Navigating the End: Winding Up Your Family Trust in Kenya

The legal framework for trusts in Kenya is evolving! With the proposed Trust Administration Bill, 2025, set to potentially repeal existing legislation like the Trustees (Perpetual Succession) Act (Cap 164), understanding how to formally wind up a family trust is crucial for settlors and trustees alike. While the core principles remain rooted in the Trust Deed, the process will likely align with the new dissolution standards for incorporated bodies.

 

1. The Deciding Factor: Is Your Trust Revocable?

The Trust Deed is your trust’s constitution, and its provisions dictate the winding-up pathway. The most critical starting point is determining if the trust is revocable or irrevocable.

Trust Type

Under current Cap 164, Sec 3A – winding-up implication;

1. Revocable Trust (Living Trust) – Contains an express power of revocation in the deed. The settlor can unilaterally revoke by following the Deed’s procedure.
2. Irrevocable Trust – No express power of revocation, or the Settlor is deceased. Cannot be unilaterally revoked; usually requires beneficiary consent or a Court Order.

• Winding up a revocable family trust

If the Trust Deed grants the Settlor the power to end the trust during their lifetime, the following steps are generally required:

1. Written Declaration: The Settlor must execute a formal, legally binding declaration of revocation, explicitly stating the intent to terminate. This declaration must be formally served upon all serving Trustees.
2. Asset Transfer (Defunding): Trustees must promptly transfer all trust assets (property, funds, etc.) back to the settlor or to the designated recipients named in the revocation document.
3. Deregistration & dissolution: File the revocation declaration with the Registrar of the Business Registration Service (BRS) to remove the Deed from the public register.

 

If the trust was incorporated under Cap 164, an additional application for dissolution of the corporate body must be made to the Registrar.

 

• Winding up an irrevocable family trust

Since the settlor cannot simply reclaim the trust, termination typically relies on one of these grounds:

 

1. Termination by Consent

If all beneficiaries meet two conditions:

1. They are of legal age and full mental capacity.
2. They are absolutely entitled to the entire beneficial interest: They can collectively agree to demand termination and immediate distribution, overriding future dates set in the Deed. This requires a legally binding deed of termination and release signed by all.

• Termination under the Trust Deed terms

The trust automatically ends when a predetermined event occurs, such as:

1. Final distribution to the last beneficiary:

• Death of the last person in a specified class (e.g., the last child reaching age 30).

 

• Termination by Court order

The High Court of Kenya can intervene if:

1. The trust’s purpose becomes impossible or illegal.
2. The trust has become impractical or unworkable due to excessive costs.
3. The trust was created through fraudulent means (e.g., to defraud creditors).
4. There are just and equitable grounds, such as severe internal conflict.

 

2. Other key administrative requirements

Regardless of revocability, these aspects must be addressed for a clean dissolution:

 

1. Incorporated Trusts: If your trust gained corporate status under Cap 164, formal corporate dissolution is required in addition to winding up the trust itself. This includes a Trustee resolution and final application to the BRS after all debts are cleared.
2. Role of the Enforcer: If the Deed appointed an Enforcer (to monitor compliance), their formal consent may be necessary to validate the termination, as they are guardians of the trust’s original purpose.
3. Tax & Indemnity Clearance: 

   i.Tax clearance: Trustees must settle all trust tax liabilities (including potential Capital Gains Tax upon asset disposal) and obtain a final certificate from the Kenya Revenue Authority (KRA).ii. Indemnity: Obtaining a Deed of release and indemnity from all beneficiaries is the best practice to shield the trustees from future claims once the assets are distributed.

 

This write-up is designed to provide a foundational understanding of the legal landscape on trust winding-up principles.