PART III: FAMILY TRUSTS IN KENYA
On this last installment on our 3-part series on Family Trusts in Kenya, we delve into the commonly asked questions that we have received from our readers since the inception of the series:
In a snapshot, what does the process of setting up a Trust involve & the applicable timelines?
| Steps | Timelines | |
| 1. | Preparation of Trust Deed | |
| 2. | Payment of stamp duty | |
| 3. | Registration under the Registration of Documents Act | 2-3 weeks |
| 4. | Incorporation under the Perpetual Succession Act | 7-10 months |
How is a family trust different from other forms of trust and what are the benefits?
A family trust mainly differs from other forms of trust in that; in addition to performing the usual functions of a trust, a family trust could act as a tool of succession.
Can a non-related person/illegitimate child/company be a beneficiary of a Family Trust? Can they be removed as beneficiaries?
Yes. Catering to such unique challenges that may arise out of creating a family trust is paramount. Through the Trust Deed, the Settlor may provide for the addition or exclusion of persons eligible to be beneficiaries of the Trust and also impose obligations or conditions on the beneficiaries.
What is the difference between a Settlor, Trustee and Beneficiary?
- Settlor/donor- this is the originator of the Trust who creates it by transferring his/her property to the Trustees.
- Trustee- this is the legal person who receives the assets transferred by the Settlor and is required to administer the assets for the benefit of the beneficiaries.
- Beneficiaries- the persons for whose benefit the Trust is created.
Can a Settlor be a Trustee or Beneficiary?
There is no legal provision restricting a Settlor from being either a Trustee or a Beneficiary of a Family Trust.
Once the Trust is incorporated, how do I transfer my property to the trust?
Subject to the conditions and directions contained in the Certificate of Incorporation, a Family Trust is empowered to hold & acquire, and by instruments under the Common Seal, to convey, transfer, assign, charge and demise any movable or immovable property .
I am a beneficiary of property which I would like to add to my Family Trust. Is this possible considering the property is not legally registered in my name?
A Settlor, during and after registration of a Trust, can add property to which they are beneficially entitled. This means property that is not legally in your name can be transferred to a Family Trust provided one is beneficially entitled to it.
What kind of property can be added to a Trust?
Any property from the Settlor or any person or entity can be added to a Trust, including land, shares, cash, art work, vehicles, etc.
If upon my demise, I have accrued debts that cannot be fully satisfied by my estate, could my creditors attach the property in my family trust?
This depends with the kind of trust that you have set up. A Family Trust could be:
- Irrevocable Living Trust- under this type of trust, the Settlor cannot make any changes to the terms of the Trust nor is s/he considered the owner of the property vested in the Trust, which provided extra protection against creditors.
- Revocable Living Trust- under this type of trust the terms of the Trust can be changed during the Settlor’s lifetime. However, the trust property is still considered his/hers and therefore vulnerable to creditors. Additionally, since as the Settlor you are considered the owner of the Trust property at the time of death, the value of the Trust property may be subject to probate proceedings.
What are the tax exemptions enjoyed by Family Trusts in Kenya?
- On transfer of properties into a registered Family Trust- stamp duties & Capital Gains Tax (CGT).
- On income earned by a registered Family Trust- income tax & Capital Gains Tax.
- A payout to a beneficiary not exceeding Kshs 10 Million in a given year.
- A payout to a beneficiary where it is used exclusively for the purpose of education, medical treatment and early adulthood housing.
Can a Family Trust engage in trading activities?
The Trustee (Perpetual Succession) (Amendment) Act, 2021 provides that family trusts are strictly not for trading purposes.
How then can a Family Trust engage in income-generating/investment activities for the beneficiaries’ benefit?
A Family Trust can engage in trading activities by incorporating companies wholly or partly owned by the Family Trust, separate from the Trust itself.
What is the cost of setting up a Family Trust?
Please feel free to reach us on info@mmsadvocates.co.ke for more details.
By: Maureen Mutai & Peter Mwenda.