On October 30, 2013, NBA Hall-of-Famer Allen Iverson announced his retirement from basketball.
Known as "AI" or "The Answer" formally announced his retirement from the NBA on Wednesday during an occasionally emotional hour-long news conference on the Wells Fargo Center court, hours before the Philadelphia 76ers played their season opener against the two-time defending champion Miami Heat. Iverson last appeared in an NBA game on Feb. 20, 2010. The Sixers will retire his number 3 on March 1 against Washington.
"My mom always told me that I could be anything I wanted to be," Iverson said at his retirement. "And I truly, actually believed it. And I fought. I went through a whole lot trying to get to this point right here."
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Iverson, now 45, earned 11 consecutive All-Star selections and the 2001 NBA MVP award during his 14-year NBA career. His career peaked when he led Philadelphia to the 2001 NBA Finals, where it lost in five games to the Los Angeles Lakers. He was a seven-time All-NBA selection, a four-time NBA scoring champion, a three-time steals leader, a two-time All-Star Game MVP and the 1997 Rookie of the Year.
We all know the financial traps that many athletes usually fall victim to, and Iverson, unfortunately, fell into that category too. It became evident that he had financial worries in 2012.
In a December 2012 court filing, Iverson told a judge in Georgia that his monthly income is $62,500 but that his expenses were $360,000! The breakdown was as follows:
– $125,000 goes to paying back various creditors and mortgages.
– $10,000 on clothes
– $10,000 on restaurants/entertainment
– $10,000 on groceries
So, you do the math: if he's making roughly $60,000 a month, but his expenses are over $300,000 a month, Iverson was in debt, big time!
As a matter of fact, Allen’s financial situation came to light in 2012 after a judge ordered him to pay $900,000 to a Georgia jeweler but apparently Iverson didn’t have the funds to cut the check.
But instead of being one of the hard-luck stories you hear on ESPN, in 2001, Iverson made a decision that would change his financial outlook for the rest of his life. It was a move that actually saved him from himself. He signed a very unique endorsement deal with Reebok. In addition to paying $800,000 a year for life, Reebok set aside $32 million in a trust fund that Allen will not be able to access until he turns 55 in the year 2030. This deal came to light when Allen’s ex-wife filed for divorce. As a result of the divorce, Allen will inherit half the trust fund in 2030.
So instead of being tempted to blow the money when he had it all, he put it off to a point where he could possibly be wiser, more responsible and have a different perspective on life. That's smart.
How Does a Trust Fund Work?
Trust funds can hold lots of kinds of property, from cash to investments to real estate to artwork. They can even hold whole businesses in them. Basically anything that is valuable can go in a trust fund.
OK, so, trust funds are “entities.” What does that mean, if you're trying to understand how trust funds work?
Putting money in a trust lets you pass property to someone in a structured way, where you can impose rules. For example, you might say that your beneficiary can’t use these funds to pay off debt. Or, you might impose rules on how old the beneficiary needs to be before she gains control over the money.
So what is he doing for money now until then?
Iverson has issued a shoe with James Harden as well as some other business ventures.
Plus, as a 45-year-old now, Iverson is eligible to start drawing on an NBA pension that maxes out at 10 years of active duty, or take whatever’s there as lump sum. He will be entitled roughly to $8,000 per month ($800 per x 10).
NBC reported that his lump sum will be between $1.5 million and $1.8 million. Alternatively, he can elect to take monthly checks of approximately $14,000 per.
So how does one set up a trust fund? According to SmartAsset.com, here are the steps:
Steps to Set Up a Trust Fund
Step 1: Choose the right type of trust
Before you set up a trust fund, think about the purpose it will serve. There are revocable trusts and irrevocable trusts; living trusts and testamentary trusts. There are also trusts for particular use cases. Education trusts specify that their funds must be used to cover academic expenses. Spendthrift trusts also limit how beneficiaries can use their funds as well as how they’re distributed. A special-needs trust helps allocate an inheritance or income to people with disabilities. As its name suggests, charity trusts help grantors bequeath gifts to charitable organizations. Figure out what purpose you’d like the trust to serve, and choose accordingly. A financial advisor can help you make this decision, especially if he or she specializes in estate-planning topics.
Step 2: Outline the details
There are four components of a trust fund:
The grantor, or trust creator. If you’re creating a trust to manage the distribution of your assets, that’s you!
The property and assets in the trust.
The beneficiaries or asset recipients.
The trustee, who administers the trust and carries out your wishes. This may be you while you’re still alive, but you should appoint a successor trustee to manage the trust and execute your wishes after you’ve passed away or become incapacitated.
Once you’ve chosen the right trust type of trust, you should record what assets you’ll place in the trust fund, how the assets will be managed and distributed, and who the beneficiaries and trustees will be. Also, consider how long the trust will last and what conditions will cease to operate.
Step 3: Make it official
How to set up a trust
Several websites offer DIY trust services, but they usually aren’t a safe solution. Trusts can be complicated, so most grantors opt to enlist the help of a professional estate or trust attorney. Ask friends, family, and colleagues for referrals if you’re comfortable doing so; if you work with a financial advisor, he or she should also be able to point you in the right direction. State and local bar associations also list attorneys that will be familiar with state trust laws. Since fees can vary widely, you should compare prices as well as testimonials. You should also check whether your employer offers discounted estate planning services as part of their employee benefits package.
Your attorney will create a declaration of trust, deed of trust, or trust instrument to formalize the trust details you’ve decided on. The document can be short or long, simple or complex. It depends on the types of trust, the assets in the trust, and the number of listed beneficiaries. Once your attorneys has completed the trust document, you must sign the document in the presence of a notary. Some states require you to file trust documents with the state; an attorney can advise you on whether you need to do that, how to do so.
Step 4: Fund the trust
Once you’ve created your trust, it’s time to fund it. Take your trust documents to a bank or financial institution and open a trust fund bank account with the same name as the trust. You will need to provide the names and contact information of the trustees. You can either deposit a lump sum or pay into the trust over time. Eventually, the fund becomes the new owner of the assets.
Step 5: Register your fund with the IRS
Once your trust fund is established, you have to register it for tax purposes. Each trust fund will usually require its own taxpayer identification number (TIN) for tax returns and financial accounts, among other needs. This is the equivalent of an individual’s Employer Identification Number (EIN) or Social Security Number (SSN). The IRS website makes it easy to file online, but you can download and submit Form SS-4 by mail if you prefer printouts.
Step 6: Assign a Trustee
Since a trustee is responsible for managing and distributing the contents of the trust, choosing the right one is vital to the success of your estate plan. A trustee can be a person, like a relative, or an institution, like a bank. Either way, they will have a fiduciary responsibility to act in your and your beneficiaries’ best interest.
Trustee duties are far-ranging, including paying bills, keeping records, preparing taxes, and making investment decisions. Becoming a trustee may require conducting legal or financial research and seeking professional expertise. You should only appoint someone who knows your values and whom you trust to take these responsibilities seriously. People that are organized, competent, and reliable usually make the best trustees.
