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Baseball team owners' lawsuit reveals tricks of trusts


Trusts are powerful tools to help Washington families avoid the expensive and cumbersome probate process when transferring wealth from one generation to the next. They can help reduce tax bills, as well, though this aspect of family trust administration must be approached carefully.

The Pohlad family, who controls the Minnesota Twins baseball team, has recently been involved in a major tax dispute with the IRS over the way the team's value should be calculated. One recent report put the value of the franchise at $573 million. However, after owner Carl Pohlad died in 2009, his estate listed the value of the team at only $24 million for tax purposes. The IRS protested that low valuation and demanded $121 million in taxes, plus a $48 million fine.

The Pohlad family has filed suit against the IRS in protest against this order in what is sure to be exceedingly complex litigation. So far, public filings in the case have been heavily censored to keep much of the information private, but the case appears to revolve around techniques the Pohlad family used to transfer assets to avoid incurring gift or estate taxes.

When an estate transfers a large amount of money after a person's death, the transfer is subject to estate taxes. To avoid these taxes, Carl Pohlad transferred much of his wealth before he died. Of course, large transfers of assets during life can incur gift taxes. To avoid or minimize gift taxes, Pohlad apparently transferred his ownership of the Twins to a partnership. For income tax purposes, he was still listed as owner of the team, but the arrangement conveyed many tax advantages when it came time to transfer control of the partnership to the next generation.

The Pohlads' arrangement is unusually complicated and concerns an exceptional amount of money, but many of the issues involved are not just for the wealthy. Many Washington families can benefit from transferring ownership of assets to a family trust. When done properly, this arrangement can minimize estate or gift tax bills so that more of the assets can be preserved for future generations.

Source: MinnPost, "Five More Questions: Law prof Donna Byrne explains Pohlad family's run-in with IRS," Brian Lambert, July 29, 2013

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