Securing a family’s legacy goes beyond a simple will. It requires understanding the specific legal framework that makes a Family Trust effective in Kenya. This article outlines the six essential Kenyan statutes that govern asset protection, succession, and taxation for your trust.
a) The Trustees (Perpetual Succession) Act (Cap 164): This law is about giving the trust an official, long life. Key benefits of its incorporation include:
- the trustees is incorporated/ registered as a legal body). Once incorporated, the trust itself can own property, sign contracts, and sue or be sued in its own name. It ensures a simplified asset management as assets are registered in or transferred to the incorporated Trustees name and don’t remain in the individual trustees’ names.
- The trust’s existence is uninterrupted: This ensures the trust continues indefinitely (perpetual succession), even if the individual trustees resign, becomes incapacitated or pass away. New Trustees are simply appointed, but the trust’s legal status and ownership of assets remain unchanged.
- Protection from succession and probate: Assets are held by the legally incorporated trust, not by the individual family members (settlor or trustees). This Avoids court battles. Upon the death of the settlor or a trustee, the assets in the trust do not form part of their personal estate. This means the trust assets bypass the often lengthy, costly, and public process of probate (succession case). Wealth transfer to the next generation is smooth and immediate.
- Stronger asset protection: Since the incorporated trust legally owns the assets, those assets are typically shielded from the personal risks of the settlor or trustees for example, creditors, bankruptcy claims, or personal divorce settlement. It secures the family wealth for the intended beneficiaries.
b) The Registration of Documents Act (Cap 285): This is the starting point for making the trust public and legal. It requires the Trust Deed (the master document that sets up all the rules for the trust) to be officially registered. Registering the Deed ensures it is on public record and legally recognized by the authorities.
c) The Income Tax Act & Tax Procedures Act: This law dictates the financial relationship between the trust and the government. It specifies how the income earned by the trust’s assets will be taxed and how money distributed to the beneficiaries will be taxed. Importantly, recent amendments under this Act provide key tax exemptions (for example, on certain education or medical payments) for registered family trusts in relation to Stamp Duty and CGT
d) The Trusts of Land Act, Cap 290: If the family trust holds land, this law kicks in. It governs how trustees manage and deal with land held in the trust. It ensures that land transactions, such as buying, selling, or leasing trust property, are done correctly and align with the terms of the trust and land laws.
e) The Law of Succession Act, Cap 160: This law ensures that the trust works smoothly with inheritance rules. It governs how an individual’s estate is distributed
upon their death. While a living trust is set up to avoid the probate process of this Act, any assets not put into the trust will be governed by this law. For Testamentary Trusts (trusts created within a will), this Act provides the overall framework for their creation and execution after the settlor passes away.
This article is your starting point. For an in-depth, customized analysis of your family’s wealth structuring, please contact info@kenbizregistrars.com for a consultation.
