(L-R) Rupert Murdoch, executive chairman of News Corp. and chairman of Fox News, and Lachlan Murdoch, co-chairman of 21st Century Fox, arrive on the third day of the annual Allen & Co. Sun Valley Conference Walk side by side.
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 for high-net-worth investors and consumers. Sign up To receive future editions delivered directly to your inbox.
The Murdoch family battle unfolding in an obscure Nevada court underscores the state’s growing popularity as a global center for family trusts and a friendly home to the world’s greatest wealth.
Nevada is now the No. 1 state in the nation for so-called asset protection trusts, such as the one at the center of the Murdoch dispute, according to legal industry rankings. The state’s unique combination of no income tax, strict confidentiality protections and strong defenses against creditors make it an ideal location for large family trusts set up to protect assets.
Nevada does not report the total assets of its trusts. The western state’s fast-growing industry of trusts and estate attorneys, trust companies and servicers keeps a deliberately low profile. Yet experts estimate the state may have hundreds of billions of dollars in trust assets locked up in obscure office buildings or trust companies, with little visibility to the outside world.
“Nevada is No. 1 and has been for more than four years in a row,” said Nevada attorney Steven Oshins, who publishes the most widely cited rankings of states based on their attractiveness for asset protection trusts. .
South Dakota “is not far behind,” O’sins added, and then “the next batch is down significantly compared to Tennessee, Delaware and other states.”
Nevada’s advantages put it at the forefront of the influx of wealth into asset protection trusts. As of 2021, trust and real estate assets in custody in the United States exceeded $5.6 trillion, more than double the 2011 level, according to economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman. The group said the estimate is just “the tip of the trillion-dollar iceberg” because many trusts don’t report to the IRS.
Much of the recent growth has been driven by the so-called “Great Wealth Transfer,” with more than $80 trillion expected to be passed on to the next generation, according to trusts and estate attorneys. The potential expiration of estate and gift tax exemptions next year, which currently allows couples to gift up to $27 million tax-free, has also prompted the creation of new trusts. Concerns about global wealth tax IRS cracks down on wealthy taxpayers Demand has also been fueled by a wave of foreign millionaires and billionaires turning to the United States as their latest offshore tax haven.
In the race for states to attract hundreds of billions of dollars in new trust assets, Nevada leads the way. Its legislature frequently updates its trust laws and regulations to make them more attractive.
Nevada has no state income tax, corporate income tax, or estate tax, which helps the trust grow in value without losing much of the money. Its secrecy laws are also 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 officially become part of the public record, filing attorneys can use a new 2023 law to keep trust names, settlors and beneficiaries confidential without a court order. In addition to confidentiality, it is one of seven states that allow “silent trusts,” which allow the trustee to preserve the existence of the trust from the beneficiaries in accordance with the terms of the trust.
Nevada is unusual in that there is “no creditor exception”—meaning even a former spouse, a child support claim, or a plaintiff in a lawsuit cannot obtain a trust. Perhaps its most powerful advantage, and one that is directly relevant to the Murdoch case, is the elasticity of trust.
At the heart of the Murdoch case is the Murdoch family trust, which holds powerful voting shares in Murdoch companies. News Corp and Fox Corporation Thus effectively controlling the company. (The trust also includes Australian family farms, the Murdoch art collection and its disney share.
Under the current terms of the agreement, upon Rupert Murdoch’s death, control of the trust will pass to his four children: Lachlan, James, Elizabeth and Prudence. Each person gets one vote, meaning no sibling can gain control without the other. The trust is created as an irrevocable trust, which means it is designed to be permanent.
However according to new york times and wall street journalRupert Murdoch has moved to rewrite the trust to hand control over to Lachlan upon his death. He believed it was in the best financial interests of the other children, but at least some of them challenged it. Spokespeople for News Corp and Fox declined to comment.
In many states, it is nearly impossible to change an irrevocable trust. In Nevada, however, this is common due to a special rule called “sobering up.” The state allows an irrevocable trust to be converted or changed into a new trust as long as certain regulations are met. In the Murdoch dispute, Rupert must prove to the probate court that he acted “in good faith and solely for the benefit of his heirs.”
“In Nevada, you can usually resolve these issues fairly easily,” says probate attorney Elyse Tyrell of Tyrell Law PLLC in Henderson, Nevada.
Nevada trust and estate attorneys say it’s somewhat unusual for a trust donor, in this case Rupert Murdoch, to argue that he acted against the interests of his heirs. However, if he can prove that Lachlan’s control would maximize the financial value of News Corp. and Fox, thereby benefiting all siblings, the court may side with him. The trial is due to begin in September.
It is also unusual for a family to be able to establish a trust in Nevada without having business or personal ties to the state. Residence in Nevada is not a requirement to establish a trust. None of the Murdochs appear to own any real estate in Nevada, nor do their businesses have any public headquarters there.
“Typically, a family will have some connections in Nevada to build trust, either living here or owning real estate,” Tyrrell said. “I don’t believe the Murdochs ever lived here.”
