynamics, it is often advantageous to set up an FLLC or an FLP in order to better manage the assets while you are alive and after you pass away. Additionally, there are frequently incidental tax advantages in setting up these types of structures.

All 8 players should also consider who they should name as their health care decision-maker and financial power of attorney. 

Avoiding Probate

Probate can be expensive and time consuming. In Michigan, the standard probate process takes a minimum of 5 months to complete. If you own property in other states, your family could face multiple probates, each one according to the laws in that state. These costs can vary widely, but we’ve had clients who had to pay tens of thousands of dollars throughout the Probate process. In general, Probate is much, much more expensive than doing some simple Estate Planning in advance.

Additionally, probate is public, so anyone can see the size of your Estate (often what you actually owned), who you owed debts to, who will receive your assets, and when they will receive them. The process invites upset heirs to contest your Will and can expose your family to lawsuits from greedy creditors and potential fraudsters.

Remember, this letter is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your legal professional before modifying your estate strategy. Also, some estate strategies involve the use of trusts, which have a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations. Have any questions about your specific situation? Give us a call today at 248-648-8598.

Auburn Hills

*Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

1. CBSSports.com, April 1, 2021
2. WealthManagement.com, April 21, 2021

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.