Irrevocable trusts have long been a valuable arrow in the quiver of the high-net-worth estate planner. An irrevocable trust can provide tax advantages by minimizing estate taxes and preserving wealth for future generations. Irrevocable trusts can also protect assets from creditors, and, ideally, minimize the risk of post-death disputes among a trust’s beneficiaries. As a tradeoff, the notable drawback is that an irrevocable trust cannot be modified or amended as easily as a revocable trust. The recent dispute between Rupert Murdoch and three of his children illustrates this fact in a dramatic fashion.
Rupert Murdoch established the irrevocable Murdoch Family Trust to manage and preserve his media empire, including significant shares in Fox Corporation and News Corporation, for his children and future generations. The Trust holds voting shares in both corporations giving it substantial influence over corporate decisions and governance.
The Trust’s primary beneficiaries include Mr. Murdoch’s children: Prudence, Elisabeth, Lachlan, James, Grace, and Chloe. The Trust's structure is designed to balance their interests and provide for their financial security. Importantly, Mr. Murdoch currently holds four shares of the Trust’s voting rights, while four of his children - Prudence, Elisabeth, Lachlan, and James – hold another four shares. Once Mr. Murdoch dies or becomes incapacitated, his four shares will be split evenly between Prudence, Elisabeth, Lachlan, and James.
While the case has been kept under seal and the Trust has not been made public, the dispute between Mr. Murdoch and his son Lachlan on one side, and Elisabeth, James, and Prudence on the other, has been brewing for years. For example, James is a noted philanthropist of liberal causes, has been publicly critical of the coverage by his father’s publications on issues like global warming, the 2020 U.S. elections, and advocated for Fox to take a more centrist editorial approach. Prudence and Elisabeth, while perhaps more centrist and subdued, have also taken up causes and positions at odds with their father. Neither James, Elisabeth, nor Prudence are actively involved in Fox or News Corp.
Lachlan, on the other hand, has been active in his father’s media empire for years. Indeed, in the recent Dominion v. Fox News Corporation case, Lachlan was noted as having “played a hands-on role in determining the political thrust of Fox News in favor of Trump.”
Given Mr. Murdoch’s desire to have Fox and News Corp remain prominent conservative voices, he and Lachlan sought to reform the terms of the irrevocable trust to keep Mr. Murdoch’s desired vision for the companies alive after he is gone. Leaked court documents suggested that the potential “lack of consensus” between the heirs “would impact the strategic direction of both companies including a potential reorientation of editorial policy and content.” To that end, Mr. Murdoch argued in the court that the differing visions for the media companies would undermine their value, and it was therefore "in their own best interests if they have their votes taken away from them.” In essence, Mr. Murdoch desired to keep his media empire in the hands of Lachlan who would ensure that it remained conservative in nature. As Mr. Murdoch purportedly said: “I love each of my children, and my support of Lachlan is not intended to suggest otherwise. But these companies need a designated leader and Lachlan is that leader.”
The Nevada probate commissioner initially suggested that the trust could be modified if Mr. Murdoch and Lachlan could show that the modification was possible if it would be in the best interests of the remainder beneficiaries. However, after a trial, the Nevada probate commissioner reportedly found that Mr. Murdoch and Lachlan acted in “bad faith” by creating a “carefully crafted charade” in attempting to alter the trust.
While Mr. Murdoch and Lachlan have filed an appeal, James, Elisabeth and Prudence issued a statement: “We welcome [the commissioner’s] decision and hope that we can move beyond this litigation to focus on strengthening and rebuilding relationships among all family members.”
Despite the Murdoch saga, which continues, there are many ways to change an irrevocable trust. In Nevada, for example, statutory Non-Judicial Settlement Agreements (NJSAs) permit trustees and "indispensable parties" to adjust the terms of the trust, provided these changes do not undermine the trust's fundamental objectives. These adjustments can involve modifying how trust assets are invested or utilized, changing the trust's administration location, or bestowing any essential or beneficial authority upon a trustee.
Nevada’s statutes track the law under the Uniform Probate Code, which has been adopted in many states, and allows for such similar agreements among a trust’s beneficiaries, if the agreement does not violate a material purpose of the trust, or an agreement between the beneficiaries and the settlor regardless of whether it aligns with a trust’s material purpose. Such changes of course require the unanimous agreement of the beneficiaries, which was not possible in the Murdoch dispute.
Similarly, the Uniform Trust Code and many states also provide for modification or termination of an irrevocable trust because of unanticipated circumstances, the inability to administer the trust effectively, to achieve the settlor’s tax objectives, and if the trust becomes uneconomical or too costly to administer.
