Family Trusts in Kenya: A Practical Guide

Family trusts have become a recognized and increasingly popular tool in Kenya since the 2021 amendments to the Trustees (Perpetual Succession) Act. They offer a structured way to manage and preserve your assets for future generations. Let's break down what you need to know:

What is a Family Trust?

A family trust is a legal arrangement designed to protect and grow wealth for your family. It's a non-trading entity, meaning it's not meant for running a business. Instead, it focuses on long-term wealth preservation. When you create a trust (as the "settlor"), you transfer ownership of your assets to trustees, who manage those assets for the benefit of your chosen beneficiaries.

Types of Family Trusts:

There are two main types:

• Testamentary Trusts: These are created according to the instructions in your will and only come into effect after death and the completion of probate. While they offer the benefit of long-term wealth preservation, they still require going through the probate process.

  
  

• Living Trusts: These are established and become active during your lifetime. They can be either revocable (you can change or cancel the trust) or irrevocable (you can't). The key difference is that with a revocable trust, you are still considered the owner of the assets, while with an irrevocable trust, you are not.

Beneficiaries:

A beneficiary of a trust is any person who is designated to receive benefits from the trust. The great thing about family trusts is their flexibility. Beneficiaries can include family members, companies, charities, and even yourself (the settlor). You can also set conditions for how and when beneficiaries receive funds, such as reaching a certain age. You can even add or remove beneficiaries later on, depending on the terms of the trust.

Trust Property:

You can put virtually any type of property into a trust – land, cash, stocks, vehicles, etc. Even property you're entitled to but isn't legally in your name can be added. Transferring different types of assets into a trust can involve various legal procedures and documentation. A lawyer can ensure the transfers are done correctly, complying with all legal requirements and avoiding potential issues with titles or ownership.

Trust Enforcer:

One of the changes that came about to trust law in Kenya recently was the addition of the enforcer. While not mandatory, having a trust enforcer adds a layer of oversight. This person monitors the trustee's actions and ensures they're managing the trust according to the trust deed. The enforcer can step in if there are any financial breaches or mismanagement.

The role of the enforcer is crucial for ensuring accountability and transparency. A lawyer can help you define the enforcer's powers and responsibilities in the trust deed, ensuring they have the necessary authority to protect the beneficiaries' interests.

Registration Process:

Trusts are registered with the Principal Registrar of Documents. The goal is to complete the registration process within 60-90 days, a significant improvement over previous timelines. However, it should be noted that this is the ideal that we are working towards. Typically, this process could take up to a year. The process involves preparing the trust deed, paying stamp duty, and registering the trust. Incorporation under the Perpetual Succession Act follows registration. Post-incorporation, the trust becomes a body corporate, able to own property, enter contracts, and sue or be sued.

Taxation:

One of the most attractive aspects of family trusts is the tax benefits. There are exemptions from stamp duty and capital gains tax on property transfers into a registered family trust. Income earned by the trust may also be tax-exempt, especially if it's distributed to beneficiaries for education, medical treatment, or housing (up to certain limits).

In Conclusion:

The updated trust laws are a big win for Kenyans, especially for families. They make trusts clearer, easier to use, and offer some valuable benefits.  If you're thinking about how to best manage your wealth and plan for your family's future, a trust is worth considering. Family trusts offer a powerful tool for managing and preserving wealth for future generations.

However, setting up and administering a trust involves various legal and financial considerations. Consulting with a qualified lawyer is essential to ensure your trust is properly structured, legally sound, and achieves your desired objectives. We can provide expert guidance on all aspects of the process, from determining which type of trust best suits your needs, defining beneficiaries and setting conditions for distributions, drafting the trust deed to navigating the complex registration process.

Reach out to us today on achieng@aga-advocates.com for a free consultation to discuss your options.

Important Note: This information is provided as a general overview and does not constitute legal advice to you. To get advice that is tailored to your specific situation and learn more about how your family can benefit from a trust or other estate planning tools, please contact us.