Philadelphia 76ers Rookie Puts Salary in Trust: A Smart Choice?

PHOTO: Michael Carter-Williams

A rookie NBA player for the Philadelphia 76ers is being lauded for his financial prowess in putting his salary in a trust that he can't touch for three years, possibly avoiding the fate of a famous basketball player who donned the same jersey and now can't pay child support.

Drafted 11th overall in the 2013 NBA Draft, Michael Carter-Williams, 22, is guaranteed $4.5 million over his first two seasons, but some of his salary is being put into a trust he can't touch for three years, the Philadelphia Inquirer reported. In the meantime, he is living off his endorsement deals with Nike and Panini trading cards, the newspaper said.

A trust is probably something that one of the most famous 76ers, Allen Iverson, could have used. A "Sixer" from 1996 to 2006 then 2009 to 2010, Iverson said this year that he is broke and can't pay child support. The ex-wife of the 36-year-old former Georgetown University player demanded that he put over a million dollars into a trust fund for child support.

David Friedman, president of Wealth-X, which provides data on high net worth individuals, said that it was surprising that Carter-Williams' money is in a trust, because the player is very young and doesn't have a family of his own yet. Trusts are typically structures to pass wealth in a tax-optimized way and they allow control for the heirs, Friedman explains.

"Since he does not have to worry about either of these as the purpose of this type of structure, it's not apparent what his goal is," Friedman said. "On the other hand, in the wake of copious bankruptcies and mismanagement of finances by professional athletes, it shows he is trying to be a good steward over the money he is making."

Read More: Most Expensive Streets in the World

Matt Dzamba, director of sports marketing from creative agency Zambezi, said, "This kind of 'forced' discipline is a very progressive move for a pro athlete starting his career."

The lack of financial health is a major epidemic in pro sports, Dzamba said, with 60 percent of NBA players declaring bankruptcy within five years of their athletic retirement and some 78 percent in the NFL doing so, according to a Sports Illustrated report.

"With rookie contracts capped in the NFL and NBA, the ultimate financial success of many careers are determined by the second pro contract," Dzamba said. "Protecting the first contract by essentially locking it up takes a lot of pressure off the player both on and off the court."

From Hamilton, Mass., a suburb of Boston where his family still lives, Carter-Williams went to boarding school in Rhode Island and played basketball at Syracuse.

His mother, Mandy Carter-Zegarowski and her best friend are running Carter-Williams' management team, the newspaper reported.

"Our goal is to work with Michael to manage his money in a way that will secure his long-term financial future," Carter-Zegarowski said in a statement provided to ABC News. "Right now, the focus is not only to save as much as possible, but also to use his unique position to serve as a role model and give back to the communities that continue to support him and his career."

Read More: ESPN, ABC News Sports Stories

"They are taking a proactive approach to make sure he doesn't spend all his money in a couple of years," writes Keith Pompey, staff writer for the Inquirer.

Based on a 2013 U.S. Trust Insights on Wealth and Worth study of adults with at least $3 million in investable assets, only two in five wealthy parents, or 42 percent, agree strongly that their children are or will be well-prepared to handle their inheritance. But few wealthy parents believe their children will be mature enough to handle their wealth before the age of 25.

Though the type of trust that Carter-Williams chose is not known, tax expert and attorney Kelly Phillips Erb said Carter-Williams' arrangement was an "unusual" arrangement for a lot of reasons, including the involvement of his parents in helping create the trust.

"Once you're no longer a minor, it's difficult for your parents to control your wealth. It's not theirs. It's his, no matter the intentions or if he's living in their house," she said.

The stories of young celebrities going broke or owing money to the IRS are not new.

Page
  • 1
  • |
  • 2
Join the Discussion
You are using an outdated version of Internet Explorer. Please click here to upgrade your browser in order to comment.
blog comments powered by Disqus
 
You Might Also Like...
See It, Share It
PHOTO: In this stock image, a woman with a hangover is pictured.
Peter Dazeley/Getty Images
PHOTO:
Redfin | Inset: David Livingston/Getty Images
PHOTO: Woman who received lab-grown vagina says she now has normal life.
Metropolitan Autonomous University and Wake Forest Institute for Regenerative Medicine