Trusts are a powerful legal tool for managing assets and ensuring that they benefit the intended parties. In Kenya, the registration of trusts is governed by a clear legal framework that ensures transparency, accountability, and proper administration.

What is a Trust?

A trust is a legal relationship created when a person, called the trustee, holds property for the benefit of another person or group of persons, called the beneficiaries. 

A registered trust on the other hand is a body corporate. It is created on registration by a settlor, trustee or advocate. The goal of the trust must be for one party (the settlor) to transfer assets to the trust to be managed by the trustee for the benefit of third parties (the beneficiaries). You can incorporate a trust for various purposes, including family succession, asset protection, charitable activities, and business continuity.

The Trustees (Perpetual Succession) Act and The Trustees Act govern the creation and administration of trusts in Kenya. Further, the trust deed is required to be registered with the Ministry of Lands under the Registration of Documents Act.

The Income Tax Act, the Tax Procedures Act and the Land Registration Act provide critical guidelines for trusts involving land and other taxable assets.

As of 2024, the Business Registration Service handles trust registration. This move will streamline the registration process and see more Kenyans take advantage of the benefits of incorporating a trust.

Revocable and Irrevocable Trusts

A trust can be revocable or irrevocable depending on a settlor’s wishes. Revocability refers to the flexibility retained by a grantor or settlor to amend or revoke the trust during their lifetime.

The Trustees (Perpetual Succession) Act provides that unless a trust contains an express power of revocation, it shall be deemed to be an irrevocable trust.

Once the settlor dies, all trust becomes irrevocable as the settlor is the only person with the power to amend or revoke a registered trust.

Types of Trusts in Kenya

Apart from revocable and irrevocable trusts, the Trustees (Perpetual Succession) Act provides for three (3) types of Trusts:

1. Charitable Trusts: a trust formed for the exclusive purpose of the relief of poverty, the advancement of education, religion or human rights and fundamental freedoms, or the protection of the environment or any other purpose beneficial to the general public.
2. Non- Charitable Trusts: created for a specific purpose notwithstanding the absence of any beneficiary.
3. Family Trusts: registered or incorporated by any person or persons, whether jointly or as an individual, for the purposes of planning or managing their personal estate whether living or testamentary, partly charitable or non-charitable, t.

It is worth noting that there exists a fourth type of trust Real Estate Investment Trusts(REITS). REITS own, operate, and finance income-producing real estate assets. Therefore, they do not fall within any of the types of trusts provided for under the Act. REITs are creatures of The Capital Markets Act and will be discussed at length in separate articles.

Why Register a Trust?

To create a legal person, a trust must be registered. A registered trust is a legal person separate from its settlor, trustees and beneficiaries. As a separate legal entity, a trust can own property, enter into contracts, and sue or be sued in its name. The registration of a trust offers the following additional benefits:

Tax Benefits and Compliance
Registered trusts enjoy several tax benefits including tax exemptions such as in the transfer of property to the trust, on gains of profit or interest accruing to charitable trusts among others.

Asset Protection and Continuity
When property is transferred to a trust, it is owned by the trust. The property is therefore immune from the creditors of settlors. This ensures that the benefit of that property can be seamlessly transferred to the trust’s beneficiaries. This advantage makes trust an excellent tool for transferring wealth to future generations.

Transparency and Accountability
Registration provides a clear framework for the trustee’s duties, reducing disputes and promoting confidence among beneficiaries.

Legal and Regulatory Considerations

Fiduciary Duties of Trustees
Trustees must act in the best interest of beneficiaries, avoiding conflicts of interest. The law requires them to exercise reasonable care and skill in managing trust assets.

Tax Obligations
Trusts are subject to tax regulations under the Income Tax Act. Trustees must ensure timely filing and payment of taxes, including capital gains tax for property transactions.

Conflict Resolution
Disputes over trusts can be resolved through mediation, arbitration, or litigation. Courts have the power to vary or terminate trusts if circumstances warrant.

Conclusion

Trusts offer a flexible and efficient way to manage and protect assets. Whether for personal, family, or public purposes, registering a trust in Kenya provides a robust legal framework to achieve these goals. Engaging a qualified lawyer ensures the process is seamless and compliant with the law.

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