Professional Athlete - Case Study
Xavier Williams was drafted out of college to play baseball for the San Francisco Giants. He rose quickly through the ranks of the minor leagues and soon became a mainstay in the starting line-up. After contributing several solid seasons in the big leagues his notoriety and his income both began to increase. Xavier is a thoughtful, grounded person. He grew more and more concerned that his high profile, combined with the public nature of his 7 figure income could lead to problems. Xavier came to First Covenant for guidance. Xavier already had a good financial advisor in place to help him with investing, and, unlike many professional athletes, his lifestyle was not overly extravagant. His major concerns were:
- Relative to most professions, I will have a short career. Since I’m saving the majority of my take-home pay, my savings don’t all fit into retirement accounts that are protected. My investment accounts are quickly getting large.
- How can I protect this money so it will be around once my playing days are over? I’m worried an ordinary accident, like a fender-bender in the car, could cost me a lot because people know who I am and that I have a big income.
- Is there a way to minimize taxes on this investment income I won’t need while I’m still playing?
- I’m often approached by relatives asking for money or a loan. How can I say “no” without alienating people?
- Sometimes friends or family will want me to invest in a new business project. How do I decide which of these investments, if any, are worth doing?
- Assets are protected from unknown future creditors, increasing the odds that Xavier’s savings will benefit him throughout retirement.
- Federal income taxes are eliminated or deferred on investment income he isn’t using during his playing career. When taxes are eventually paid, it will likely be at a reduced rate because they will be paid after Xavier’s retirement from baseball and his overall income will be lower.
- High state and local taxes in San Francisco are eliminated on investment income.
- Xavier has a thoughtfully engage with giving to the causes he is passionate about, and an earmarked pool of funds to use.
- Xavier can use First Covenant as a shield for friends and relatives looking for funding. Covenant can be the “bad guy,” explaining to would-be recipients that “Mr. Williams’ funds are tied up and can’t be used for certain purposes.”
- Xavier can direct anyone looking for investment funds to First Covenant. As trustee, Covenant can perform due diligence on potential investments. Those not meeting high standards can be gracefully declined.