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Why Student Athletes Need Estate Plans

Timothy P. Flynn Jan. 17, 2024

football player and moneyElite modern student athletes, both at the collegiate and high school level, now need estate plans to handle property and income derived from their skills. This post examines the significant recent changes in rules and laws governing student athletes and suggests common sense best practices.

What Has Changed?

During its storied 117 year history, the NCAA has always banned college athletes from receiving money, “to advertise, recommend or promote directly the sale or use of a commercial product or service of any kind.” [Known as Bylaw 12] In June of 2021, however, the NCAA waived its long-standing rule under intense pressure from various state legislatures and a unanimous landmark anti-trust decision issued by the United States Supreme Court: NCAA v Alston.

Noting the billions in revenue earned by modern division one college athletic programs, Justice Neil Gorsuch opined in the Alston case that the association cannot proscribe certain forms of "education-related" benefits, including cash beyond the cost of tuition. Although the case does not exrpessly expressly condone cash payments to athletes, it opens the door to such remuneration and paid endorsement.

The current environment is a patchwork of state laws due to the vacuum of federal standards or legislation addressing how student athletes can be paid for their skills and for their name, image and likeness [NIL]. Congress has conducted hearings on the multiple facets of this new reality, but no laws have resulted from the hearings. For its part, the IRS so far has been "hands off" toward NIL revenue for student athletes.

Seeing this trend develop, high school organizations are lobbying state legislatures to get in on the act. Legislation has been proposed in Michigan that would allow high school athletes to benefit from NIL contracts and endorsements.

There are two primary methods by which college athletes, and soon even high school athletes, can earn money from their positions on school teams. One method is through old-fashioned endorsement contracts and by acting as social media influencers. This is the NIL path. The other -less flashy but nonetheless effective- method is by securing employment through an alumni donor collective.

Donor Collectives

One of the more innovative, and some say harmful, developments in college sports has been the emergence of the alumni donor collective. Alumni donor collectives are usually made up of wealthy alumni or boosters that receive tax deductions for donating to a particular college sports program. The idea is that the student athletes are then paid significant sums for menial part-time work, making connections along the way.

Here is a link to a video demonstrating booster beneficence: an Ohio State Buckeye takes delivery of a brand new Dodge Challenger from an OSU booster. The NYT reported that OSU's football coach, Ryan Day, told his boosters they would need in excess of $13 million to assemble a championship football squad. Obviously, that didn't work this season. OSU's alumni donor collective is known as THE Foundation.

On the other side of the coin, when former MIchigan Wolverine QB Cade McNamara lost his starting job to now-national-champion QB JJ McCarthy, he immediately entered the transfer portal. One of the primary markers he searched before settling on the University of Iowa was how much money he would be paid by Iowa's alumni donor collective, known as the Iowa Sward. McNamara chose Iowa because they put it in writing.

The transferred quarterback's new job: delivering meals to senior citizens; his rate of pay: $600 per hour. Iowa is not unique with the implimentation of this tool; nearly every major college football and basketball program have some form of alumni donor collective.

The University of Michigan's collective is known as Hail! Impact; it recently flipped the script, reducing the percentage of its revenue given to student athletes from 70 to 30 percent; the bulk of its revenue now goes to charitable purposes to satisfy IRS requirements. Michigan State University's collective is known as Spartan Dawgs 4 Life.

These collectives seem to favor big universities over small colleges and male athletes over female; not a shocker there. Last July, seven of the largest donor collectives formed The Collective Association to, "advocate for student-athletes, share best practices and act as a unified voice to shape the development of the NIL market and beyond".

High School Athletes

In Michigan, HB 4816 passed the state House of Representatives in October; the bill would allow NIL deals for high school athletes. As passed, the bill's introduction states:

A bill to prohibit high schools and certain athletic organizations from preventing high school student athletes in this state from receiving compensation from the use of their name, image, or likeness rights under certain circumstances and to establish standards for the exercise of these name, image, or likeness rights.

Michigan's legislature had the sense to prohibit high school student athletes from profiting from NIL contracts involving adult entertainment, gambling, weapons, or substances. Coaches and high school officials cannot act as the student's agent or try to influence the student about school choices. If passed into law, a school's athletic department will need to be wary of legal missteps regarding what can and cannot be done on behalf of the student athlete.

The bill would allow high school student athletes to profit from the following:

  • commercials;

  • product endorsements;

  • personal appearances;

  • autograph sessions;

  • merchandise or apparel sales;

  • group licensing; and

  • social media influencer

In the post-modern culture of the United States, including Michigan, these activities could put a lot of money into a young athlete's pockets. Obviously, there would be a need for legal supervision as many such athletes have not even reached the age of majority.

Student Athlete Best Practices

For high school athletes, the proposed legislation proscribes coaches or other school personnel from getting involved in a student's NIL contracts in any way. Coaches cannot even steer the student to a professional; so the student will need to rely on trusted family members or friends.

Colleges and Universities have compliance officers with whom student athletes should acquaint themselves if they have NIL contract potential. Such athletes, either high school or college, should also retain a good transactional or contract lawyer to advise them before executing any NIL contracts. A trusted coach, however convient or tempting, cannot serve as the student athlete's agent or lawyer.

Finally, for the student athlete that is actually realizing revenue from a lucrative NIL contract, an estate planning lawyer is a must.

The Need for Student Athlete Estate Plans

Since apparently the old days of student athletes playing for their schools are fading away in favor of profit and status, young students must be protected from themselves and others. If a student athlete has is obviously going to be a star on the college campus, an estate plan is in order.

First, consideration should be given as to whether the student needs a conservatorship to manage his or her earnings if they are not a legal adult, i.e. most high school students. Minor conservatorships are common when a minor comes into money or property.

For example, sometimes minors inherit property from relatives; they cannot take legal possession of the property if they are minors without a conservatorship. Another example is when a minor is injured in a vehicle accident and is awarded money in a personal injury judgment or settlement; the settlement must be approved by a probate court within the context of a minor conservatorship.

Second, if a student athlete has the potential to come into significant sums of money from the opportunities outlined above, an estate plan should be considered.

An appropriate estate plan would contain a trust instrument that nominates an individual to serve as the athlete's trustee; a person whom the athlete trusts like a parent or other relative. The trust instrument also leaves instruction for how the trust maker, sometimes referred to as the "settlor", desires his trust assets to be distributed.

Typical estate plans contain several documents designed to manage the trust maker's money, property and, if necessary, to make medical and financial decisions on behalf of and for the benefit of the trust maker. One of the important steps in proper trust drafting is to ensure that the settlor knows how to fund the trust. Student athletes will need to ensure that their NIL contract revenues go into their trusts.

We Can Help

If you or a member of your family is a student athlete in need of an estate plan, contact our law firm to schedule a free consultation to review the student's estate planning and probate options. We have experience drafting estate plans and administering trusts and decedent's estates; we know the terrain.