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    TRUSTS: Dean Smith Payments to Players—NCAA Violation

    Posted by Gale Burns on Tue, Jun 9, 2015 @ 16:06 PM

    The Lawletter Vol 40, No 4

    Jim Witt, Senior Attorney, National Legal Research Group

         Dean Smith, the head coach of the University of North Carolina ("UNC") men's basketball team from 1961 to 1997, died on February 7, 2015, at age 83. Aside from the tributes paid to the man and his career that captured a good deal of media attention, a specific aspect of Coach Smith's estate plan also stirred up some interest. Following the modern trend, Smith's estate planners made a revocable living trust an important part, if not the centerpiece, of his plan for disposing of his assets at his death. Presumably, Smith transferred the bulk of his estate to the trust and, by doing so, realized a number of advantages for both himself and his estate: (1) privacy—the details of the trust, unlike information concerning an individual's assets that pass by will, do not become part of the public record; (2) because the transfer or transfers of assets to the trust are made during the individual's life, the assets are not subject to probate administration, and the expenses of such procedure are avoided (although the expenses of setting up the trust and having it administered must be considered); (3) the assets of the trust are not frozen, as can happen under a probate proceeding, thereby improving access to the assets for the estate and the heirs; (4) because the trust is revocable, the individual maintains control over the disposition of his or her assets transferred to the trust, because he or she can withdraw particular assets from the trust or dissolve the entire arrangement, which is also essentially true under a will in that a will has no effect until the individual's death.

         It is a specific provision of Coach Smith's revocable trust that has received the most public attention, however. The provision directed that $200 be paid from the trust to each of the UNC basketball players who earned a letter during Smith's 36-year tenure as coach. The trustee sent a check and a letter to each of the eligible former players (the total amount of the checks is estimated at $36,000), with each letter including the message "enjoy a dinner out, compliments of Coach Dean Smith" and each check with the notation "Dinner out."

         With the payments having become public after players mentioned their good fortune on social networks, the possibility has been raised of a violation of the National Collegiate Athletic Association's ("NCAA") "no pay" rule. As summarized on the Forbes Magazine website on March 28, 2015, by Marc Edelman, an Associate Professor of Law at the Zicklin School of Business, Baruch College, City University of New York, the rule "purportedly includes preventing athletes from accepting even money offered after athletes graduate based on services they provided while in college." Marc Edelman, Did Dean Smith's Final Act of Kindness Violate the NCAA's Absurd 'No Pay' Rules? (NCAA Says "No"), Forbes (Mar. 28, 2015, 12:22 PM). According to Professor Edelman, although the NCAA has recently tweeted that the payments under Coach Smith's trust did not violate the no-pay rule, it has challenged the right of colleges to create trust funds designed to make payments to athletes following their graduation, and it has interpreted the no-pay rule as preventing an athlete from allowing his or her name to be used by a website established to raise money through crowd funding with the object of rewarding the athlete upon graduation.

         Despite the NCAA's statement that Dean Smith's trust provision financing dinner for his athletes does not violate any rule or regulation, that position contradicts the NCAA's general stance under the no-pay rule that compensation, even though furnished following the athlete's playing days, is prohibited.


    Topics: legal research, tax, revocable living trust

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