Changing Family Trusts: why the courts are saying “no” to Rupert Murdoch and how this affects you

Mr Murdoch created the Murdoch Family Trust in 1999, into which he transferred the ownership of his media companies (Fox News and News Corp – which in turn owns The Sun and The Times newspapers in the UK and Wall Street Journal in the US). The idea behind the trust was to manage future inheritance and succession issues and to allow Mr Murdoch to have some control over the companies and their destinies after his death.

The trust gave the family eight votes to be used to make board decisions within the companies. Mr Murdoch controls four votes, his four eldest children (who all have jobs within the companies) then have one vote each. The trust agreement states that, on Mr Murdoch’s death, his four votes pass to each of his four eldest children equally, so they would then have two votes each and divide control over future decision-making between them.

Can you change family trusts?

However, Mr Murdoch has re-thought things since the trust was set up and is now reportedly concerned that there is a “lack of consensus” among his children (The Times). He would like his conservative eldest son, Lachlan, to be in the driving seat when he is gone and he brought a case to court in Nevada to alter the trust terms to this effect.

The family flew into the desert state from across the world to participate in the six-day hearing. The probate commissioner overseeing the case has now submitted his recommendations to a district judge (who may still choose to rule differently), and so far, the answer to whether Mr Murdoch can make these changes has been “no”.

The trust assets in this case are thought to be worth around £14.9 billion, but the strict principles which apply to trusts (under both UK and US law) are no less stringent even when the stakes are considerably lower. Mr Murdoch is attempting to change the terms of an irrevocable trust. Estate planning is usually done in such a way that any trusts set up as part of that process can subsequently be changed by the settlor or trustees if family circumstances alter. Such trusts are revocable and contain wide administrative powers giving all the necessary flexibility to respond to changes in the law and more personal factors.

Something else that most family trusts have in common, is that the issues which are involved are generally in their administration are deeply personal and often fraught with emotion. The choice of trustees is critical, as they will have the powers and also bear the fiduciary responsibilities of ensuring that the trust’s terms are respected and the best interests of the beneficiaries, as well as the intentions of the settlor, are carried out. A trust will often be supported by a less formal letter of wishes, written by the settlor to the trustees, setting out guidance as to how they should use any discretion they have and generally the factors they should bear in mind above and beyond the strict terms of the settlement deed and the law.

What are the lessons to learn?

The lesson for Mr Murdoch may be that some things can’t be bought, no matter who you are. The courts take the sanctity of the trustee role and the integrity of trusts very seriously. This high-stakes scuffle serves as a useful reminder to those with more modest affairs, but for whom the cost of getting it wrong is still unpalatable, to consider the wording behind trusts carefully and get the right advice from the outset.

A trust can be a useful vehicle which serves a valuable purpose as part of wider estate planning both for control of assets and tax planning – but it must be set up by expert advisors skilled in this field or you could end up rolling the dice and not liking the outcome!