A legal battle is playing out in Nevada probate court over a family trust that holds shares in one of the world's largest media empires. Rupert Murdoch is fighting with his children to change the terms of his irrevocable family trust, the vehicle through which Murdoch controls roughly 40% of the shares in News Corp (which owns major newspapers such as The Wall Street Journal) and Fox Corp, in what is life imitating art imitating life (the hit HBO show Legacy rumored to have taken inspiration from the Murdoch family).
Irrevocable trust
As the trust currently exists, voting control would pass to four of Murdoch-Lachlan's children, James, Elisabeth and Prudence (his other two children have an economic interest in the trust, but not voting control). However, late last year Murdoch filed a petition to change the terms of the trust and instead give exclusive control to his eldest son Lachlan, who has now taken over as chairman of Fox Corp and News Corp after his father resigned last year. According to documents provided exclusively by New York Times, Murdoch is concerned that the other children are not in line with his conservative views, and this deviation in political beliefs could potentially affect the editorial direction of the company, affecting its economic value. Murdoch's desired modification of the trust would leave the other three children powerless.
In good faith
for recently, the trust only allows for changes made in good faith to benefit all heirs. Murdoch plans to argue that Giving exclusive control to Lachlan would protect the value of the companies and benefit all heirs. The Nevada probate court will hold a hearing in September to determine whether Murdoch's desired modification is in good faith. The other three siblings have joined forces to challenge the change, insisting that this is not what “the family had agreed” when the trust was first established in 1999.
“To demonstrate good faith, Murdoch will have to satisfy the court that he genuinely thinks the change is in the best interests of all the beneficiaries of the trust,” said Jennifer Campbell, partner at Karlin & Peebles. “If there is no evidence of a lack of good faith, it is likely that the court will find that the element of good faith is satisfied.”
“Proving a lack of good faith is challenging, but it is possible,” Campbell explained. For example, beneficiaries who oppose the amendment may be able to undermine Murdoch's position if they can show that he will benefit personally if the trust is amended as proposed. Another example is if opposing beneficiaries can present evidence that Murdoch's motivation in proposing the trust amendment is to play his children against each other or show that the trust amendment results from an otherwise undisclosed agreement between Lachlan and Murdoch, Campbell added.
As for the element of “sole benefit of the trust beneficiaries,'' Murdoch is likely to argue that the value of unified, undisputed and uncontested management will offset the diminished value caused by the loss of voting rights. However, it is uncertain how the court will view that argument,” Campbell said.
Battle for control
Murdoch pitting his children against each other is nothing new. It's no secret that Murdoch expects his successors to compete for his respect and control of the family empire. While Prudence, the eldest child, has not shown much interest in the family business, James, Murdoch's youngest son, once seemed to be in the running to be the designated successor. However, he has clashed with his father and older brother over political views, including criticizing editorial content published by some of the family-owned media outlets (James has also spent millions to fund many Democratic-leaning causes). Elisabeth previously worked for the family business, but has gone in a different direction, co-founding a manufacturing company and starting a non-profit program.
When asked how estate planners typically handle situations in which a client pits their children against each other to compete for the family business, or just their love in general, Campbell explained that, “As attorneys, we advise our clients of the benefits and risks. and costs of anticipated actions, but ultimately, the client decides the course of action to be taken. It appears that Murdoch's primary goal is to cement his legacy, and that he is willing to bear the expense and family estrangement that is inherent in pursuing that goal.”