The future of Rupert Murdoch's media empire could hinge on a legal effort in Nevada

Conservative media titan Rupert Murdoch is making news again – this time, with a secretive effort to change an irrevocable trust. That trust has important ownership interests in both Fox Corp. and News Corp., so it affects broadcast news as well as The Wall Street Journal and other publications.

Under the current terms of the trust, upon Murdoch’s death, his four oldest children – Lachlan, James, Elisabeth and Prudence – will have “an equal voice” in determining the future of the news empire.

But as The New York Times recently reported, the 93-year-old Murdoch has been trying to alter the trust to ensure his oldest son, Lachlan, stays in charge of his media properties. The legal dispute played out behind closed doors for months, and it might have stayed there if the Times hadn’t obtained a sealed court document shedding light on the conflict.

Murdoch is calling his efforts to change the terms Project Harmony, reportedly out of the belief that doing so would head off any intrafamily wrangling.

The effort to change the trust is so secretive that a spokesperson for the Nevada probate court where the proceedings are occurring stated that all information related to the case is confidential, based on a court order.

As law professors who teach trusts and estates, we are intrigued by the publicity surrounding a somewhat obscure method for holding property. Trusts are private documents that don’t get filed in court unless there’s a dispute.

All about trusts

Trusts are an estate planning technique for giving away property. In our law classes on trusts and estates, we explain how they can be useful for minimizing estate taxes, protecting assets, making charitable contributions, avoiding probate and, in certain circumstances, qualifying for government benefits.

Unlike making an outright gift and transferring full ownership to someone else, the donor of a trust – called a “settlor” – transfers legal control of the gifted property into the trust.

The people who hold the legal title to the property in the trust are called “trustees.” They manage the property and make decisions about how and when to distribute funds to the beneficiaries, who are the actual recipients of trust property.

Trustees are fiduciaries, which means they are under strict legal requirements to manage the property in the sole interests of the beneficiaries. If the property in a trust includes shares in a business, then trustees have the power to exercise any voting rights for those shares.

Trusts allow donors to prolong their control over their property by appointing trustees to carry out their objectives after they die or become incapacitated. Trusts are useful when giving away complex business interests that require extensive supervision and sophisticated decision-making, all of which can be administered by trustees according to the settlor’s preferences stated in the trust.

The view from Nevada

In Nevada, where the Murdoch case is playing out, a settlor can’t unilaterally change any trust’s terms unless the trust itself specifically reserves the right to do so. In other words, trusts are presumed to be irrevocable, or irreversible.

But even when a trust is irrevocable, there are still ways to change its terms.

In any state, including Nevada, irrevocable trusts can be altered by court order if the settlor and all beneficiaries agree to the modification. In some cases, trusts can also be modified without court approval through a process known as “trust decanting,” which can be performed by the trustee without the consent of settlors or beneficiaries.

Nevada is unusually permissive in allowing settlors to maintain secrecy about the trust, even with respect to trust beneficiaries. In most states, trust beneficiaries have much broader rights to receive financial information about the trust.

Nevada also explicitly protects confidentiality in trust proceedings by law, even without a court order. Indeed, having reviewed thousands of trust cases from courts around the country, we find Nevada to be especially protective of the donor’s interests. That may be one reason the Murdoch Family Trust is located there.

The stakes of the dispute

The Murdoch Family Trust holds a variety of types of property, including a family farm in Melbourne, Australia; the Murdoch art collection; and shares in Disney, News Corp. and Fox. The property in the trust is managed by a corporate trustee, Cruden Financial Services.

The trust terms at the center of this dispute appear to stem from Murdoch’s 1999 divorce from his second wife, Anna. She negotiated an agreement to ensure that their three joint children – Lachlan, James and Elisabeth – along with Prudence, Murdoch’s daughter from an earlier marriage, would inherit News Corp.

Rupert Murdoch poses with his then-wife Anna Murdoch and their children, Lachlan, James and Elisabeth, in 1989. Peter Carrette Archive/Getty Images

The trust document sets out what will happen to ownership of the media assets upon Murdoch’s death: His voting share will be transferred to the four oldest children. That could lead to a scenario in which the children are fighting over the future of the media assets. Fear of that outcome seems to have motivated Rupert Murdoch to seek this change to the trust.

Although Lachlan is now the chair of News Corp. and executive chair and CEO of Fox Corporation, the children have already aired some of their disagreements over the political direction of the media companies. For example, James and his wife have criticized Fox’s move to the right. Murdoch may well see this as a threat to the company’s business model, which caters to a conservative audience.

Even though Murdoch’s trust is irrevocable, it reportedly “contains a narrow provision allowing for changes done in good faith and with the sole purpose of benefiting all of its members.” Rupert Murdoch’s argument is that by taking away governance rights from James, Elisabeth and Prudence, Lachlan will be able to manage the family business more profitably, thereby increasing the value of trust assets for all beneficiaries.

Because some of Murdoch’s children object to his proposed governance changes, Murdoch appears to be relying on the power he retained as settlor to modify the trust in good faith for the beneficiaries’ benefit.

A court will decide later this year whether the changes really are in good faith; If so, then Murdoch will be able to change the trust as he would like so that Lachlan can continue to control the family business.

The saga shows the ways that trusts can protect a family business. But when the next generation lacks a shared vision for the future of that business, even irrevocable trusts can’t ensure family harmony.

Naomi Cahn, Professor of Law, University of Virginia and Reid Kress Weisbord, Distinguished Professor of Law and Judge Norma Shapiro Scholar, Rutgers University - Newark

This article is republished from The Conversation under a Creative Commons license. Read the original article.