A news conference is scheduled for Friday.
Saunders previously coached the Timberwolves from 1995-2005. He won 411 games in 10½ seasons in Minnesota and guided the Wolves to the only eight playoff appearances in franchise history, including the Western Conference finals in 2004. He has a career record of 638-526 in 16 seasons as an NBA head coach, a career that also includes stops in Detroit and Washington.
Saunders is joining a short list in the NBA of coaches that also have final-say executive authority, one that includes newly hired Stan Van Gundy in Detroit; Doc Rivers with the Los Angeles Clippers; and, to a certain extent, Gregg Popovich in San Antonio. Saunders will continue to work with general manager Milt Newton in the front office while handling coaching duties. There is no rule about NBA coaches owning a stake in teams.
When Rick Adelman retired at the end of the regular season, he did so in part to try to help the Timberwolves move forward with a plan to show Kevin Love, a three-time All-Star who can opt out of his contract next summer, that there was a long-term plan in place for success.
But Love's tenuous situation only complicated the search process, with trade rumors serving as a caution sign for several high-profile candidates.
Sources reiterated to ESPN.com on Thursday that Saunders' move back to the bench will have no impact on Love's determination to opt out of his contract and become an unrestricted free agent in 2015.
Saunders and Love have built a good relationship since Saunders replaced David Kahn as Minnesota's lead decision-maker, but sources say Love is determined to play for a contender after missing the playoffs in each of his first six NBA seasons. His concern, sources say, isn't who's coaching but the state of the roster.
ESPN.com reported earlier this month that Golden State and Chicago are two potential trade destinations that particularly intrigue Love in his quest to land with a team that can make some noise. The Rockets, Celtics, Knicks, Lakers and Suns are among the other teams, sources say, that have tried to engage the Wolves in exploratory trade talks.
Saunders was in the market for a coach with extensive head-coaching experience, either in the NBA or at a major college program, one who could command the respect of a young locker room and also handle the media scrutiny that comes with the questions surrounding Love. Names like Tom Izzo, Billy Donovan and Fred Hoiberg came and went without any traction.
The Wolves hosted Memphis coach Dave Joerger for an interview two weekends ago, but Grizzlies owner Robert Pera sweetened his contract to keep him around. Sam Mitchell, Lionel Hollins, Scott Skiles and several others received consideration as well.
Unable to find what they felt was the right fit for a delicate job, Saunders and majority owner Glen Taylor met earlier this week to reassess the situation. Taylor said when he brought Saunders back as team president that he would not put him back on the bench. He fired Saunders as coach once before, in 2005 when Latrell Sprewell and Sam Cassell, unhappy with their contracts, submarined the follow-up to the team's stirring run to the Western Conference finals.
Saunders was also hopeful that he could find someone other than himself to take over a team that hasn't been to the playoffs in 10 years. But with Love's status preventing them from pursuing the coaches they felt would fit best, the two decided that Saunders should take over for at least this season, after which the team's roster construction figures to be much clearer.
Sources told ESPN.com that Saunders has begun targeting potential assistant coaches for his staff, with former Wolves guard Chauncey Billups expected to be offered a position to work at Saunders' side. Saunders also was expected to reach out to Sam Mitchell, a former Timberwolves player and Raptors head coach, and David Blatt, who has spearheaded Russia's return to Olympic relevance, and coaches in Israel.
The Associated Press contributed to this report.