Let’s imagine for a moment that a complete stranger walks up to you and poses the following question: “If I were willing to give up ten thousand dollars, and I wanted you to have it, would you rather own that money or be in control of it?” How would you respond? Now lets take that one major step forward, and let’s suppose that the owner of a major league baseball team came up to you while you were attending the game at the ballpark, and she says to you, “I can tell you love watching the home team and I’m looking to ease my way into retirement. If I want you to now have the team, would you prefer to own it or have control of it?”
When it comes to estate planning, there is a very important difference between ownership and control. Just ask the sons of Carl Pohlad, former owner of the Minnesota Twins. A very interesting article was recently written by Janet Novack of Forbes.com in which she analyzes all the estate planning techniques that Pohlad utilized during his lifetime to shift what he once owned to what he could control instead.
Just because someone owns an asset doesn’t always mean they have full control of that asset. And the inverse is true, too: just because you control an asset doesn’t always mean that you own it. So which is better – to own or to control?
The answer is that it depends, but typically when it comes to estate planning it is better to control than to own. Here are some reasons and examples why:
- If someone dies and they owned an asset in their name alone, and there is no beneficiary named, that asset may have to go through probate if it is over a certain value. Probate is time-consuming, expensive, and a public process through the court system. However, if that same person had created a living trust and they transferred their ownership interest to the trust instead, they would maintain control of that asset but there would not be probate at their death.
- Sometimes clients ask us whether or not they should add their child(ren) to their bank accounts. They presume that this will make things easier for their children upon an incapacity or death. What the clients usually don’t realize is that if they add a child to that bank account, the law now views that child as an owner of those funds, just as much as the parents are the owners of the funds. That means if the child were to ever be sued, the funds in that bank account could be lost to a creditor during the litigation. However, if the parents had their bank account in the name of a living trust, then the child could be a trustee of the trust and he will now be able to control the assets for his parents, rather than own the assets.
- Ownership and control is also a favorable gifting technique. As demonstrated in the article, Pohlad maintained control of Twins baseball organization while at the same time he was gifting ownership interest to his sons. The IRS taxes an individual based on what that person owns, not what that person controls. So if ownership interest is shifted during lifetime to someone else, the estate tax burden is typically decreased on the estate of the person who gifted away the ownership interests.
This is a very technical area of the law, and sometimes there is an easy solution (bank accounts) and sometimes there is more complexity (gifting). Either way, please let us help you review what you own right now to make sure that you’re not missing any chances to control rather than to own.
What the Attorneys of Morris Hall Can Do For You:
The attorneys at Morris Hall have 100’s of years of combined experience ensuring that families’ assets are protected from probate, unnecessary taxes, creditors, ex-spouses and Medicaid spend-down. The attorneys also help those in Arizona and New Mexico to apply for and receive Medicaid assistance and Veterans Benefits. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, Tucson, Prescott, Flagstaff and Arrowhead. Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe. Contact us today at 888.222.1328 to schedule an appointment!
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.