A Nevada commissioner has rejected Rupert Murdoch's attempt to change the terms of his irrevocable family trust. Murdoch filed a petition late last year to modify the terms of the trust and give exclusive control to his eldest son, Lachlan. The move would essentially ensure that his media empire retains its conservative editorial slant.
In his decision, Commissioner Edmund J. Gorman Jr. concluded that Murdoch and his son had acted in “bad faith” in their efforts to amend the irrevocable trust, which currently divides control of the company equally among Murdoch's four eldest children. Murdoch's reasoning for the modification is his concern that the other three children are not in line with his conservative views. This deviation in political beliefs can affect the editorial direction of the company, affecting its economic value.
According to the New York Times, opinion is chilling at times, with Gorman deeming Murdoch's efforts a “carefully crafted charade” to “permanently cement Lachlan Murdoch's executive roles” within the empire “regardless of the implications that such control would have.” would have on the companies or beneficiaries of the “trust”.
However, the commissioner does not have the final say – it is up to the district judge to ratify or reject the recommendation. A lawyer for Murdoch told the New York Times that Murdoch and Lachlan were disappointed with the decision and intend to appeal the decision. The newspaper reports that the appeal will end next week.
Money is not at the heart of this family feud – power is. The proposed trust modification would not reduce the Murdoch children's financial stake in the company. Instead, Murdoch wants his media empire to remain conservative, and he fears his more left-leaning children will push Lachlan away and change direction.
What's next?
So what's next for the Murdoch family? “From a legal standpoint, Murdoch's attempt to modify the irrevocable trust for his children will likely fail, leaving the trust as is,” said Jeremiah Barlow, EVP, head of wealth solutions at Mercer Advisors. “From a family perspective, James, Elisabeth and Prudence have expressed a desire to improve family relations. That could be difficult because this legal battle is likely far from over,” he added.
Barlow adds that it's worth noting that often, the district judge follows the commissioner's opinion. “On appeal, the burden will be on Murdoch's legal team to convincingly demonstrate that a significant legal error occurred during the original trial,” Barlow explained.
Lessons learned
Modifying an irrevocable trust through the court system is challenging. According to Barlow, courts usually allow changes for minor mistakes, tax reasons or unforeseen circumstances, but substantial changes that affect the interests of beneficiaries are more difficult to approve.
“It is essential to draft irrevocable trusts with as much flexibility as possible to avoid the need for judicial intervention. In this case, Rupert Murdoch could have benefited from a trust protection provision that allowed the trust to be modified by an independent third party rather than a court,” Barlow concluded.