Everything About Family Trusts in Kenya

Your Ultimate Guide to Navigating Family Trusts in Kenya

The legal framework for estate planning in Kenya has been significantly modernized to provide families with a secure and tax-efficient way to manage their wealth across generations. By utilizing a registered family trust, individuals can ensure their assets are professionally managed and protected.

What is a Family Trust?

A family trust is defined as a trust—whether created during one’s lifetime (inter vivos) or through a will (testamentary)—that is registered or incorporated for the purpose of planning or managing a personal estate. These trusts are categorized as non-trading entities intended for the preservation or creation of wealth for generations. A family trust remains legally valid even if the individual who creates it (the settlor) is also named as a beneficiary.

The Power of Incorporation

Under the Trustees (Perpetual Succession) Act, trustees can apply to the Registrar for a certificate of incorporation. This process grants the trust several unique legal advantages:

• Body Corporate Status: Once incorporated, the trustees become a body corporate with perpetual succession and a common seal. This means the trust exists independently of its individual trustees and does not end upon their death or retirement.
• Corporate Power: The trust can sue and be sued, and hold, acquire, or transfer movable and immovable property in its own corporate name.
• Automatic Vesting: The certificate of incorporation automatically vests in the body corporate all property and interests previously held for the benefit of the trust.

Ensuring Accountability: The Enforcer

Kenyan law allows for the appointment of an enforcer to monitor the administration of the trust. The enforcer’s role is to ensure the trustees fulfill their duties according to the trust deed and to inquire into the status of the trust’s implementation. To maintain independent oversight, a person cannot perform both the functions of an enforcer and a trustee.

Broad Trustee Powers

Trustees are granted extensive powers to manage assets effectively under the Trustee Act:

• Investment Authority: Trustees may invest trust funds in authorized investments, including government securities, shares of companies listed on the Nairobi Securities Exchange, and immovable property.
• Advancement for Beneficiaries: Trustees have the discretion to pay or apply up to one-half of a beneficiary’s presumptive share for their advancement or benefit, such as for education or career development.
• Maintenance: They are empowered to apply trust income for the maintenance and education of minor beneficiaries.

Significant Tax Incentives

To encourage long-term wealth preservation, the Kenyan government provides substantial tax reliefs for registered family trusts:

• Stamp Duty Exemptions: The trust deed and certificate of incorporation are exempt from stamp duty. Furthermore, the voluntary transfer of property (such as land or shares) into a registered family trust is exempt from duty.
• Capital Gains Tax (CGT) Relief: Transfers of property, including investment shares and land, into a registered family trust for the purpose of vesting title are exempt from CGT.
• Income Tax Treatment: The principal sum (corpus)of a registered family trust is exempt from tax.

How to Register a Family Trust

Setting up a family trust involves a structured legal process:

1. Trust Deed: A constitutional document must be drafted, detailing the objects, trustees, and beneficiaries.
2. Application: An application for incorporation is submitted to the Registrar, including a statement of the initial assets to be held by the trust.
3. Required Documentation: This includes copies of IDs/passports, passport photos, and KRA PIN certificates for all settlors, trustees, and enforcers.
4. Timeline: The Registrar is required to grant or reject the application within 60 days of receipt.

By utilizing these legal provisions, Kenyan families can protect their assets from fragmentation and ensure they are managed for the benefit of future generations within a favorable tax environment.

Disclaimer: This article provides general information only and does not constitute legal or tax advice. Laws are complex and subject to change. Always consult qualified professionals for advice specific to your situation.