"Over the years, the Murdoch family dynamics have been covered in the press, and some have said the HBO series Succession was loosely based on the Murdoch media empire."
Recently, much has been written about Rupert Murdoch’s petition to amend his Nevada irrevocable trust to grant his eldest son, Lachlan, voting control over News Corp and Fox Corporation. While the battle between family members is not new, the opportunity to amend this trust is very interesting.
Changing an Irrevocable Trust
Nevada, one of the leading states in which to create a trust because of its grantor- and tax-friendly status, has a provision to allow changes in the trust, called decanting. Decanting allows for the distribution of trust assets into another trust. The decanting process is generally used to change situs (the state or jurisdiction governing the trust) and modernize a trust.
In this case, the decanting process is being proposed to change the terms of a trust created 25 years ago. Murdoch created the current trust in 1999 as part of his divorce from his second wife and mother of three of his children. Murdoch has six children: one from his first marriage, Prudence; three from his second marriage, James, Elisabeth, and Lachlan; and two from his third marriage, Grace and Chloe. The 1999 structure gave all six children stock ownership, but only the eldest four children were granted voting rights.
Murdoch now wants to change the trust provision by granting his eldest son, Lachlan, 100% voting control over the stock held by trust after his death— while leaving the ownership provisions for each of his children unchanged. His argument is that Lachlan is in the best position to create shareholder value, which would benefit all the beneficiaries.
The current beneficiaries are not in agreement with this change and want to keep their voting rights of the stock shared equally by the four eldest children as outlined in the 1999 trust document. According to Nevada law, the decanting procedures allow for changes only if there is 100% agreement between the trustees and the beneficiaries, which is not the case in this situation. However, a change can also be made if it is in the best interest of the beneficiaries.
The New York Times, which purportedly has access to the court documents, reports that there is a group of individual trustees that has voting rights for the trust. Most likely a trustee committee was set up originally from a corporate governance perspective. “To bolster his argument that he’s making the change in order to benefit all of his heirs, Mr. Murdoch has moved to replace two of his longtime executives as his personal representatives on the trust with two people with more independence.”
How Trustee Liability Is Affected
I find this case interesting from a trustee liability perspective for a couple of reasons:
- Replacing committee members when endeavoring to decant the trust. Trustees are chosen for a reason. Generally, the trustees are held to fiduciary standards, understand the enormity of the job, and are charged with carrying out the grantor’s legacy. This would be like replacing a board at the time of a transaction to ensure a vote would pass. Could this violate the fiduciary duties of the trustees.
- Proving this change is in the best interest of the beneficiaries. News reports say the conflict arises from Lachlan’s alleged right-leaning viewpoints, demonstrated in his management of Fox and News Corp, which clash against the more left-leaning children, Prudence, James, and Elisabeth. This argument is similar to the backlash from more conservative states, which have questioned whether mission-driven investments (rather than focusing on increasing shareholder value) breached a board of director’s fiduciary duty.
As a reminder, once an irrevocable trust is created, the assets are transferred from the grantor’s estate into the trust. The trustees are now responsible for managing the trust assets in accordance with the trust instrument and applicable law. This opens up the Murdoch trustees to litigation as they have either decided to allow or implement the decanting process.
This case is expected to be heard in early September, and we will be watching potential litigation against the trustees. As trustees can be held personally liable for their actions, trustee liability insurance in this case would be essential in ensuring they aren’t financially burdened by litigation expenses.
