A trust is a legal arrangement in which one party (the trustee) holds and manages assets for the benefit of another (the beneficiary). In Kenya, trusts are used extensively for estate planning, wealth protection, charitable giving and provision for vulnerable family members. This guide explains how they work and when to use them.
Types of Trusts Commonly Used in Kenya
Discretionary Trust: The trustee has discretion over how and when to distribute income and capital among the beneficiaries. This flexibility allows adaptation to changing family circumstances and provides creditor protection.
Fixed Interest Trust: Beneficiaries have defined, fixed entitlements to income or capital. Used where the settlor wants certainty about how assets will be distributed.
Testamentary Trust: Created by a will and comes into effect on the testator's death. Commonly used to protect assets for minor beneficiaries until they reach adulthood.
Living Trust (Inter Vivos): Created during the settlor's lifetime, it can be used to manage assets before and after death and avoid the delays of probate.
Legal Framework
Trusts in Kenya are governed by the Trustees Act (Cap. 167), the common law of trusts derived from English equity, and trust-specific provisions in the Law of Succession Act. The Trustees Act provides for the appointment, powers and duties of trustees.
Key Benefits
- Probate avoidance: Assets held in a living trust pass directly to beneficiaries without going through the probate process.
- Creditor protection: Assets in a discretionary trust are generally protected from the personal creditors of the beneficiaries.
- Control: The trust deed specifies the terms of distribution, allowing the settlor to influence how assets are used even after death.
- Provision for minors: Assets can be held and managed for children until they reach a specified age.
Trustee Duties
Trustees owe fiduciary duties to beneficiaries — they must act in good faith, invest prudently, keep proper accounts and act impartially between competing beneficiary classes. Breach of trustee duty can give rise to personal liability.