How can Rupert Murdoch be having a problem changing the beneficiaries of his trust?

Question

I do not understand how Rupert Murdoch could be having problems (and a court fight) trying to change the beneficiaries of his (living) trust. Isn't it standard to include provisions in trust documents that allow the trustee or grantor to change the terms of the trust, include the beneficiaries?

Answer 1

The New York Times explains in a December 9, 2024 story that:

A Nevada commissioner ruled resoundingly against Rupert Murdoch’s attempt to change his family’s trust to consolidate his eldest son Lachlan’s control of his media empire and lock in Fox News’s right-wing editorial slant, according to a sealed court document obtained by The New York Times.

The commissioner, Edmund J. Gorman Jr., concluded in a decision filed on Saturday that the father and son, who is the head of Fox News and News Corp., had acted in “bad faith” in their effort to amend the irrevocable trust, which divides control of the company equally among Mr. Murdoch’s four oldest children — Lachlan, James, Elisabeth and Prudence — after his death.

The ruling was at times scathing. At one point in his 96-page opinion, Mr. Gorman characterizes the plan to change the trust as a “carefully crafted charade” to “permanently cement Lachlan Murdoch’s executive roles” inside the empire “regardless of the impacts such control would have over the companies or the beneficiaries” of the family trust.

See also here.

The key point is that unlike a simple revocable living trust formed to avoid probate, this was an irrevocable trust, in which he did not:

include provisions in trust documents that allow the trustee or grantor to change the terms of the trust, include the beneficiaries

If he had not surrendered his right to amend the trust or its beneficiaries, the trust would have provided no tax benefits.

But, this arrangement was clearly tax driven.

The whole point of the trust was basically to shift appreciation of its assets after the trust is formed but before he died, from himself to his children. Thus all appreciation in the trust assets since it was formed in 1999 (25 years ago) when his net worth was about $5 billion (USD), is gift and estate tax free.

Also when the trust was funded he had to pay the "tax-exclusive" gift tax rate on the transfer of assets to the trust, rather than the "tax-inclusive" estate tax rate that is paid on assets still in your estate when you die. So, in addition to avoiding gift and estate taxation consequences on appreciation of the assets after the trust was formed, it also reduced his effective tax rate by about 28.5%.

When your net worth, including the trust is $22.7 billion (USD) as of 2024 (and it would have been at least $24.7 billion if he hadn't paid $2 billion in gift taxes when he funded the trust in 1999), these tax savings are not chump change. He paid about $2 billion in gift taxes when the trust was formed and will owe no further gift and estate taxes on the trust. If he had not done so and died tomorrow, he would have owed about $9.9 billion (USD) in estate taxes.

So, by giving up his freedom to amend the trust, he reduced his combined gift and estate tax bill by about $7.9 billion. Each of the four children is almost $2 billion wealthier as a result of his decision to form this irrevocable trust.

The Nevada judge was not impressed with Murdoch's desire to take back the one main concession he made to get this $7.9 billion tax cut (i.e. loss of the ability to change who gets the trust assets), now.