OLM KNOWLEDGE · LEGAL GUIDE

How to set up a family trust in Kenya: legal requirements, tax benefits and practical steps

A family trust is one of the most effective tools for protecting wealth across generations in Kenya. Since the 2021 reforms gave trusts body corporate status and significant tax exemptions, more Kenyan families are using them to ring-fence property, plan for succession and reduce the tax cost of passing assets to the next generation. This guide explains how a family trust works under Kenyan law, the steps to create one, and the tax advantages it offers.

By John Maina, Partner, OLM Law Advocates LLP. Advocate of the High Court of Kenya.

Who this guide is for

This guide is for anyone considering setting up a family trust in Kenya — whether you are a parent planning how to pass land and investments to your children, a business owner looking to separate personal assets from business risk, or a professional advising a client on estate planning. It sits alongside our guides to trusts in Kenya, buying land and title transfer, and real estate and property law.

What a family trust is

A family trust is a legal arrangement under which one person (the settlor) transfers ownership of assets to one or more trustees, who hold and manage those assets for the benefit of named family members (the beneficiaries). The terms of the arrangement are set out in a written document called the trust deed. Once the assets are transferred into the trust, they belong to the trust — not to the settlor, not to the trustees personally, and not yet to the beneficiaries. The trustees manage the assets according to the trust deed and must act in the best interests of the beneficiaries at all times.

Kenyan law recognises four categories of trust under the Trustees (Perpetual Succession) Act as amended in 2021: charitable trusts (section 3B), non-charitable purpose trusts (section 3C), family trusts (section 3D), and discretionary trusts. A family trust is specifically defined as a trust established for the benefit of persons who are related to the settlor by blood, marriage or adoption.

How a family trust differs from a discretionary trust

A discretionary trust gives the trustees wide power to decide how much each beneficiary receives and when. A family trust can be either fixed (each beneficiary’s share is stated in the deed) or discretionary (the trustees allocate based on need), but the defining feature is that the beneficiaries must be family members. Many Kenyan families opt for a discretionary family trust because it gives trustees the flexibility to respond to changing circumstances — for instance, directing more support to a beneficiary who is still in school while another is already earning.

Why set up a family trust in Kenya

Asset protection

Once property is transferred into a family trust, it is no longer part of the settlor’s personal estate. This means it cannot be seized by the settlor’s creditors, divided in a divorce settlement, or attached by a judgment creditor. For business owners, this separation between personal wealth and business risk is particularly valuable. If the business fails, the family home, investments and other assets held in the trust are protected.

Succession without probate

When a person dies in Kenya, their estate must go through a succession cause in court before it can be distributed. This process routinely takes 12 to 24 months and often much longer when relatives dispute the distribution. A family trust avoids this entirely. The trust assets do not form part of the deceased’s estate, so the trustees continue to manage and distribute them according to the trust deed without any court process. The beneficiaries can access funds for school fees, medical bills or living expenses without interruption.

Tax efficiency

The Finance Act 2021 introduced significant tax advantages for family trusts, making them one of the most tax-efficient vehicles for intergenerational wealth transfer in Kenya. Transfers of property into a family trust are exempt from both stamp duty and capital gains tax. Distributions to beneficiaries for qualifying purposes attract no income tax up to KES 10 million per year. The detail of these exemptions is set out in the tax benefits section below.

Privacy

Unlike a will, which becomes a public document once it is admitted to probate, the terms of a family trust deed remain private. Only the trust’s existence (not its terms) is on the public register. This is important for families that prefer to keep the details of their wealth and its distribution out of public view.

Continuity for family businesses

A family trust can hold shares in a family company. This prevents the fragmentation that occurs when shares are inherited by several children, some of whom may want to sell while others want to continue the business. The trust holds the shares as a single block, the trustees vote as a unit, and distributions are made according to the deed rather than according to each beneficiary’s individual wishes.

The legal framework

The law governing family trusts in Kenya comes from three principal statutes. The Trustees Act (Cap 167) sets out the general duties and powers of trustees, including the duty to act in good faith, the power to invest trust assets, and the standard of care expected. The Trustees (Perpetual Succession) Act (Cap 164), as substantially amended in 2021, provides for the registration and regulation of trusts and gives them legal personality. The Finance Act 2021 introduced the tax exemptions that make family trusts attractive for wealth planning.

In addition, the Stamp Duty Act (Cap 480) and the Income Tax Act (Cap 470) contain the specific provisions that exempt family trust transfers from stamp duty, capital gains tax and (in certain cases) income tax. These are discussed in detail below.

What the 2021 reforms changed

Before 2021, Kenyan trusts operated under a dated legal framework that gave them no separate legal personality and offered little regulatory clarity. The Trustees (Perpetual Succession) (Amendment) Act 2021 transformed the landscape. The most important changes were:

How to set up a family trust in Kenya

Setting up a family trust involves several steps, each of which must be done correctly to ensure the trust is legally valid and effective.

Step 1: Define the objectives

Before instructing a lawyer, the settlor should be clear about what the trust is meant to achieve. Common objectives include protecting a family home, providing for children’s education, holding shares in a family business, or ensuring a surviving spouse has income for life. The objectives shape every decision that follows — the type of trust, the choice of trustees, and the terms of the deed.

Step 2: Identify the trust property

The settlor must decide which assets to transfer into the trust. These can include land, buildings, shares, bank deposits, motor vehicles, or any other property capable of being owned. Each asset must be specifically described in the trust deed. For land, this means the title number and description from the land register. For shares, the company name and number of shares.

Step 3: Choose the beneficiaries

The beneficiaries must be persons related to the settlor by blood, marriage or adoption. The trust deed should name them individually or describe them as a class (for example, “all my children and their descendants”). It should also set out what each beneficiary is entitled to — whether a fixed share or a discretionary entitlement determined by the trustees.

Step 4: Appoint the trustees and enforcer

The trust must have at least two trustees. The settlor may be one of them but should not be the sole trustee. The trust must also appoint an enforcer. The practical considerations for choosing these roles are discussed in the choosing trustees and enforcer sections below.

Step 5: Draft and execute the trust deed

The trust deed is the constitution of the trust. It must be drafted by an advocate and should cover all the matters set out in the trust deed section below. The deed is executed by the settlor, the trustees and the enforcer in the presence of witnesses.

Step 6: Register the trust

The executed trust deed must be lodged with the Principal Registrar of Documents within 60 days. On registration, the trust is issued a certificate of registration and acquires body corporate status. The registration fee is prescribed by regulation.

Step 7: Transfer the assets

After registration, the settlor transfers the identified assets into the trust’s name. For land, this means executing a transfer form and registering it at the relevant Land Registry. For shares, it means executing a share transfer form and updating the company’s register of members. These transfers are exempt from stamp duty and capital gains tax (see tax benefits below).

What the trust deed should cover

The trust deed is the most important document. A well-drafted deed should address, at a minimum:

• The parties. The full names, ID numbers and addresses of the settlor, each trustee, the enforcer, and each named beneficiary.
• The trust property. A specific description of each asset being settled into the trust.
• The trust objectives. A statement of the purposes for which the trust is established.
• Beneficiary entitlements. Whether fixed or discretionary, and any conditions (such as reaching a certain age).
• Powers of the trustees. What the trustees can and cannot do — investment powers, power to sell and reinvest, power to distribute income and capital, power to appoint agents.
• The enforcer’s powers. The scope of the enforcer’s oversight role and the circumstances in which they may apply to court.
• Succession of trustees. How new trustees are appointed and retiring or deceased trustees are replaced.
• Amendment and revocation. Whether the deed can be amended, and by whom. If the settlor wishes to retain the power to revoke, this must be expressly stated; otherwise the trust is irrevocable by default.
• Governing law and disputes. A clause confirming Kenyan law applies and setting out how disputes are to be resolved (typically by arbitration or referral to the High Court).

Choosing trustees

The choice of trustees is critical. The trustees will manage the trust property, make investment decisions, and determine (in a discretionary trust) how much each beneficiary receives. Kenyan law requires at least two trustees. In practice, families often appoint three: two family members and one independent professional such as a lawyer or accountant.

A good trustee should be someone the settlor trusts completely, who understands financial matters, and who is likely to outlive the settlor (or at least serve for a significant period). The settlor can serve as a trustee, and often does, but appointing the settlor as the sole trustee defeats the purpose of the trust and can be challenged as a sham.

Consider appointing a corporate trustee — a trust company licensed by the Capital Markets Authority or a law firm’s trust subsidiary. A corporate trustee does not die or become incapacitated, provides professional administration, and adds a layer of institutional accountability that individual trustees cannot match.

The enforcer: a new role under the 2021 Act

The enforcer is a role introduced by the 2021 amendments. Every family trust must appoint one. The enforcer’s function is to monitor the trustees and ensure they comply with the trust deed and their fiduciary duties. The enforcer is not a trustee and has no power to manage trust assets directly, but they have standing to apply to the High Court to compel the trustees to act, to seek the removal of a trustee who has breached their duty, or to obtain directions from the court on any question of administration.

The enforcer should be a person who is independent of the trustees and who has the knowledge and willingness to hold them to account. A trusted family lawyer, an accountant, or a senior family member who is not a beneficiary is usually suitable. The enforcer’s appointment, powers and removal should be clearly set out in the trust deed.

Tax benefits of a family trust in Kenya

The 2021 reforms made the family trust one of the most tax-efficient structures for passing wealth to the next generation. The key exemptions are:

Stamp duty exemption

Section 52(2)(b) of the Stamp Duty Act (Cap 480) exempts voluntary dispositions of property to a family trust from stamp duty. This means that when the settlor transfers land or buildings into the trust, no stamp duty is payable — a saving of four per cent of the property’s value for property in a city or gazetted town, or two per cent for rural property. Under section 52(6), distributions of trust property to beneficiaries are also exempt from stamp duty.

Common misconceptions about family trusts in Kenya

Several persistent misconceptions discourage individuals from using family trusts in Kenya or lead to poorly structured trusts that do not achieve their intended purpose. The most common is that a family trust is only for the very wealthy. In practice, a trust is an efficient vehicle for any family whose combined property — including the family home, rental income, investment portfolios and business interests — is likely to generate disputes on death or become subject to costly probate proceedings. The stamp duty exemption on transfers into trust and the capital gains tax relief on distributions to beneficiaries mean that the tax cost of establishing a family trust is generally low relative to the protection it provides over time.

A second common misconception is that the settlor loses all control over property transferred into the trust. In a well-drafted Kenyan family trust, the settlor may be appointed as a trustee, retaining a management role, and the trust deed may reserve specific powers to the settlor — such as the power to amend the beneficiary class or to revoke the trust during the settlor’s lifetime where the trust is constituted as revocable. The Trusts Act 2021 also permits the appointment of an enforcer — a role that can be held by the settlor or a trusted family adviser — who has standing to hold the trustees to account and to take proceedings against a trustee who fails in their duties.

Managing and maintaining a family trust in Kenya

A family trust is not a set-and-forget structure. The trustees are under a continuing obligation to administer the trust in accordance with the trust deed and the provisions of the Trustees Act and the Trusts Act 2021. In practical terms this means holding regular trustee meetings, keeping proper accounts of trust income and expenditure, filing annual returns with the Registrar of Trusts, and ensuring that the trust assets are properly maintained and insured. Where the trust holds land, the registered ownership must be updated when a trustee retires or dies, which requires an application to the Land Registry supported by the evidence of appointment of any new trustee.

The trust deed should specify how trustee meetings are convened, what constitutes a quorum, and how decisions are made — unanimous consent is common for major decisions such as the disposal of trust land, while day-to-day management matters may be delegated to a lead trustee. Where the trust is intended to operate beyond the settlor’s lifetime, the mechanism for appointing replacement trustees is particularly important: the trust deed should empower the enforcer or the remaining trustees to appoint new trustees without the need for a court order. OLM Law assists families with the ongoing administration of family trusts, including trustee appointments and removals, registration of changes at the Land Registry, amendments to trust deeds, and advice on the exercise of trustee powers as family circumstances change.