top of page

The MOAT and the SMSF Leading Member – a Story of Passion and Families

Updated: Nov 30, 2021

We have seen the devastation that can be wreaked with a family provisions claims in an estate with the case of MILLER -v- TAYLOR [2018] WASC 75, where a second spouse of the deceased contested a Will providing the entire estate – valued at $600,000 to his children from his first marriage. The presiding judge Justice Jeremy Curthoys ripped into the team of six lawyers, who by the time they came before him in the Supreme Court, more than $500,000 in legal fees had been racked up leaving any proper provision for the deceased’s de facto spouse Angela Miller as well as ensuring his two children missed out.

Can you imagine what would arise with a $2m contested estate? Apart from $150,000+ in legal fees, expect the time for judgement or settlement to be at least two to three years with all the family fighting and hating for that period of time. Want to know what hate looks like – read the Andrea Miller case.


So we are faced with a choice as a professional – we put our head in the sand and let the chips fall where they lie or we facilitate the building of a protective barrier around our client's structures and affairs. And what better protection than a MOAT.


Now, if you don’t know what a MOAT is, it is a fortified protection used in Medieval times to keep the angry hordes and the enemy away. Some were known to be filled with angry water creatures and a variety of booby traps and if the enemy were dumb enough to enter the MOAT they became sitting ducks for the archers. If you had no MOAT and the first line of defence was the town or castle’s walls - the families, women and children were exposed and we have seen enough movies to see how that plays out. Worse still the villages that had no walls or MOAT were easily overrun by bad actors, doing what bad actors do.


So it is MOAT time, where we build a fortified protection from the lawyers, litigators, bad actors and scammers seeking to rob and steal from our client’s family wealth. Now if the Family Provisions Act enables unlimited challenges to an estate, the collapse of many binding death benefit nominations creating havoc for SMSFs and the tying up of discretionary trusts with hacks and attacks by the legal profession – we have to make sure all components of the MOAT are strong, effective and impassable. We want the lawyers and the bad actors to take one look and know that it is too hard for them to expend their energy on this family. Let them put their nose in the air and run to the next family – there are plenty of aggrieved ones out there. And that is the aim of the MOAT, making it too hard and too costly to mount a challenge risking legal fees, resources and coming up empty. No lawyer in their right mind would sign up for that – particularly the “No win – no fee” kind.


Let’s start on the most successful MOAT of all, the structures and strategies built around the Windsor Royal Family and how a bad actor such as Prince Andrew can find himself on the other side of the MOAT with his tail between his legs and no opportunity of a challenge. Once we learn how the best of the best do it, we can copy and tailor how it is done, applying it to our own and our client’s circumstances.


1. The Top Three Differences between a Leading Member SMSF v Standard SMSF

Remember earlier we looked at the Royal Family and how the Queen was the Leading Member of the Windsor Royal family and how she controls and has ultimate power over the Royal family. No legal suits against her by disaffected family members – ask Prince Andrew on that one. Of course, the Queen may abdicate or die and in that event succession is built-in and Leading Membership passes to Prince Charles. But what if Prince Charles is not alive at the time of the Queen’s death? Built-in succession planning sees Prince William step into Leading Membership and if he is not alive – then Prince George becomes the Leading Member and King. Safe – Certain and Secure.


Like the Royal family, a Leading Member SMSF starts with built-in succession and proceeds from there. The desire is to provide safety – certainty and security and prevent legal challenges – building a Moat around the SMSF. Here are my three top differences between a Leading Member SMSF and a standard SMSF:


i) Built-in Control

A standard SMSF has little control. I have seen a fund locked up for years in a divorce, as lawyers to both parties freeze up the trustee and membership. If there is a property in the Fund with an LRBA and neither party wants to contribute into a fighting SMSF, disaster awaits. And upon death, it is worse if the shares in the corporate trustee are locked into the estate which is subject to a Family Provisions Act challenge – that’s a two-year legal feast.


The Leading Member under the deed and constitution, if there is a trustee company, has the power to hire and fire the Trustee or trustees as well as appoint and remove the members of the Fund. If an adult child of the Leading Member is appointed as a member of the fund, that appointment is at the discretion of the Leading Member. If that child gets divorced, then they can be removed from the fund and transferred to an industry super fund. The Leading Member has power of veto over trustee decisions. With all trustees getting one vote, but the Leading Member with the Chairpersons and veto vote, the fund is tightly controlled for safety – certainty and security.


ii) Built-in Succession

There is no succession in a standard SMSF. With 90% of SMSFs one or two members, if one of the trustees is incapacitated or dies, what happens to the Fund. If the last remaining member and trustee of the Fund dies, what happens? Particularly when the deed only allows members to choose a trustee or that only the trustees can choose a trustee. Oops – sorry the fund has no trustee or power to appoint one and thus it is not a regulated super fund under section 19 of SISA . So, what is it? I would advise it is now a non-distributing trust with horrendous estate planning tax consequences..


In setting up a Leading Member SMSF we need to know the first, the successor, the second successor and if possible, the third successor Leading Member. The fund will last for generations to come with extensions to Leading Membership to carry on for as long as the fund. And with the Leading Member asserting control over the fund, the Moat is built.


iii) Protecting the Fund from Family Provisions Litigation

The key to the Royal Family’s success is that everything is kept in the family. In a standard SMSF, there is no such choice. With BDBNs easily challenged, reversionary pensions not effective in many deeds and the desire by estate planning lawyers to shift superannuation to a deceased member’s legal estate then there is built-in Family Provisions litigation which may see dissipation outside the deceased’s bloodline – even in cases of the best lawyers who promote Bloodline Trusts – that can be broken down under estate litigation.


This is not so in a Leading Member SMSF where the members must be direct lineage of the Leading Member (unless the Leading Member uses their discretion to appoint a non-bloodline member). Any benefits on death are to go to the deceased member’s bloodline as protected by the Leading Member. This sees the benefits held up in the Leading Member fund and if need, be paid out to a Leading Member Discretionary Trust rather than pass through the estate. This provides protection from the Family Provisions Act.



2. Building a Leading Member SMSF for Succession Success

We have looked at how a Leading Member SMSF differs from a standard SMSF. For me, the big differences are control, succession and protecting a family’s wealth from the cancer of litigation. With the average SMSF now topping $1.2M a lot of Australian family’s wealth and assets are exposed. But it is never too late to build a Moat around a family and one of the most important steps is to upgrade a SMSF to a Leading Member SMSF.


Now I can give you at least another five or more reasons why a Leading Member SMSF is better than a standard SMSF. But here is the thing, they are not for every SMSF but if your client had a choice on having greater safety, certainty and security, what would they want?

179 views2 comments

2 comentarios


Simon James
Simon James
17 nov 2021

Great ready thanks

Me gusta

This is a great article well done

Me gusta
bottom of page