In Kenya, trust funds have emerged as important legal instruments for managing and preserving wealth, particularly following recent legislative reforms that formally recognise family trusts and enhance their legal standing. Trusts allow a settlor to transfer assets to trustees who will hold and manage them for beneficiaries’ benefit, while providing continuity, asset protection, and succession planning advantages. The process of establishing a trust in Kenya is more than drafting a document – it requires carefully navigating statutory requirements, formal registration mechanisms, and compliance procedures.
1. Clarify intent and purpose
The initial step in setting up a trust in Kenya involves clearly defining the trust’s purpose and objectives. Because a trust is essentially a fiduciary arrangement, how and when assets will be managed and distributed must be articulated from the outset.
a. Define objectives
In Kenya, trusts may be established for family succession planning, asset protection, charitable purposes, or non-charitable goals. Each objective influences how the trust’s terms are drafted, the choice of trustees, and compliance obligations.
b. Determine duration and conditions
Decide whether the trust will be perpetual or terminable upon certain conditions – for example, the achievement of a milestone, the attainment of a specific age by beneficiaries, or upon fulfillment of the trust’s purpose.
2. Identify the principal parties
Establishing a trust requires careful selection and documentation of the parties involved:
a. Settlor (Creator of the trust)
The settlor is the individual or entity transferring assets into the trust. This person’s details will appear in the trust deed and must be accurate for registration purposes.
b. Trustees
Trustees are entrusted with legal ownership and management responsibility. In Kenya, trustees may be individuals, professional advisors, or corporate trustees. Selecting trustees with the requisite competence, impartiality, and availability is crucial. Successor trustees should also be appointed to ensure continuity if primary trustees are unable to serve.
c. Beneficiaries
The trust deed must identify the beneficiaries – either by specific names or by class (e.g., “children of the settlor”). The deed should clearly state how each beneficiary qualifies and receives trust benefits.
3. Engage professional advisors
Given the legal complexity and potential long-term implications, engaging qualified professionals is an essential procedural step:
a. Legal counsel
An experienced Kenyan advocate with expertise in trust law will draft the trust deed, advise on registration protocols, and ensure statutory compliance under the Trustees (Perpetual Succession) Act and related statutes.
b. Tax and financial advisors
Trusts may trigger tax implications, including income tax and reporting obligations with the Kenya Revenue Authority (KRA). Professional tax planning helps ensure efficient structuring and compliance with KRA requirements.
4. Draft the trust deed
The trust deed is the foundational legal instrument that formally creates the trust. It must be drafted with precision, clarity, and alignment with the grantor’s intentions. A comprehensive trust deed typically includes:
- Legal names of the settlor, trustees, and beneficiaries.
- Definitions of trust assets and purpose.
- Trustee powers, duties, and limitations.
- Clear mechanisms for distributions.
- Provisions for trustee succession.
- Governing law clause (Kenyan law).
Drafting is iterative – professional review and refinement ensure the document is legally sound and unambiguous.
5. Stamp and register the trust deed
In Kenya, the trust deed must be stamped and registered to take legal effect. This step establishes an unincorporated trust, which can operate legally but cannot hold property or contracts in its own name.
a. Stamp duty
Before registration, the trust deed is subject to assessment and payment of stamp duty under the Registration of Documents Act. Stamp duty is paid based on the value or nature of assets being settled into the trust.
b. Registration under the Registration of Documents Act
After stamping, the deed is lodged with the Registrar of Documents or the Ministry of Lands and Physical Planning (particularly if the trust will hold immovable property). Successful registration gives legal recognition to the trust but does not yet create a corporate legal entity.
6. Incorporation under the Trustees (Perpetual Succession) Act
For trusts intended to hold property, enter into contracts, or function with corporate stability, incorporation under the Trustees (Perpetual Succession) Act, Cap 164 is necessary. This transforms the trust into a juristic person with perpetual succession. Key procedural steps:
- Name reservation: Reserve a distinctive trust name via the eCitizen platform through the Business Registration Service (BRS). The proposed name must include the phrase “Registered Trustees”.
- Compile incorporation documents: Prepare the trust deed (already registered), a petition for incorporation commissioned by a Commissioner for Oaths, trustees’ particulars, and any specified forms (e.g., Form TR1).
- Submit to BRS: File the application and supporting documents through the Business Registration Service. Processing timelines vary, often taking several months depending on clarifications or Gazette objections.
- Gazettement and objections: Upon review, the application is published in the Kenya Gazette to invite objections for a defined period (commonly 30 days).
- Issuance of certificate of incorporation: If no objections arise or are resolved, the Registrar issues a Certificate of Incorporation, granting the trust a separate legal personality.
Incorporation confers significant operational advantages, including the ability to hold property and enter legal relationships independently of the trustees.
7. Transfer and fund trust assets
A trust only becomes fully operational when assets are formally transferred into it. Each asset category has specific transfer protocols:
- Land or property: Title deeds must be retitled in the name of the trust (for incorporated trusts) or held by trustees on trust for beneficiaries.
- Financial accounts and investments: Bank accounts, investments, and securities must be re-registered under the trust name.
- Other assets: Intellectual property, business interests, or movable assets require documented transfer and change of ownership records.
Legal instruments and transfer paperwork must be precise to ensure assets are legally held by the trust.
8. Tax and regulatory compliance
After incorporation and funding, the trust must fulfil ongoing tax and compliance obligations.
a. KRA Registration
The trust must obtain a KRA PIN certificate to transact legally – including bank operations, tax filings, and asset management.
b. Reporting and filing
The trust may be subject to:
- Annual tax returns.
- Income reporting.
- Financial disclosures, depending on tax status.
Failure to comply with KRA requirements can result in penalties or loss of tax benefits.
9. Banking and operational setup
Once the trust is legally constituted and registered with KRA:
a. Open trust bank accounts
Open one or more bank accounts in the trust’s name using:
- Registered trust deed.
- KRA PIN.
- Identification of trustees.
- Board resolution (if applicable).
These accounts will be used to manage trust funds, income, and distributions.
b. Administrative systems
Establish record-keeping frameworks for:
- Financial transactions.
- Investment activities.
- Distribution schedules.
- Trustee meetings and minutes.
This infrastructure supports compliance and transparent governance over the life of the trust.
10. Initial and ongoing trustee duties
Trustees must fulfill fiduciary obligations from the outset:
a. Governance responsibilities
Trustees are legally obligated to act in good faith, manage assets prudently, maintain accurate records, and follow the trust deed’s instructions. The Kenyan Trusts Act and fiduciary principles govern these responsibilities.
b. Beneficiary communication
Where appropriate, trustees should formally communicate the existence and terms of the trust to beneficiaries, ensuring clarity about rights, distribution terms, and the trust’s purpose.
Conclusion
Setting up a trust fund in Kenya is a structured, multi-stage legal process that extends beyond drafting a document. It involves thoughtful planning, professional coordination, statutory compliance, formal registration, incorporation, and ongoing administration. By following the steps above and engaging qualified legal and financial advisors, individuals and families in Kenya can create trust funds that serve their intended purposes with legal certainty, financial clarity, and long-term sustainability.
