Earlier this week a Nevada Court held that Rupert Murdoch’s attempt to amend his irrevocable family trust to hand control to Lachlan Murdoch was invalid and not in the best interests of beneficiaries. In this article, we look at the Nevada trust laws in question, and whether the outcome would have been different on Australian soil.
The Cruden Family Trust is an irrevocable family trust established by Rupert Murdoch, which has reportedly had several iterations over the decades to manage the family’s vast media assets. Currently, the Trust is the legal holder of approximately 41% of the voting stock in News Corp, the parent company of media outlets across the globe, including News UK, Foxtel, Harper Collins, and the legal holder of approximately 39% of the voting stock in Fox Corp. The beneficiaries of the trust are Mr Murdoch’s six children – Prudence, Lachlan, James, Elisabeth, Grace and Chloe.
The current Trust was established for the benefit of Mr Murdoch’s two children with third wife, Wendi Deng, to provide them with an equal financial stake in the Trust in the event of his death. According to those familiar with the structure,[1] Mr Murdoch holds four of the possible eight votes. The four older children he had with his first and second wives – Prudence, Lachlan, James and Elisabeth – hold one vote each, and control will be divided among the four eldest children upon his passing. This includes exercising voting rights in the News Corp and Fox Corp entities. Grace and Chloe are entitled to a financial stake only.
During the last 18 months, Mr Murdoch and his eldest son Lachlan have been manoeuvring to amend the trust to give the voting power solely to Lachlan, who is CEO of Fox Corp and the sole Chair of News Corp.
In June 2024, a Nevada probate commissioner determined that under Nevada law the Cruden Family Trust could be modified, provided that it was done in “good faith” and “in the best interest of the beneficiaries”.
The Cruden Family Trust is an irrevocable family trust. In most US states, it is not possible to modify, change, or rewrite an irrevocable trust once it is submitted into law and declared a legally binding contract. However, this is not the case in Nevada where the Murdoch trust is being considered. In Nevada, an irrevocable trust can be modified under certain conditions.
Under Nevada Legislature NRS 163.004, a trust is irrevocable except to the extent that an authority, power or right to revoke the trust is expressly reserved by the settlor under the terms of the trust instrument. This right cannot be granted to any person other than the settlor, and so would expire upon their death. In the case of the Cruden Family Trust, it included a provision giving Mr Murdoch the right to make changes to it as long as he was “acting in the best interests of beneficiaries”.
There are two other methods under Nevada law to modify irrevocable trusts:
In the Murdoch’s case, neither route was followed. Instead it was the power originally reserved contractually to the settlor, which is why the “good faith” aspect was pivotal.
On 10 December 2024, the Second Judicial District Court of Nevada handed down its finding as to whether the proposed amendment met the “good faith” test.
The primary reasoning to support the change put forward by Mr Murdoch was that it would benefit all of the trust’s beneficiaries by preventing the more politically liberal children — Prudence, Elisabeth and James — from making the media empire, and particularly the Fox News arm, more politically moderate. Reportage of the Nevada Court’s ruling observes that Mr Murdoch sought to give Lachlan permanent and exclusive control over the media empire because of concerns that a lack of consensus amongst trustees could adversely impact the strategic direction of the companies, and result in a change in editorial policy and content. The argument apparently went that “liberalising” the brand would damage its’ conservative positioning, and ultimately its economic value, in the market. In turn, this would not be to the economic advantage of the beneficiaries.
Nevada Probate Commissioner Edmund J. Gorman Jr. found that this reasoning did not pass the good faith test, and he was critical of what he described 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.” The opinion put forwards suggests that rather than protecting its conservative branding as proposed by Mr Murdoch – and by extension Lachlan – the true motive was to provide Lachlan with control to protect the direction of companies in an attempt to avoid a change in editorial policy and content.
It was reported that Commissioner Gorman concluded by stating:
“The effort was an attempt to stack the deck in Lachlan Murdoch’s favor after Rupert Murdoch’s passing so that his succession would be immutable. The play might have worked; but an evidentiary hearing, like a showdown in a game of poker, is where gamesmanship collides with the facts and at its conclusion, all the bluffs are called and the cards lie face up.”[2]
Under Australian law, an irrevocable trust is a form of fixed trust which cannot usually be modified or terminated without the permission of the named beneficiaries.
The concept of an irrevocable trust is less common and less central in Australian law compared to jurisdictions like the US, where it is widely used for estate planning and asset protection. Under Australian law, it is common for discretionary trusts to be used for family and business purposes, which allow trustees significant discretion in managing assets and distributing income. These trusts can typically be amended or terminated, which contrasts with the rigid nature of irrevocable trusts. A discretionary trust is one in which the beneficiaries are selected from a nominated class by the trustees.
The main advantage of having an irrevocable trust is that it allows the settlor to revoke legal ownership of the property from their estate, meaning it won’t be part of the settlor’s taxable estate. This means they are not liable for taxes on any income the property generates. Property held in an irrevocable trust is not available to creditors in case of bankruptcy.[3]
Under Australian law, irrevocable trusts are difficult to modify but not impossible.
In the first instance, if all beneficiaries agree and are of legal age and capacity, the trust may be modified. This can be done via a Deed of Variation, and is the simplest way to modify the original document. However, that method is not available in a contested situation such as the Cruden Family Trust.
Alternatively, under a cy-pres order, a court may order modifications if the trust’s purpose has become impossible or impractical to fulfill, or if unforeseen circumstances arise that weren’t anticipated when the trust was created. Given that the material circumstances of the Cruden Family Trust have not changed, the children’s political persuasions would not provide grounds for a cy-pres order under Australian law.
Most relevantly in the present circumstances, under New South Wales law, an irrevocable trust may be varied where its terms provide for that possibility. Usually, this would need to be done in the interest of the beneficiaries of the trust as a whole, in good faith and for proper purpose, and not in excess of that purpose[4]. Beneficiaries of a trust have legal recourse if the amendments conflict with their rights under the trust or the trustee has operated in excess of their powers.
If the Cruden Family Trust was established under New South Wales law, it is likely that fundamentally the same analysis would apply as in the Nevada Second Judicial District Court. That is, is the amendment being done in good faith and for a proper purpose.
According to the New York Times, Commissioner Gorman was of the opinion that the proposal to change the Trustees of the Cruden Family Trust needed to be done in ‘good faith’. Cornell’s Legal Institute describes good faith in the US as:
‘a broad term that’s used to encompass honest dealing. Depending on the exact setting, good faith may require an honest belief or purpose, faithful performance of duties, observance of fair dealing standards, or an absence of fraudulent intent.’[5]
In the context of the Cruden Family Trust, the inference is that the true purpose behind the proposed change of control was not motivated by the best interests of beneficiaries, but an ulterior motive that had elements of self-interest.
In Australia, there is no universally accepted legal definition of ‘good faith’, and it is typically assessed on a case by case basis.[6] It is common ground that notions of reasonableness, honesty and acting for a proper purpose[7] are all typical elements of the Australian principle. The Courts tend to adopt a negative application, searching for indications of conduct that would amount to ‘bad faith’, such as dishonesty, unconscionability or conduct against an established objective, to determine whether something has been done in good faith.
Whilst stemming from a different doctrinal heritage, in basic terms the US and Australian jurisprudence is substantially similar. Accordingly, based on the limited facts of the Nevada Court’s decision that have been reported on, we can cautiously say that it seems quite possible that an Australian Court would have come to a similar view.
The Gorman decision has been sealed by the Court, with only the New York Times being granted access. In Australia, the principle of open justice encourages public access to Court records, and the common law legal system the country embraces relies on precedent to establish a level of consistency across judicial decisions. It is likely that, in Australia, the Murdochs would have had to go to greater lengths to seal the judgment from public access.
Mr Murdoch has the ability to appeal the Commissioner’s decision within 14 days to the district probate judge, and it currently seems likely that he will do so. The parties could then appeal that decision to the Nevada Supreme Court, so it is fairly safe to suggest that this case is far from over.
Edwards + Co Legal advises companies and directors on a range of corporate governance and compliance matters under Australian law. For further advice on corporate governance matters, please contact us confidentially below.
[1] Alex Barker, ‘The Murdoch family trust: inside the looming battle for control’ Australian Financial Review (Article, 10 January 2023) <https://www.afr.com/companies/media-and-marketing/the-murdoch-family-trust-how-the-scions-could-battle-for-control-20230110-p5cbgt>.
[2] Jonathan Mahler and Jim Rutenberg, ‘Rupert Murdoch Fails in Bid to Change Family Trust’ New York Times (Article, 9 December 2024) < https://www.nytimes.com/2024/12/09/business/media/rupert-lachlan-murdoch-family-trust.html?searchResultPosition=1>.
[3] However, if the transaction is not genuine and is a sham to avoid creditors, a court may order for that transaction to be reversed.
[4] Lock v Westpac Banking Corporation (1991) 25 NSWLR 593, 609.
[5] https://www.law.cornell.edu/wex/good_faith.
[6] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266.
[7] Burger King Corp v Hungry Jacks Pty Ltd (2001) NSWCA 187 [185].
