Trusts in Kenya: how they work and how to set one up
A trust is one of the most powerful tools for holding, protecting and passing on wealth. Trusts in Kenya have become far more attractive since a 2021 reform gave them proper legal footing. This guide explains what a trust is, the main types, the reform, and how a trust is set up and run, with links to the detail on each.
At a glance
- A trust is an arrangement where trustees hold and manage assets for beneficiaries, on terms the settlor sets out in a trust deed.
- Trusts are used for succession, protecting wealth, avoiding the delay of probate, philanthropy, and holding a family business together.
- A 2021 reform lets a trust be registered as a body corporate, with its own legal personality and perpetual succession.
- The main types are family, testamentary, charitable, employee and asset-protection trusts.
- A trust must be properly set up, properly run and, if things go wrong, properly enforced, which are three distinct pieces of work.
Who this guide is for
This guide is for families, business owners and individuals with wealth to protect or pass on, and for the trustees who manage it. It is the starting point for the cluster: for the family-wealth vehicle see our guide to family trusts; for running a trust see our guide to trust administration; and for problems see our guide to trust disputes.
What a trust is
A trust separates the legal ownership of assets from the benefit of them. Three roles make it work. The settlor is the person who creates the trust and puts assets into it. The trustees are the people or body who hold the legal title and manage the assets. The beneficiaries are the people for whose benefit the trust is run. The rules are written in a trust deed, which the trustees must follow. Because the trustees hold the assets but cannot benefit personally, a trust lets wealth be managed for others across time, including for people who cannot yet manage it themselves.
Why use a trust
In practice, a trust does things a will or a company cannot. First, it lets you plan succession in detail, deciding how and when each generation benefits rather than handing over a lump sum. In addition, it can hold wealth so that it passes without waiting for a grant of probate. It can also protect assets and keep the family’s affairs private, and it can hold a family business so it is not fragmented among heirs. Finally, it can be used for philanthropy through a charitable trust. In our view, for families with meaningful assets, a trust is often the difference between wealth that lasts and wealth that scatters.
The main types of trust
Trusts come in several forms, and the right one depends on the goal.
- Family trust. Holds and passes family wealth across generations. See our guide to family trusts in Kenya.
- Testamentary trust. Created by a will and taking effect on death, often to hold assets for minor children.
- Charitable trust. Holds assets for a charitable purpose rather than named individuals.
- Employee benefit trust. Holds shares or funds for the benefit of a company’s employees.
- Asset-protection trust. Structured to protect assets from future risks, within what the law allows.
The 2021 reform: registered trusts
The important recent change came with the Trustees (Perpetual Succession) (Amendment) Act, 2021. It allows a trust to be registered and, on registration, to become a body corporate: it takes its own name, has perpetual succession, can hold property in its own name, and can sue and be sued. For a family trust, the reform also brought tax incentives, with transfers of property into a registered family trust exempt from stamp duty and capital gains tax. This gave trusts the solidity of a company while keeping their flexibility, which is why registered trusts have become mainstream.
How a trust is set up and run
Setting up a trust is only the first stage. In outline, you prepare a trust deed setting out the settlor, trustees, beneficiaries and terms, choose trustees you can rely on, transfer the chosen assets into the trust, and, where appropriate, register it. However, a trust is not set-and-forget. Once it exists, the trustees must run it properly, keeping accounts, making distributions, investing, and complying with their duties, which we cover in our guide to trust administration and trustee services. And where trustees fail, beneficiaries can enforce the trust, as we explain in our guide to trust disputes.
Common questions
What is a trust? An arrangement where trustees hold and manage assets for beneficiaries on terms set by the settlor in a trust deed.
What can a trust be used for? Succession, protecting wealth, avoiding probate delay, holding a family business, and philanthropy.
What did the 2021 reform change? It lets a trust be registered as a body corporate with its own legal personality and perpetual succession, with tax reliefs for registered family trusts.
What are the main types of trust? Family, testamentary, charitable, employee benefit and asset-protection trusts.
Is a trust the same as a will? No. A will directs who inherits what you own at death; a trust holds and manages assets you settle into it, often for the long term. Many families use both.
Common pitfalls
For example, the frequent mistakes are choosing the wrong type of trust for the goal; a poorly drafted trust deed that does not say clearly who benefits and how; not actually transferring the assets into the trust, so it holds nothing; and appointing trustees without thinking about how the trust will be run for the long term. Each of these turns a good idea into a future dispute.
What you should do now
- First, decide what you want the trust to achieve: succession, protection, philanthropy or holding a business.
- Next, choose the type of trust that fits, and take advice on registration and tax.
- In addition, prepare a clear trust deed and choose trustees you can rely on.
- Meanwhile, transfer the intended assets into the trust properly.
- Finally, plan for how the trust will be administered, not just set up.
How OLM Law can help
Our private clients team advises settlors, families and trustees across the life of a trust: choosing and structuring the right trust, drafting and registering the trust deed, transferring assets in to capture the reliefs, and supporting the trustees who run it. To set up or review a trust, contact John Maina, Partner, at OLM Law Advocates LLP.
This article is a general guide only and is not legal advice. Please seek advice on your specific circumstances.
Author
Speak to our private clients team
OLM Law Advocates LLP advises families and individuals on wills, probate, family trusts and succession planning.
