Changing Your Mind and Your Family Trust Can Be Hard to Do: Just Ask Rupert Murdoch

Many of you may have read about the recent Murdoch family trust dispute, the elements of which are a real-life drama even more interesting than an episode of the Succession series, thought to be based on the Murdoch family’s trials and tribulations.

The court decision in this case provides lessons to be learned for family business succession planning. As well, it is inspiring in demonstrating the sanctity of the rule of law, the jurisdiction and authority of the courts in supervising and enforcing trusts, and the equal application of the law.

The Murdoch Family Trust

By way of background, The Murdoch Family Trust (the “Trust”) was settled in 1999 to hold shares in News Corp. of which Fox News is a subsidiary. The Trust controls the voting rights of News Corp. with 41% of the voting shares, although it only has equity of 14% because of News Corp.’s two-tiered share structure of voting shares and non-voting shares.

The Trust has a single trustee, Cruden Financial Services, and its board of directors has six directors, four of whom are appointed by the four eldest Murdoch children: Lachlan, Prudence, Elisabeth and James who each hold one share, and two of whom are appointed by Rupert Murdoch, who has four shares in total.

Under the terms of the Trust, on his death his four eldest children inherit his voting shares equally.

The Court Dispute Over the Trust

While this may have been Rupert Murdoch’s intention in 1999 when the Trust was established, things changed dramatically and he no longer wished an equal distribution of his voting shares among his four eldest children, but instead he wanted his eldest son, Lachlan to have voting control.

After negotiations among the family failed, he brought a court application in Nevada to vary the Trust. The Trust had been legally moved to Nevada whose laws governed the Trust as a result. Nevada has rules which allow the privacy of court proceedings involving trusts and which the Nevada court ruled should apply to the Trust as it involved a private legal arrangement, in response to court petitions by several media outlets to unseal the court proceedings and documents.

The court had jurisdiction to vary the Trust provided that Rupert Murdoch as the settlor was acting in good faith and for the sole benefit of the beneficiaries. Rupert Murdoch’s argument was that the change to the Trust which would give voting control to his son, Lachlan, was necessary to maintain business stability and the conservative editorial direction of News Corp.’s media outlets, including Fox News to which his son, Lachlan subscribed, thus preserving its commercial value.

The other three children opposed the application and argued that the proposed change violated the original intent of the terms of the Trust that there be equal control by the four children and that it was not in the best interests of the beneficiaries.

In December 2024, the Nevada court denied Rupert Murdoch’s application to vary the Trust and in its decision stated that both Rupert and Lachlan had acted in bad faith, that the proposed change was only for Lachlan’s benefit, and that Rupert Murdoch’s plan was a “carefully crafted charade” to “permanently cement Lachlan Murdoch’s executive roles” in the Murdoch companies without regard to its effect on other family members and corporate control.

Lessons Learned

1. The Murdoch Family Trust fixed an equal distribution of Rupert Murdoch’s voting shares on his death among his four eldest children, with no flexibility to alter this distribution.
   Many family trusts used in succession planning in Ontario and elsewhere are fully discretionary and allow for great flexibility in giving the trustees discretionary authority to make distributions among the beneficiaries before and on the distribution date of the trust.
   Also, by giving his four eldest children voting shares during his lifetime, they had a greater say regarding the Trust than if they had been distributed later.
2. The Trust did not provide for additional children regarding distribution of the voting shares.
   As a result, Rupert Murdoch’s two youngest children born after the establishment of the Trust, Chloe and Grace, were not included. Perhaps he did not envision having more children in 1999 when the Trust was established, which he later did with Wendy Deng.
3. The lack of flexibility of the Trust’s terms seriously compromised its ability to function as an effective multigenerational vehicle should circumstances change in the future.
   The many ways that greater control might have been provided to Rupert Murdoch as the settlor or to a third party “protector” who he appointed were not incorporated, perhaps due to tax considerations, such as powers under the trust agreement to vary or resettle the Trust on different terms or the reservation of certain powers to Rupert Murdoch or a protector. In estate planning, flexibility is key to ensure a smooth transition and to be able to respond to future circumstances.
4. This legal dispute also underscores the importance of the settlor of a trust understanding the implications of settling an irrevocable trust with fixed terms and limited flexibility.
   Despite Rupert Murdoch’s efforts to achieve his objectives, and his various machinations to contrive to do so, the court applied the law, upheld the integrity of the Trust, and in the strongest terms turned his application down. Justice is blind, as Rupert Murdoch found out.

— Margaret O’Sullivan