Traditionally, wills have been the primary estate planning instrument in Kenya. However, in recent years, family trusts have gained significant traction as an effective alternative, offering flexibility, confidentiality, and tax efficiencies that wills cannot always guarantee.
A Family trust is a non-trading entity that is established by any person either alone or jointly with others to manage or preserve their personal estate.
Legal Framework
Family trusts are primarily governed by the Trustees (Perpetual Succession) Act, Cap. 164, as amended by the Trustees (Perpetual Succession) (Amendment) Act, 2021. Testamentary trusts, however, fall under the Law of Succession Act (Cap. 160), becoming effective upon conclusion of probate proceedings.
Types of Family Trusts
- Living Trusts – Created during the settlor’s lifetime, and are either:
- Revocable: subject to amendment or revocation.
- Irrevocable: not subject to amendment once established, with the settlor relinquishing control over the trust property.
- Testamentary Trusts – Created through a will, effective only upon the testator’s death and after probate.
Benefits of Family Trusts
- Wealth Preservation: Ensures intergenerational transfer of assets without dissipation.
- Estate Planning Efficiency: Circumvents lengthy probate proceedings.
- Tax Incentives: Exemptions under the Income Tax Act and Stamp Duty Act, including relief from Capital Gains Tax and Stamp Duty upon transfer to a registered family trust.
- Confidentiality: Unlike wills, trusts remain private instruments.
- Protection of Vulnerable Beneficiaries: Trustees may hold and manage assets for minors, persons with disabilities, or spendthrift beneficiaries.
Registration and Incorporation
The process entails:
- Drafting and executing a trust deed;
- Stamping the deed under the Stamp Duty Act (Cap. 480);
- Registering under the Registration of Documents Act (Cap. 285);
- Incorporating the trust under the Trustees (Perpetual Succession) Act via the Business Registration Service (BRS).
Upon incorporation, trustees acquire corporate personality, enabling the trust to own property, sue, and be sued in its name, with perpetual succession.
Conclusion
Family trusts provide a robust, flexible, and private framework for estate planning, going beyond the limitations of wills. As statutory recognition of trusts continues to evolve, they remain a critical tool for safeguarding wealth, protecting vulnerable beneficiaries, and ensuring orderly succession in Kenya.
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