Estate planning in Kenya involves organizing how an individual’s assets will be preserved, managed, and distributed after their death. It focuses on structuring the ownership and transfer of assets to ensure smooth succession, minimize tax liabilities, and protect the interests of beneficiaries.
There are several key approaches to estate planning. In this article, we make a comparison of the difference between establishing family trust and executing a will as estate planning tools.
What is a will?
A will is a legal declaration by a person of his or her wishes or intentions regarding the disposition of his property after his death. A will ensures that a person has control over his/her property after death, and further it ensures that upon his/her death the property passes to a person or persons of his/her choice.
A will is mainly concerned with disposing off property, but it can be used for other purposes and for incidental matters, such as: the appointment of persons to administer the estate of the testator; the appointment of the trustees to administer trusts set up under will; the appointment of guardians for children of the testator who are minors at the date of the testator’s death; making directions as to payment of taxes and other liabilities of the dead person; and giving directions as to the manner of disposal of the deceased’s body.
For a will to be valid, it must meet certain requirements as per the Laws of succession. These requirements are that; the testator must have the capacity to make the will meaning, the testator must be of sound mind at time of making the will and must have attained 18 years of age; the testator must sign the written will and the will must be attested by two (2) or more witnesses, each of who must have seen the testator sign the will. Each of the witnesses must sign the will in the presence of the testator. Once the testator dies, the executor(s) of the will are required to petition the Court for a grant of probate to begin the process of distributing the deceased’s property as per the deceased’s wishes.
What is a Family Trusts?
A family trust is established by a settlor (person who creates a trust) for the primary purpose of holding, protecting, and managing property or assets for the benefit of defined beneficiaries who are members of the settlor’s family. The legal title to the trust property is vested in the trustee(s), who hold and administer it in accordance with the terms of the trust deed and in the best interests of the beneficiaries.
Family trusts can be created while the settlor is alive (living trust) or by a will (testamentary trust). A living trust takes effect immediately upon its creation. It is commonly used to facilitate the management and distribution of assets, avoid probate, provide for incapacity planning, and maintain privacy in estate administration. A testamentary trust is created under a will and only becomes operational upon the death of a settlor. Unlike a will, a living trust passes property outside of the probate court.
Nature of family trusts
Once a trust is established through a trust deed, the trust deed ought to be stamped and registered at the Ministry of lands under the Registration of Documents Act. This process establishes trust as an incorporated trust. For the trust to attain the status of a body corporate, with perpetual succession, a common seal, the capacity to sue and be sued in its corporate name, and, subject to the conditions in its certificate of incorporation, the power to hold, acquire, convey, transfer, assign, charge, and demise both movable and immovable property in its own name, it must be incorporated under the Trustees (Perpetual Succession) Act.
Incorporation of a trust is done online through the Business Registration Service portal. It is important to note that a family trust is a non-trading entity. If the trust intends to engage in business activities, it may need to do so through subsidiaries or separate companies. However, a family trust can hold non-trading assets and may also act as a shareholder in a trading company.
What are the benefits of creating family trust?
Avoidance of Probate
Assets in a trust are not part of the deceased’s estate and thus bypass probate under the Law of Succession Act. This ensures faster, private, and cost-effective transfer to beneficiaries. A Trust Deed can also specify detailed instructions for asset distribution, education, maintenance, and advancement of beneficiaries. Incorporated trusts further help continuity as they continue to operate regardless of the death or incapacity of the settlor, ensuring uninterrupted management.
Asset Protection
Assets are legally separated from the settlor, shielding them from personal creditors, legal claims and matrimonial disputes.
Tax advantages
Registered family trusts enjoy certain tax exemptions with regards to the transfer of property. Tax exemptions enjoyed by registered family trusts include:
- Income Tax on property, including investment shares, which is transferred or sold for the purpose of transferring the title or the proceeds into a registered family trust.
- Capital Gains Tax on any capital gains relating to the transfer of title of immovable property to a family trust.
- Stamp Duty on the conveyance or transfer of property to registered family trusts. Generational wealth control Registered family trusts promote generational wealth. Trusts can exist from generation to generation and allow for control, preservation and growth of family wealth.
Conclusion.
Estate planning is an essential step in safeguarding assets and ensuring that family members are provided for in line with one’s wishes. Both wills and family trusts serve important but distinct roles in this process. A will allows a testator to dictate how their property will be distributed after death, but it is subject to probate and public court processes. A family trust, on the other hand, provides greater flexibility, privacy, continuity and longterm wealth preservation. The choice between the two depends on individual circumstances, the nature of assets, and the objectives of the estate owner. It is important to seek professional legal advice to ensure that the chosen structure effectively meets both personal and family needs.
This alert is for information purposes only and is provided for general purposes only and does not constitute legal advice. Should you have any questions or need legal advice, please contact us on info@jkkibicho.co.ke.
Contributors:
Susan Rigaga – Principal Associate
