What is a Trust?
A trust is a legal arrangement where assets are transferred by a settlor (the person creating the trust) to a trustee, who holds and manages these assets on behalf of beneficiaries. The trustee manages the trust according to the terms outlined in a trust deed, ensuring the assets are used for the intended purpose.
Trusts are often used to preserve wealth, manage assets across generations, support dependents, or fund specific causes such as education, healthcare, or charitable activities.
What is a Family Trust?
A Family Trust is a specific type of trust fund set up to manage and protect a family’s assets. In Kenya, a family trust can include property, shares, cash, businesses, or other valuable assets, and is designed to benefit family members often across multiple generations.
Family trusts are becoming increasingly popular in Kenya for succession planning, wealth preservation, and estate management, especially among high net worth individuals and business owners.
Key Elements of a Trust in Kenya
- Settlor: The person who establishes the trust and transfers the assets.
- Trustee(s): Individuals or institutions appointed to manage the trust. They must act in the best interest of the beneficiaries.
- Beneficiaries: The individuals or groups who are entitled to benefit from the trust.
- Trust Deed: A legal document that outlines the rules of the trust, including its objectives, duration, powers of the trustees, and how assets should be managed or distributed.
Purposes of Trust Funds in Kenya
- Succession Planning: Avoiding probate, especially in complex estates.
- Wealth Preservation: Protecting assets from misuse, mismanagement, or external claims.
- Tax Efficiency: Structuring wealth in a way that may reduce estate and income tax burdens.
- Support for Minors or Dependents: Ensuring financial security for children, spouses, or vulnerable dependents.
- Charitable Giving: Funding philanthropic initiatives in a structured and long-term manner.
Legal Framework in Kenya
As of the enactment of The Trustees (Perpetual Succession) (Amendment) Act, 2021, and the Finance Act, 2021, Kenya now formally recognizes family trusts as legal persons. This development has enhanced the credibility and enforceability of trusts in Kenya.
Key legal points:
- Trusts can now be registered and issued with a certificate of incorporation.
- A family trust can own property, sue or be sued in its own name.
- Trusts can be perpetual or have a defined duration.
- The Kenya Revenue Authority (KRA) recognizes trusts for tax purposes, and there may be exemptions depending on the trust’s structure and purpose.
Types of Trusts in Kenya
- Discretionary Trusts: Trustees have the power to decide how and when to distribute assets.
- Fixed Trusts: Beneficiaries and their entitlements are clearly defined.
- Charitable Trusts: Set up to fund charitable causes, often registered under the NGO Coordination Board.
- Living Trusts: Established during the settlor’s lifetime and can take effect immediately.
- Testamentary Trusts: Created through a will and activated upon the settlor’s death.
Benefits of Setting Up a Family Trust in Kenya
- Avoids Succession Disputes: Helps to clearly allocate assets and minimize family conflicts.
- Bypasses Probate: Assets in a trust do not go through the court-based succession process.
- Asset Protection: Shields assets from creditors, lawsuits, or marital disputes.
- Business Continuity: Allows for structured succession of family businesses.
- Confidentiality: Trusts are private instruments and not subject to public disclosure like wills.
Setting Up a Trust in Kenya
Steps involved:
- Identify the purpose and structure of the trust.
- Draft a comprehensive trust deed with the help of a lawyer or corporate institution.
- Appoint qualified trustees (can include corporate trustees).
- Transfer assets into the trust.
- Register the trust with the Ministry of Lands & Physical Planning (Directorate of Land and Trusts), and optionally with KRA for tax compliance.
Challenges and Considerations
- Trustee accountability is critical; poor management can lead to loss or misappropriation of assets.
- Legal and tax compliance must be maintained, including annual returns and proper documentation.
- Initial setup and maintenance costs may be significant, especially with professional trustees or complex assets.
- Evolving legislation requires keeping up to date with regulatory changes.
Conclusion
Trust funds and family trusts in Kenya offer an effective legal mechanism for wealth management, succession planning, and long-term financial security. With recent legal reforms, trusts are now more accessible and reliable for individuals, families, and businesses looking to protect their legacy. Working with experienced legal and financial advisors is essential to set up a trust that meets both legal requirements and family objectives.