Balancing Family Involvement with Substance in Offshore Structures

A New Generation of Globally Active Families

At Standard Bank we have been fortunate to work with African families for decades, more than 30 years in the international fiduciary space and over 100 years domestically in South Africa. Over that time, one thing has become increasingly clear, families operating across the continent are becoming more sophisticated, more global, and more commercially aware. Their fiduciary structures frequently span multiple jurisdictions, asset classes, and generations.

Alongside this growing sophistication, a familiar theme has emerged. Trustees and advisers must structure and manage wealth carefully, if estate and succession planning is to remain effective and endure over time.

The Natural Desire to Retain Control

We are frequently approached by both matriarchs and patriarchs to establish family structures. These individuals are often first-generation entrepreneurs, looking to structure self-made wealth, or the second generation working in an already established family business, that has experienced significant growth or a liquidity event.

They will have been pivotal in building a business which has reached a sufficient size, so that it can generate wealth for future generations. They will have built businesses, taken risks, and worked hard to accumulate this wealth and, unsurprisingly, they feel a strong connection to these assets. Often, they wish to remain closely involved in how they are managed.

From a personal and commercial perspective, that instinct makes complete sense. From a legal, tax, and regulatory standpoint, however, this can be problematic, especially when offshore structures are involved.

Residence, Substance and Effective Management Matter

Offshore fiduciary structures, whether trusts or investment companies, should only ever be established following expert bespoke legal and tax advice. This advice should set out, in clear terms, how the structure is to be administered, where decisions must be taken, and who can (and cannot) exercise control.

For professional trustees, adherence to this advice is mandatory, as a failure to adhere to this can result in potentially disastrous consequences, for both the structure and for the family it is intended to protect.

The End of “Control Without Consequence”

As a result, advisers across the continent are now more frequently concluding that settlors need to make a genuine and completed gift into a fiduciary structure, often through an irrevocable discretionary gift, if the planning is to withstand scrutiny.

The era of retaining extensive control while still expecting full tax, asset protection, and succession benefits is, in most cases, consigned to the past.

POEM: Increasing Scrutiny Across African Jurisdictions

The same principles apply in the corporate context. If a company is intended to benefit from being established in a jurisdiction such as Jersey, then real control and effective management must sit in that jurisdiction.

Board decisions, strategy, and oversight cannot simply be exercised from the client’s home jurisdiction without undermining the structure’s integrity. Many jurisdictions across Africa have rules and guidance that support this focus on substance and effective management, although the precise tests and terminology differ by country.

Recent cases and legislative changes across jurisdictions such as Kenya, South Africa, and Nigeria highlight how easily groups can fall foul of Place of Effective Management (POEM) rules when decision-making drifts into local jurisdictions.

When Excessive Control Undermines Protection

Excessive control can weaken the robustness of a structure, leaving it vulnerable to challenge by creditors or authorities. Tax authorities may look through the arrangement entirely, treating the assets as if they were never transferred in the first place or as tax resident in-country.

Asset protection can fall away, regulatory issues may arise, and banking relationships can become strained.

Staying Involved Without Crossing the Line

None of this means that families must be entirely disengaged. There are well established and sensible ways for clients to remain involved without crossing the line. Letters of Wishes, properly defined protector roles, carefully drafted retained powers, and clear governance frameworks all have an important role to play.

Regular meetings with a trustee representative and periodic reviews are essential. A structure is only effective if it evolves with a family’s needs and with legislative or regulatory change.

Common Missteps That Create Long Term Risk

Experience suggests that where problems tend to arise, it is not through bad intent, but rather through familiar and avoidable missteps. These include pushing influence too far, disregarding professional advice, failing to document decision-making properly, or allowing structures to drift without periodic reassessment.

Over time, small incremental compromises can accumulate into material risk.

The Trustee’s Role in Managing Difficult Conversations

For trustees and advisers, managing this dynamic requires more than technical expertise. It requires the confidence to have difficult conversations with settlors and founders who are used to unilateral decision-making.

These are rarely comfortable discussions, but they are essential. Avoiding them does not protect the client or the structure; it merely delays the problem.

Stepping Back to Preserve Wealth Across Generations

Preserving wealth across generations is rarely straightforward. It demands discipline, thoughtful structuring, and a willingness to accept that effective planning sometimes requires stepping back from direct control.

For families who can strike that balance, the rewards in terms of stability, protection, and longevity are considerable.

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