Similarly, a budget, and then a financial plan, is at the center of every well-crafted estate plan. They help determine future estate-tax exposure, appropriateness of a gift program, insurance planning strategies and more.
But when your clients are celebrities or athletes, estate planning takes on new dimensions. While every client is unique, star power brings with it several unique issues that change the entire planning process, creating new risks as well as new opportunities.
Identifying these factors and their impact on planning is essential if you intend to serve these clients properly. Even if your client roster doesn't include the likes of Derek Jeter, Will Smith or Lady Gaga, you can adapt these planning techniques to meet the needs of less well-known clients.
Good planning always begins by identifying a client's objectives. "The athlete and celebrity face unique circumstances that typically bring with them additional objectives for planners to address," says Eido Walny, an estate planning lawyer in Fox Point, Wis.
For many, especially athletes, future earnings are typically projected at a very high level over a short duration. The concept of the traditional income stream - from entering the workforce to retirement - that is at the base of client planning assumptions is often useless as a guide for these individuals.
Once their prime earning career ends, future income will often be modest, perhaps even nonexistent. This requires a different perspective on savings, retirement planning and other planning topics.
Athletes are also more likely to suffer a disabling injury that could cut their careers short. While this risk varies depending on the sport, it is far greater than the risk faced by most clients, and the consequences are far worse.
Insurance is only a partial answer to hedging this risk. In addition, while it might be logical to increase the client's current savings, that strategy may conflict with the need to accumulate retirement savings during a potentially short period of high earnings.
The nature of the assets that most athletes and celebrities own is often unique. Their biggest asset tends to be their earning power and, for some, endorsements and other intangible rights. They tend not to have built the asset values in business endeavors that other clients have, unless their investment ventures have already taken them down that path.
Celebrities and athletes often are undermined financially by trying to leverage their names and images in business ventures. They should evaluate whether to contribute their efforts and star power to a venture, but limit their financial exposure. Too many celebrities and athletes have signed guarantees that have proven ruinous decades later.
A major factor for many of these clients is lifestyle risk. They often face tremendous pressure to keep up with their peers.
Many stars and athletes have entourages that include manipulators and predators seeking to take advantage of their wealth. A high rate of divorce and the probability that family members or friends will seek their financial assistance, leaning on them emotionally to lend or provide money, all add to the pressure cooker.
All told, celebrities and athletes run a dramatic risk of financial ruin from the costs of an extravagant lifestyle, needs or demands of family and friends, legal entanglements, bad investments and a lack of financial planning. And it is your job to minimize these risks.
While most financial planners presume doctors are most concerned about malpractice protection, creditor protection is even more important for anyone with celebrity status. "Failing to have adequate creditor protection could prove to be the undoing of the athlete or celebrity client's wealth planning, considering the sycophants, pseudo-investors and others opportunists they face," Walny says.
Celebrities and athletes often ask their peers to recommend professional advisors, even though those friends may not have made the best decisions themselves. To protect these clients and ensure their financial success, you must proactively ensure that they have the proper advisory team in place, quarterbacking the process. In addition, special trusts designed to minimize estate taxes and protect assets can hold endorsement contracts, equity in startup business ventures and even a limited liability company formed to insulate accumulated savings.