A Trust is a legal arrangement where a person, known as the Settlor (or Founder/Grantor/Donor), transfers ownership of assets (Trust Property) to Trustees. The Trustees manage these assets for the benefit of designated third parties, the Beneficiaries. This relationship is formalized through a written document called a Trust Deed, which details the duties and powers of the Trustee, the trust property, and the parties involved.
In essence, a trust ensures that assets such as land, businesses, investments, and money are preserved, managed, and distributed according to the Settlor’s instructions, both during their lifetime and after death.
In Kenya, trusts are governed under the Trustees (Perpetual Succession) Act (Cap. 164 of the Laws of Kenya).
KEY PARTIES TO A TRUST
- Settlor/Grantor/Founder/Donor: The individual creating the trust or transferring their property to it.
- Trustee: The individual appointed to hold and manage the property for the benefit of the third party (the Beneficiary).
- Corporate Trustee: A company that acts as the trustee of a trust.
- Trust Property/Trust Fund: Any asset transferred or added to the trust by the Settlor, such as land, cash, shares, or vehicles. During and after registration, the Settlor can transfer property to which they are beneficially entitled, even if the property is not yet legally in their name.
- Beneficiary: The third party who receives the benefit of the property transferred, such as children, spouses, or grandchildren.
- Trust Deed: The document that sets out the terms, powers, responsibilities, and goals of the trust. It outlines the conditions of the trust and manages the operation and assets within it.
- Trust Enforcer: While not mandatory, the introduction of this role in the Amendment Act helps to guarantee transparency and accountability in the management of the trust.
THE BENEFITS AND SECRETS OF CREATING A TRUST
Family trusts offer several compelling advantages for wealth preservation and estate planning:
- Wealth protection and preservation: A trust ensures that assets, including homes, rental properties, investments, and savings, are shielded from risks such as creditors or poor management. This keeps them secure and whole for the long term.
- Estate planning: Trusts facilitate a smooth transfer of assets to heirs, reducing potential family and court disputes over succession. Clear instructions are provided on asset distribution. Upon transfer, the Settlor ceases to be the legal owner, and the Trustees become the legal owners, while the Beneficiaries are the beneficial owners.
- Bypasses the inheritance/succession process: Placing assets in a family trust allows beneficiaries to avoid the lengthy and expensive legal process of probate in court. This protects the assets from potential challenges to the inheritance.
- Confidentiality and privacy: Unlike a will, whose contents become public during probate, a trust keeps your financial affairs confidential. This is a vital benefit for families who value discretion.
- Flexibility and control: Trusts provide a greater degree of customization. The creator can decide exactly how and when beneficiaries receive their share—for example, requiring them to finish college or reach a specific age before receiving their full inheritance.
- Continuity and stability: A family trust provides a clear plan for the future of a family business. It ensures the business and its assets are managed without interruption, allowing the family legacy to continue, even in the Settlor’s absence.
- Tax efficiency: The Finance Act provides that any money given by a tax-exempt organization (which a qualifying trust can be) is free from tax.
- Foreign ownership benefits (Kenya): In Kenya, where a non-Kenyan generally cannot own land outright, a trust can legally hold the land for them, offering a way to own property while complying with the law.
TYPES OF TRUSTS IN KENYA
Trusts can be structured in several ways to meet specific goals:
- Revocable trusts: Can be changed, amended, or revoked by the Settlor.
- Irrevocable trusts: Cannot be altered once established, offering stronger asset protection. The Settlor loses access and control over the assets once they are transferred, as the assets become trust-owned.
- Discretionary trusts: Give the Trustees the power to decide how and when to distribute assets to Beneficiaries.
- Protective trusts: Structured to safeguard vulnerable beneficiaries, such as minors or dependents with disabilities.
- Testamentary trusts: A trust that arises upon the death of the Settlor and is enforced after their passing, often established via a will.
- Blind trust: A trust where only the Trustee knows its existence, and the Beneficiaries have no knowledge of the trust and no right to intervene.
- Open trusts: Beneficiaries are fully aware of the trust and can hold the Trustees accountable.
- Marital trust: Dictates that trust assets automatically pass to a surviving spouse after the death of the first spouse. Once both spouses pass on, the assets are administered for the benefit of the designated beneficiaries.
COMMON ASSETS PLACED IN FAMILY TRUSTS
A wide range of assets can be transferred to a family trust for management and protection:
- Land and real estate
- Business shares
- Rental income
- Cash, stocks, or investments
- Family heirlooms (jewelry, ornaments, Bibles)
- Intellectual property (patents, copyrights, logos, trademarks)
Secure your family’s financial future today. Contact us at info@kenbizregistrars.com for a personalized consultation on establishing your family trust and preserving your legacy.
