Succession, Fox News, and Irrevocable Trusts

In a Nevada court, a drama is playing out over – of all things – an irrevocable trust. But this isn’t any irrevocable trust. It is the family trust established by Rupert Murdoch to control his media empire, including Fox News.

The Background

The proceedings have not been open to the public, so we don’t know all the facts. But here’s what we do know:

• Rupert Murdoch established an irrevocable trust that holds a number of assets, including voting shares of Fox Corp (the parent company of Fox News).
• The irrevocable trust, as written, requires that after Murdoch’s death, while his four children inherit equally-valued shares of his trust, his four children will vote to decide which of them will control the voting shares of the media empire.
• Murdoch has petitioned a Nevada court to modify the irrevocable trust. Murdoch no longer wants his four children to vote on who will control the media empire after his death. Murdoch fears that his more politically moderate children will control his media empire. Murdoch wants the trust to require that only his son, Lachlan, who is politically more right-leaning, control the Murdoch media empire after his death.

What is an Irrevocable Trust?

An irrevocable trust is a kind of trust that, put most simply, is not subject to modification. Unlike the more commonly-used “living trust” or “revocable trust”, the person who creates the irrevocable trust (the “Settlor”) has no ongoing power to control, change, or amend an irrevocable trust.

Do bear in mind that a once-revocable trust can become irrevocable. The most common situation where this arises is where the assets of a Settlor’s revocable trust remain in trust after his/her death for the benefit of a surviving spouse or children. Here, the only person who retained the power of revocation or amendment is deceased. Therefore, the trust has become irrevocable.

Why Use an Irrevocable Trust?

1. Taxes. In most situations, assets held in an irrevocable trust are not exposed to estate tax upon the Settlor’s death. By transferring an asset to an irrevocable trust and surrendering control of the trust (and the assets therein), a Settlor can transfer enormous wealth free of estate tax upon his/her death.
2. Asset protection. Sometimes Settlor’s have concerns about a spouse or child’s unfettered control of trust holdings after the Settlor’s death. In this situation, the Settlor might retain the right to amend the trust during his/her lifetime (the trust is initially revocable), but require the trust to remain in place and lock upon the Settlor’s death.

So if a Trust is “Irrevocable”, How Can It Be Modified?

Most states do permit modification of irrevocable trusts. But it is not easy.

If purely administrative terms of an irrevocable trust are to be modified, both Maryland and the District of Columbia permit modification via a “non-judicial settlement agreement” (or “NJSA”). This is a document that must be signed by all beneficiaries of the trust, not just the present beneficiaries but certain future beneficiaries as well. Maryland also now permits modification by a process called “decanting” – essentially the creation of a new trust.

If more substantive terms of an irrevocable trust are to be modified, both Maryland and the District of Columbia permit someone with an interest in the trust to petition a court to order the trust be modified. However, the court must find that the modification: (1) is consistent with the intent of the Settlor; and (2) protects the interests of all beneficiaries.

How Could Murdoch Argue the Proposed Modification Protects All Beneficiaries?

At first blush, it would seem the interests of Murdoch’s three other children would be harmed, not protected, by the proposed amendment. But Murdoch argues that if his more politically moderate children control Fox News, the value of the asset will plummet. Therefore, Murdoch argues that by modifying the trust to ensure that Fox News continues to be controlled by someone right-leaning, he is protecting the value of this asset and, in turn, protecting the value of every child’s inheritance.

Murdoch has reportedly presented significant evidence to substantiate these assertions. It will be up to a Nevada judge to decide whether to side with Murdoch or whether to side with his three children who oppose the modification. And, the nature of American political discourse on one cable news channel could be at stake.

The Takeaways

This is little more than one of the rare stories where the worlds of pop culture and estates and trusts intersect.

It is worthwhile, however, for estate planning clients and trust beneficiaries to know that, where once irrevocable trusts were truly locked, over the years the law has recognized more flexibility of parties to adapt irrevocable trusts to unanticipated circumstances.

When Bulman Dunie attorneys are asked to assist with amending irrevocable trusts, usually the amendments are non-substantive, non-controversial, and can be done via an NJSA. BDBF attorneys have, however, petitioned both the Maryland and the District of Columbia courts for orders modifying trusts and are familiar with these proceedings.

Even if your trust isn’t funded with voting shares of News Corp., reach out to Bulman Dunie’s estate attorneys for advice about the administration of your trust!