Family trusts are a versatile and effective financial planning tool. Their purpose is to preserve and manage family wealth, protect assets, and achieve specific financial objectives. These trusts are structured legal entities, established to hold and manage assets for the benefit of family members or other beneficiaries.
In this article, we will explore what family trusts are, who they are for, how to create one, and the ultimate goals of establishing a family trust. We will also delve into the relevant legal framework and the procedures for registering a trust in Kenya.
What is a Family Trust?
A family trust, often referred to as a living trust or revocable trust, is a legal entity created to hold and manage assets for the benefit of family members or other designated beneficiaries.
Family trusts are designed to provide flexibility, control, and privacy when it comes to managing assets, avoiding probate, and ensuring a smooth transition of wealth between generations.
Who are Family Trusts For?
Family trusts are suitable for a wide range of individuals and families, including:
High-net-worth individuals: Those with substantial assets who want to preserve and protect their wealth for their present family and future generations.
Business owners: Business owners often use family trusts to safeguard their business interests and provide for the financial security of their family members.
Parents and grandparents: Individuals who want to ensure provision for their children’s or grandchildren's financial well-being and education, can establish family trusts.
Individuals with complex financial situations: People with complex financial portfolios may use family trusts to manage and distribute their assets efficiently.
The End Goal of a Family Trust
The primary end goal of establishing a family trust is to provide for the financial well-being and security of family members and other beneficiaries well into the future. Family trusts can achieve several specific objectives, including:
Asset Protection: Protecting family wealth from potential creditors, lawsuits, or claims against the estate.
Estate Planning: Efficiently transferring assets to heirs and beneficiaries, often without going through the probate process.
Privacy: Keeping asset distribution and financial details within the family and out of the public record.
Continuity: Ensuring that wealth is managed and preserved across generations, even in the event of the settlor's incapacity or death.
Tax Efficiency: Utilising trust structures to minimise tax liabilities and enhance the financial benefits to beneficiaries.
Specific Beneficiary Support: Providing for beneficiaries' education, medical expenses, or other specific needs in a controlled and structured manner.
Procedure for Registering a Trust in Kenya
Preparation of a Trust Deed
A trust deed is an instrument that contains the terms and conditions that governs the relationship between the settlor, trustees and beneficiaries in the management and control of the assets. It gives the trustee the power to carry out the wishes of the settlor. The trust deed should include the following information:
The names of the grantor/settlor (the person creating the trust), trustee, and beneficiaries
The assets and properties being placed in the trust.
The powers and duties of the trustee.
The terms and conditions for the distribution of assets or gains to beneficiaries.
The provisions for amending or revoking the trust, if necessary.
Drafting a trust deed is best done with the aid of a legal professional. In this way, you can cover all necessary legal eventualities and ensure your trust is drafted and registered in strict adherence to the law.
The trust deed should be signed and executed by both the settlor(s) and the trustee(s). The execution by both parties provides clear evidence of the intentions of both parties and of the agreed obligations assumed by the trustee.
Registration under the Registration of Documents Act (Cap 285, Laws of Kenya).
Upon preparation and execution of a trust deed, the next step entails making an application for registration of the Trust Deed under Registration of Documents Act (Cap 285, Laws of Kenya) at the Lands Registry.
The process of registration under the Registration of Documents Act takes one (1) to three (3) weeks from the date of application for registration. Once registered under this Act, the trust does not have a legal personality of its own. In order for the Trust to have a legal personality of its own, it has to be incorporated pursuant to the Trustees (Perpetual Succession) Act (Cap 164).
Registration under the Trustees (Perpetual Succession) Act (Cap 164, Laws of Kenya).
The process of incorporation of a trust under this Act is as detailed hereunder;
Pursuant to section 3 of The Trustee (Perpetual Succession) (Amendment) Act, 2021 an application for the incorporation of a registered trust shall be in writing and shall be accompanied by the following documents;
Duly registered Trust Deed and Constitution;
Petition (should be commissioned);
Diagrammatic representation of the common seal;
Abstract of minutes appointing the trustees;
Organization’s current financial status such as bank statements;
Statement of donor funding/commitment;
Curriculum vitae of trustees (for individual trustees);
Brief summary of the Trust;
Certified copies of Identity Card and KRA Pin (for individual trustees);
Certified copies of Registration Certificate and KRA Pin (for corporate trustees); and
Any other relevant document.
The Principal Registrar shall within sixty (60) days of receipt of the application for incorporation of a registered trust, approve or reject the application.
Upon incorporation, the trustees shall become a body corporate and shall have perpetual succession and a common seal, power to sue and be sued in their corporate name and may hold any movable or immovable property that may be vested in them by way of purchase, acquisition, donation, gift or other assurance.
Are You In Need of a Family Trust?
Family trusts are valuable tools for preserving and managing family wealth, protecting assets, and achieving specific financial objectives in Kenya. By understanding what family trusts are, who they are for, how to create one, and the ultimate goals of establishing a family trust, individuals can effectively manage their financial affairs and provide for their loved ones.
We at MNM Law Group are well versed in the entire process of setting up and operationalising trusts. If you are currently looking at setting up one for your family, then don’t hesitate to get in touch with us.