A trust is an equitable or beneficial right or title to property, held for one person (“Beneficiary”) by another person (“Trustee”), in whom resides the legal title or ownership, recognized and enforced by courts and bestowed upon him by another person (“Settlor”).
The Kenya legal regime recognizes four types of trusts; family trusts, charitable trusts, non-charitable trusts and irrevocable.
Family trusts; these are trusts whether living or testamentary, partly charitable or non-charitable, that is registered or incorporated by any person or persons, whether jointly or as an individual, for the purposes of planning or managing their personal estate
Charitable trusts; these are trusts 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.
Non-charitable trusts; these are trusts that can be created for a specific purpose notwithstanding the absence of any beneficiary provided that purpose for which the trust is created is specific, capable or fulfilment and is not illegal and the terms of the trust provide for the disposition of surplus assets of the trust upon its termination
Irrevocable trusts; refers to any trust where the grantor cannot change or end the trust after its creation.
All these trusts can either be registered under the Registration of Documents Act and therefore become unincorporated Trusts or Incorporated under the Trustee (Perpetual Succession) Act Cap 164. This article will focus on Incorporated Trusts.
Registration of the Trusts
Trusts are created through a Settlement Agreement or a Declaration of Trust (Trust Deed) that set out the objects of the Trust as well as the powers and duties of the Trustees. To register a Trust one will first need to prepare the Trust deed and all related documents, present the Trust deed for assessment of stamp duty, and make the requisite stamp duty payment. Thereafter, the Trust deed must be presented to the Registrar of Documents for registration.
After the enactment of the Trustee (Perpetual Succession) (Amendment) Act, 2021, the law now requires the applicant to make an application for incorporation to Principal Registrar of Documents by way of a Petition for Incorporation of the Trust. The Principal Registrar of Documents may approve or reject the application within sixty (60) days of receipt of the application. If approved, a Certificate of Incorporation shall be issued to the applicant constituting the Trustees.
In both phases, the applicant will be present the following documents;Name of the Trust;Particulars of the parties; Settlor, Trustee/s and Beneficiaries; Trust Deed outlining the objectives of the trusts and duties of the Trust, administration details, Registered office of the Trust; Trust Fund among others.
Advantages of Incorporation
Corporate Personality; The Incorporation of a Trust under the Act accords the trust a separate legal personality with perpetual succession and powers to sue and be sued in its own name, to hold, acquire, convey, transfer, assign, and/or charge any interest in movable or immovable property held in trust.
Tax Incentives; Section 3(f) of the Trustee (Perpetual Succession) (Amendment) Act, 2021 as read together with the Section 52(2) & 117 of the Stamp Duty Act, Cap 480 and Finance Act,2021 have exempted transfer of property to a family trust incorporated under the Act from Stamp duty and Capital Gains Tax (CGT).
Why a trust and which kind?
Besides tax advantages that may be linked with a trust, there are also advantages stemming from the adaptability that a trust provides in responding to altered situations.
A trust can offer some safeguard from creditors and can accommodate an employer/employee relationship. In familial affairs, the blend of flexibility, control, limited liability, and potential tax benefits makes discretionary trusts highly sought after. Conversely, in arm’s length commercial ventures, parties typically favor fixed proportions over flexibility and often opt for a unit trust structure. However, the potential loss of limited liability through this structure commonly prompts the utilization of a corporate entity as the unitholder, such as a company or a corporate trustee of a discretionary trust. There are both strengths and weaknesses associated with trusts, and it’s crucial for clients to grasp these and understand how the trust will adapt to changing circumstances.
Should you decide you need a Trust, you should seek legal advice to ascertain the most suitable trust for you. This write-up is for informational purposes only and should not be construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Gregory Makambo, Partner, (gmakambo@makambolaw.com), Diana M. Kimiti, (dkimiti@makambolaw.com) or your usual contact at our firm, for legal advice.