The Murdoch’s Battle Over Their Media Empire
The Murdoch heirs are battling over control of their multi-billion-dollar media empire. Adding to the complexity, the fight involves an irrevocable trust which Rupert Murdoch created in 1999. He executed the trust after divorcing his second wife to ensure his children would inherit part of the family media businesses. The trust gives his four oldest children equal voting rights over the businesses.
What is an Irrevocable Trust?
The trust is an irrevocable trust—meaning it cannot be changed, as opposed to a revocable trust. Trust law differs by state. Merriam-Webster defines irrevocable as “not possible to revoke: unalterable.” But Rupert Murdoch wants to change his trust to give his oldest son, Lachlan, control of the business after he is gone. Murdoch’s son, James, disagrees with Lachlan on business and political matters, and Rupert worries that James, along with his two daughters, Elisabeth and Prudence, will block Lachlan from making decisions.
Can an Irrevocable Trust Be Changed?
Can an irrevocable trust be changed even though the word itself means “unalterable”? There are actually some circumstances where changes can happen.
In Ohio, the trust code provides that if a settlor (trust creator) and beneficiaries consent, the court is required to enter an order approving the modification even if the change is not consistent with the material purpose of the trust. Obviously, such an agreement would not work with the Murdoch trust because at least one son, James, would not agree to the proposed change.
The Role of a Trust Protector
Some states, including Ohio, allow a Trust Protector to be appointed in a trust agreement. The trust protector’s role is to oversee the trust and make sure the trust’s purposes are carried out. A trust protector’s authority might include removing a trustee who is not performing their duties or appointing a successor trustee.
Depending on the trust language, a trust protector may also be able to amend an irrevocable trust due to changes in the law, adapting to circumstantial changes, or for tax purposes. So if Murdoch’s 1999 trust appointed a trust protector, petitioning the court might not be necessary. However, due to the significance of the change in business control, a court order approving the change would likely negate any trust litigation after Murdoch’s death.
Murdoch’s Petition in Nevada
Murdoch petitioned the court in Nevada, the situs of the trust, to amend the trust. He could also do the same in Ohio for an Ohio trust. A court might allow an amendment if it believes the change would be in the best interest of the beneficiaries or if there was a mistake when the trust was drafted and executed. If Murdoch’s counsel can make a strong case for changes, providing evidence that giving Lachlan more control over the business interests aligns with the original intent of the trust and is in the best interest of the beneficiaries, the court may decide that an amendment is justified under state law.
Challenges to Changing an Irrevocable Trust
Rupert Murdoch created this trust 25 years ago. At the time, he likely did not anticipate the family strife and fundamental business and political disagreements that now exist among his children (and his own goals). Generally, irrevocable trusts are not able to be changed. Murdoch may be successful in changing his, but it is clearly not a simple process and involves a strong legal team to present his supporting evidence to the court. The Murdoch case is highly visible, and the court’s determination could influence similar battles for trust modifications involving family members.
Ohio Trust Code and Trust Modifications
Ohio enacted the Ohio Trust Code in 2006, and it became law in 2007. Although it’s not an easy process to modify an irrevocable trust in Ohio, the trust code provides avenues that did not exist before its passage, offering some level of flexibility for potential changes to irrevocable trusts.
Contact KJK Estate, Wealth & Succession Planning attorney Susan Friedman (SLF@kjk.com; 216.736.7272) to discuss further.