As the recent exposes over the Murdochs’ succession skirmishes have revealed, estate planning can be fraught with emotional and legal complexities, particularly when it comes to the distribution of assets.
Last year, Rupert Murdoch lost in his bid to rewrite the structure of the Murdoch Family Trust through a Nevada probate court to give all voting power to his oldest son, Lachlan, who most closely aligns with the 93-year-old’s political views.
The trust is currently managed by Murdoch and his four adult children, but Murdoch senior wanted to take away voting power from Prudence, James and Elisabeth.
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The spat, which has become public despite Murdoch’s best efforts to keep the feud behind closed doors, has also threatened the family business, with shareholders increasingly concerned over the risk to the stability and strategic direction of News Corps.
The case throws into sharp relief the problems of dividing up an estate and the concept of what might be considered a ‘fair’ inheritance by your heirs.
Does succession and inheritance always have to be divided equally? How can an unequally distributed succession keep family harmony and a family business on track? Spear’s experts explain.
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What does it mean for a succession to be fair?
Fairness in inheritance is often misunderstood as strict equality, but fairness is more accurately defined as equity, ensuring that decisions made by the inheritor consider individual contributions, needs and circumstances, experts tell Spear’s.
Prateek Swaika, partner Boies Schiller Flexner, says: ‘Often, high-net-worth individuals or ultra-high-net-worth individuals will be assessing and reassessing the influence and collaboration and the assistance that they have had from people during their lifetime.
‘They want to leave their estate in a particular shape or vision that they believe somebody will carry forward in a better way.’
Scott Taylor, partner, private wealth disputes, Moore Barlow, notes that ‘factors such as contributions to the business, financial needs, and future responsibilities may influence how assets are distributed’.
‘Some heirs may receive ownership and leadership roles, while others may be compensated in different ways, such as financial assets or property. What feels “fair” may differ from person to person, so it’s essential to make it clear and transparent,’ he says.
In family businesses, achieving fairness requires clarity, a structured process and active engagement, Kirstie McGuigan, private client partner, Taylor Wessing tells Spear’s. Disputes typically arise when succession plans lack transparency or discussion, leading to misunderstandings and resentment among heirs, she says.
The threat of a family bust-up to a family business – and how to avoid it
Estate disputes don’t just affect families; they can have ‘severe consequences’ on a family business.
‘It [infighting] takes away from management time, investor relations, strategic decision-making, and it drains financial resources,’ Swaika notes.
Taylor adds: ‘If key employees lose confidence in the leadership, they may leave, weakening the company’s long-term stability.
‘Poorly managed succession can even result in the business being sold or closing down.’ (Taylor cites the Gucci family case as an example – the luxury designer family faced a highly publicised feud over ownership that ultimately led to the sale of the business to external investors).
McGuigan agrees: ‘Bitter family disputes and infighting put a business at real risk with things falling apart quickly. When it gets personal, commerciality flies out of the window, for example, decisions get blocked simply to be awkward, deals are jeopardised as a result of a power play and the real stars of the business leave.’
Businesses and families alike benefit from resolving succession issues before they become contentious. ‘It’s in everyone’s interest to face potential challenges head-on and deal with them early,’ Swaika says. ‘By getting proper advice, ensuring transparency and making legally sound decisions, people can avoid drawn-out and messy legal battles.’
[See also: Why female heirs still miss out in succession planning]
The reputation risk of a family succession feud
Reputation is a valuable intangible asset for any business and damage to the brand can have a material impact on value. Rupert Murdoch has never claimed to be a ‘nice guy’, but the recent tensions have dented the image of the business with shareholders who fear that the fallout could impact the company’s growth and stability.
‘A compromised reputation can lead to several significant negative outcomes such as a decrease in investor and consumer trust and confidence leading to the loss of significant shareholder value, problems with retention and recruitment and the road to recovery (if there is one) can be long and costly,’ McGuigan says.
As Taylor adds: ‘Employees may feel uncertain, suppliers may hesitate to engage, and investors could lose confidence. Negative media coverage can also affect customer trust and brand perception.’
Challenging a perceived ‘unequal’ succession plan
McGuigan says that while challenges come into play for ‘many reasons’, they largely ‘arise because discussions and clarity of understanding on succession plans have been missing’.
‘There is a long list of cases where structures have been attacked, decisions have been challenged and the types of business vary greatly, from the family farm to the multi billion dollar global enterprise.
‘Many of these cases may not reach the court doors but will still involve significant time and costs with the parties trying to reach a resolution,’ McGuigan says.
[See also: How to prevent a Murdoch succession drama]
Heirship under English law
Unlike some other jurisdictions, English law provides individuals with full discretion over how they distribute their estates.
‘At least under English law, unlike other countries, there is no obligation on anyone to leave their estate in a particular way,’ explains Swaika.
‘You’re able to do as you like, and you have free reign over your estate. That’s what the law provides for you to be able to do.’
This principle, however, is not universal. Countries such as Italy and Portugal have forced heirship rules, requiring individuals to leave at least 50 per cent of their estate to their family. In these jurisdictions, heirs can easily challenge a will if they believe they have been unfairly excluded.
See also: ‘My father’s succession planning took two decades – now I help other wealthy families’]
What if a HNW doesn’t like or trust their heirs?
For those concerned about how heirs will use their inheritance, various legal mechanisms can provide control and oversight.
Discretionary trusts enable trustees to manage assets and control distributions. Staggered payments can help prevent heirs from spending too quickly by releasing funds incrementally, such as upon reaching a certain age or achieving a milestone.
Conditional inheritance may require heirs to fulfill specific criteria, such as completing education or working in the business, before receiving their share. Appointing an independent trustee can also provide an additional layer of oversight to ensure that the estate holder’s original intentions are honored.
What laws must the head of a family business adhere to when ensuring all heirs receive their rightful share?
In ensuring that all heirs receive their rightful share, legal and cultural considerations must be taken into account. In England and Wales, the Inheritance (Provision for Family and Dependants) Act 1975 allows certain individuals, including dependants, spouses, and children, to contest a will if they believe they have not been adequately provided for.
English law does provide a safety net for certain individuals who may not have been adequately provided for in a will. Challenges may be based on claims of undue influence, lack of testamentary capacity due to illness, or failure to make reasonable financial provisions.
Additionally, claims under the legal doctrine of proprietary estoppel may arise if someone relied on a promise to their financial detriment, such as a child working on a family farm for years under the assumption they would inherit it.
If the business is a limited company, Taylor explains, its articles of association may outline rules for succession, such as who can inherit shares and whether they must be sold back to the company or existing shareholders.
[See also: Succession at the House of Arnault: who will wear the crown?]
Bulletproofing a will against challenges
Given the potential for disputes, individuals can take proactive steps to reduce the risk of their will being contested. Some very basic steps include having a witness, including a letter of reasons, and ensuring the will is clear and well-documented, Swaika advises.
For those at risk of being challenged on the grounds of mental capacity, he suggests a more rigorous approach. ‘What I have advised clients in the past to do is get a professor from a hospital to test their mental capacity. If the will is contested 30 years later, there is an independent third-party assessment that confirms their state of mind at the time.’
‘These sorts of disputes are very complex, spiral very quickly and can be very expensive. So it’s really in everyone’s interests to make sure that they’re dealing with it at an early stage, by getting proper advice and not allowing it to get horrible and messy,’ Swaika says.
