Big Contract, Bigger Plan: What Athletes, Founders, and Executives Do After the Tax Hit
Salary is salary and it gets taxed. The planning question is what happens to the wealth afterward.
A graphic breaking down Myles Garrett's NFL contract circulated widely this summer, and it got attention because the numbers are enormous.1 The graphic estimated a gross contract of $177.9 million, federal income tax of $65.8 million, state tax of $23.7 million, FICA of $4.2 million, and agent fees of $5.3 million, for total taxes and fees of about $99 million and net income of about $78.9 million.
The planning point is not what you think
A trust does not make NFL salary tax-free. Salary is salary. It is W-2 income, and it gets taxed where it is earned. Anyone who promises otherwise is selling something.
The better question is what happens to the wealth after the tax hit. For a professional athlete, a founder, an executive, a physician, a business owner, or anyone else with a high income and a high liability profile, sophisticated trust planning can turn after-tax income into a protected, long-term structure.
One framework
One framework that fits many of these clients pairs a limited liability company with a South Dakota nongrantor domestic asset protection trust. The trust holds after-tax investment assets, and, where the facts support it, endorsement, licensing, and other intellectual property rights that produce non-W-2 income. The LLC provides a management layer and a place for the client's own advisors.
Done correctly, that kind of structure may help with:
- Tax positioning for non-W-2 income and for accumulated trust income, where state sourcing rules and the trust's contacts with the client's home state permit. South Dakota imposes no income tax on trusts, and a nongrantor trust is its own taxpayer.
- Creditor protection from lawsuits, business claims, board liability, and the other risks that come with visibility and wealth.
- Divorce protection, so that family wealth is not simply exposed to a future marital dispute, for the client and for the client's children.
- Dynasty planning for children, grandchildren, and descendants not yet born, under a trust law with no rule against perpetuities.
- Estate tax planning, so that trust assets and all of their future growth may remain outside the taxable estate.
- Long-term governance, so that distributions are controlled rather than handed outright to a 22-year-old.
What changes with the client
The framework is the same whether the client throws a football or runs a company, but the details change. An athlete's earning window is short and front-loaded, so the structure has to be built early and funded aggressively. A founder's wealth is concentrated in one stock, so the plan has to account for qualified small business stock, a future liquidity event, and the possibility of stacking nongrantor trusts to multiply the exclusion. An executive's wealth arrives through equity compensation with its own vesting and tax timing. A physician's concern is often liability more than taxes. Each of those clients needs the same conversation, and each needs it before the money arrives rather than after.
The takeaway
Earning the money is only the first play. Protecting it, structuring it, and keeping it working for future generations is the game plan. The clients who do best are the ones who sign the trust documents around the same time they sign the contract.
Notes
- The figures are estimates from a widely shared social media graphic of the contract and are used here only to illustrate the planning point. ↩
Terry L. (T. L.) Turnipseed, J.D., LL.M., CTFA, is a tax, trust and estate attorney in Fort Lauderdale, Florida, and Head of Estate and Tax Planning at Alta Trust Company. He is a former tenured professor of law at Syracuse University. Reach him at tl@turnipseed.law or on LinkedIn. This article is general information, not legal advice.