The Murdoch Family Trial Proves the Superrich Have Trust Issues – Town & Country
As the recent dust up among the Murdoch family shows us, so-called irrevocable trusts just might be anything but. Inheritors, take heed.
Rupert Murdoch and his businesses have gone toe-to-toe against Fleet Street print unions, U.S. presidents, and Dominion Voting Systems, the electronic voting company which snagged a $787.5 million settlement from the swashbuckling media mogul’s pockets. But Murdoch’s latest opponent is one of his own makings: an irrevocable family trust.
The 93-year-old billionaire established the Murdoch Family Trust as a condition of his divorce from his second wife, Anna Murdoch Mann, who insisted the conglomerate would be passed down equally amongst his then-four children. Those voting shares in the family business sat idle for decades.
But this month, Murdoch is hoping to amend the irrevocable trust and pass control of his fiefdom to his son Lachlan, who closely shares his father’s political views. The New York Times reported that Edmund Gorman Jr., the local county probate commissioner, ruled that the media mogul could request changes to the trust “if he is able to show he is acting in good faith and for the sole benefit of his heirs.“ The elder Murdoch argues the move would preserve and enhance the empire’s value since the chosen heir would likely maintain its rightward tilt, while the other adult children (James, Elisabeth, and Prudence) might not do so.
That case—officially deemed “The Matter of the Doe 1 Trust, PR23-00813” on the docket—has brought fresh scrutiny to irrevocable trusts and their efficacy. While irrevocable trusts are standard amongst the Giving Pledge set thanks to benefits like estate tax reductions and asset protections, they’re also a bit of a misnomer.
It turns out that many states allow modifications to irrevocable trusts, but the Murdoch case is different than most. When irrevocable trusts are altered, it’s typically pushed for by beneficiaries as opposed to trust grantors like Rupert Murdoch.
“It’s not generally the person who created the trust that would ever try to alter it because they’ve given away their rights. It’s the next generation, the beneficiaries, that might say, ‘I don’t like this design. I don’t like the way dad did it. It doesn’t work for me. I want more access,’” says Sarah Butters, a Florida-based trust and estates lawyer.
If the grantor and beneficiaries agree to modifications, the trust is typically altered in a non-judicial way. But if you’re like the Murdoch family and there are disagreements within the brood, a judge steps in to settle the dispute. Most rules surrounding trusts vary state-by-state.
Some families with generational businesses have started hiring family business counselors, who advise on resolving disputes that may arise during estate planning. Dr. Rachel Glik is one such specialist, with a practice that focuses on Succession-worthy plot lines and beyond.
Dr. Glik sometimes advocates for a “family business constitution,” which “describes the main mission, values, what’s going to drive the operating principles.” However, it’s no replacement for a legal document. In recent years, a number of high-profile celebrities have died without formal wills, including Prince and Aretha Franklin, which set off year-long battles.
While every state sets their own rules, some have crafted specific laws to lure big-ticket trusts. “Some states do not impose state income tax on trust income, making them more attractive for trusts with significant assets,”says Terrica Jennings, an attorney specializing in estate planning, citing Florida, Alaska, and Texas as examples.
Trusts also allow grantors to maintain control over the assets while they’re alive. The Murdoch’s set up their family trust in Nevada, which has become a popular state for billionaires because of its tax benefits, secrecy protections, and flexibility in making changes.
Everything from mansions to Picassos and planes can be found in point-one-percent trusts. But placing multi-billion-dollar businesses in there is rarely beneficial for family dynamics, according to NYU marketing professor Scott Galloway. He called irrecoverable trusts “tax shelters” and said passing on businesses within trusts can end up with deleterious effects.
“Giving your kids financial security is fine,” he argued recently on his podcast Pivot. “But anything you give your kids above 10 or 20 million, it doesn’t make them any happier, and at some point, when you have this dynasty that has all this influence and political impact on the world, it ends up separating families and dividing them.”
Shark Tank star Kevin O’Leary said most generational wealth ends up squandered within three generations, as many heirs have poor investing skills and spend like they’re bankers at a nightclub in the early 2000s. That scenario often leads to one of the biggest debates among the ultrarich: how much to give their spawn. “But there’s not much you can do about it other than not to give the capital at all,” he says. “That’s the dilemma most families face.”
As Americans are poised in coming years to inherit almost $85 trillion dollars in assets from baby boomers and the silent generation, younger generations are getting smarter about trusts ahead of the “Great Wealth Transfer.”
“We’re at an unprecedented time because this will be the largest transition of wealth between generations in American history that’s going to occur over the next 30 years,” he says. “And obviously there’s a lot of tax maneuvering going on.”
Andrew Zucker works at a production company in New York City. His writing has appeared in the New York Times, the Financial Times, and Air Mail, among other publications.
Source: TownandCountrymag.com
