(L to R) Rupert Murdoch, executive chairman of News Corp and chairman of Fox News, and Lachlan Murdoch, co-chairman of 21st Century Fox, walk together as they arrive on the third day of the annual Allen & Company Sun Valley Conference, July 13, 2017 in Sun Valley, Idaho.
Drew Angerer | Getty Images News | Getty Images
A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.
The Murdoch family feud taking place in an obscure Nevada court highlights the state’s surging popularity as a global center of family trusts and a friendly home to the world’s biggest fortunes.
According to legal industry rankings, Nevada is now the top state in the country when it comes to so-called asset-protection trusts like the one at the center of the Murdoch dispute. The state’s unique combination of no income taxes, iron-clad secrecy protections and strong defenses against creditors makes it the ideal location for big family trusts created to protect assets.
Nevada doesn’t report the total amount of assets in its trusts. The Western state’s fast-growing industry of trust and estate attorneys, trust companies and facilitators keeps a deliberately low profile. Yet experts estimate the state likely has hundreds of billions of dollars in trust assets locked away in nondescript office buildings or trust companies, offering little to no visibility to the outside world.
“Nevada is No. 1 and has been for at least four years,” said Steven Oshins, a Nevada attorney who publishes the most widely cited ranking of states based on their appeal to asset-protection trusts.
South Dakota is a “close second,” and then “there is a big drop-off for the next batch with Tennessee, Delaware and others,” Oshins added.
Nevada’s advantage puts it at the forefront of a massive wealth surge pouring into the asset-protection trusts. The U.S. hosted more than $5.6 trillion in trust and estate assets as of 2021 — more than double the level of 2011, according to data from economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman. The estimate is just “the top of a multitrillion-dollar iceberg,” according to the group, since many trusts are not reported to the IRS.
Much of the recent growth is being driven by the so-called Great Wealth Transfer, in which over $80 trillion is expected to be passed down to the next generations, according to trust and estate attorneys. The possible expiration next year of the estate and gift tax exemption, which currently lets couples give away up to $27 million tax-free, is also driving the creation of new trusts. Fears of a global wealth tax, the IRS crackdown on wealthy taxpayers and a wave of foreign millionaires and billionaires using the U.S. as the latest offshore tax haven are also fueling demand.
In the race among states to attract the hundreds of billions of dollar in new trust assets, Nevada has a comfortable lead. Its legislature frequently updates its trust laws and regulations to make them more attractive.
Nevada has no state income tax, no corporate income tax and no inheritance tax, which helps trusts grow in value without having a chunk taken out. Its secrecy laws are also among the strictest in the country. In 2009, the legislature passed a law stating that any records submitted to the Division of Financial Institutions are “confidential.”
While all trust cases in Nevada are officially part of the public record, filing attorneys can use a new 2023 law to keep the trust name, settlors and beneficiaries confidential without a court order. Adding to the confidentiality, it is one of seven states that allow “silent trusts,” which permit the trustee to keep the existence of the trust from the beneficiaries under the trust terms.
Nevada is also unusual in having “no exception creditors” — meaning even ex-spouses, child support claims or lawsuit plaintiffs can’t gain access to a trust. Perhaps its most powerful advantage, and the one with direct bearing on the Murdoch case, is trust flexibility.
At the center of the Murdoch case is the Murdoch Family Trust, which holds the powerful voting shares in News Corp. and Fox Corp. that effectively control the companies. (The trust also contains the family farm in Australia, the Murdoch art collection and its Disney shares.)
Under the arrangement’s current terms, when Rupert Murdoch dies, control of the trust would pass to four of his children: Lachlan, James, Elisabeth and Prudence. Each would get one vote, meaning no sibling could gain control without the others. The trust was created as an irrevocable trust, meaning it’s designed to be permanent.
Yet according to The New York Times and The Wall Street Journal, Rupert Murdoch has moved to rewrite the trust to give Lachlan control after Rupert’s death. He argues that it’s in the best financial interests of the other children, which at least some of them have challenged. Spokespeople for News Corp. and Fox declined to comment.
Changing an irrevocable trust is virtually impossible in many states. Yet in Nevada, it’s common, thanks to a special carve-out known as “decanting.” The state allows irrevocable trusts to be decanted, or changed, into a new trust as long as certain provisions are met. In the case of the Murdoch dispute, Rupert will have to prove to a probate court that he is acting “in good faith and for the sole benefit of the heirs.”
“In Nevada, you can usually fix those things fairly easily,” said Elyse Tyrell, a probate lawyer with Tyrell Law PLLC in Henderson, Nevada.
Trust and estate attorneys in Nevada said it’s slightly unusual for a trust donor — in this case Rupert Murdoch — to argue that he’s acting in the interests of heirs who are opposing him. Yet if he can make the case that Lachlan’s control would maximize the financial value of News Corp. and Fox Corp., and therefore benefit all the siblings, the court may take his side. The trial starts in September.
It’s also unusual for a family to be able to create a trust in Nevada without business or personal ties to the state. Residing in Nevada is not a requirement for establishing a trust. None of the Murdochs appear to own any homes in Nevada, and none of their businesses have any public headquarters there.
“Normally a family would have some ties in Nevada to establish trust, either living here or having real estate,” Tyrell said. “I don’t believe any of the Murdochs ever lived here.”