Estate Planning Solutions For Expatriate Employees In Kenya.

Introduction  

In our previous article, we discussed the intricacies of employing expatriate workers in Kenya, along with the corresponding duties and responsibilities placed on their employers in this regard.   

We also highlighted that a good majority of expatriate employees who work in Kenya end up acquiring local assets and properties. Some end up becoming residents, setting up permanent roots in Kenya.  

Consequently, it is important for expatriates to understand the various estate planning options available to them in Kenya. This will allow them to set-up effective estate plans that will make it easier for their loved ones to manage their estate in the event they pass away or become incapacitated.  

In this article, we discuss the various estate planning options available for expatriate employees in Kenya. 

What is Estate Planning? 

Estate planning is the process of setting up a plan that will effectively cater for the management and disposal of the affairs and assets of an individual after they pass away. Some estate planning tools, such as a living trusts and deed of gifts, take effect during the lifetime of the individual and allow for the management of their assets during their lifetime whereas other estate planning tools take effect upon the death of the individual.  

Some of the common estate planning tools in Kenya are Written Wills, Family Trusts, Deed of Gifts and Power of Attorney. Estate planning can also take place through nomination. These different types of estate planning tools have been discussed in the ensuing paragraphs. 

What constitutes a person’s estate? 

An individual's estate encompasses a variety of assets, classified into two primary categories: movable and immovable. Immovable assets include real properties such as houses and land while movable assets denote assets with fluid mobility and transferability such as intellectual property, vehicles, art collections, company shares, and various other forms of personal property. 

An expatriate can own both movable and immovable assets in Kenya. For immovable property like land, Article 65 (1) of the Constitution of Kenya 2010 provides that a person who is not a citizen may hold land on the basis of leasehold tenure only of a lease not exceeding ninety-nine years. Further, Article 65 (3) goes on to provide that property that is held in trust shall be regarded as being held by a citizen only if all of the beneficial interest of the trust is held by persons who are citizens. This simply means that if a freehold or even a leasehold property is held in trust for a foreigner by a Kenyan, that property is considered to be held on the basis of leasehold tenure for a term not exceeding ninety-nine years. A foreigner cannot own freehold property in Kenya either directly or through a trust. 

Notably, Section 4 of the Law of Succession Act (Cap. 160, Laws of Kenya) provides the legal framework governing the succession of assets upon the demise of an individual. According to this provision, the inheritance of immovable property within Kenya is subject to the laws of the country, regardless of the deceased's domicile at the time of death. Conversely, the transfer of movable assets is dictated by the laws of the deceased's country of domicile at the time of demise. Additionally, if an individual was habitually residing in Kenya before passing away, and there is no evidence suggesting domicile elsewhere, it is presumed that their domicile was within Kenya at the time of death. 

Domicile refers to an individual's permanent legal residence, typically where they intend to reside indefinitely or return to after temporary absences. It involves both the physical presence and intention to make a particular place one's permanent home. For expatriate employees who establish Kenya as their permanent residence or domicile, the succession laws governing both their immovable and movable assets in Kenya are Kenyan succession laws. 

What are the Estate Planning options available for Expatriate Employees in Kenya?

i. Creation of a Written Will. 

A written Will is a legal document that outlines the wishes of the maker of the Will (the “testator”) regarding the management and distribution of their property after they pass away. 

A Will should be created with the help of an Estate Planning lawyer (hyperlink WPC profile) who will be able to guide the testator through the formal requirements that need to be met for a written will to be considered valid in Kenya. These formal requirements include: 

1. The testator must have signed or affixed his or her mark to the Will. If the testator is incapable of signing the will due to a disability, he or she can instruct a person to sign on his or her behalf in his or her presence. The signature or mark must be well positioned to show that the testator intended to give effect to the Will; 
2. The testator must have had testamentary capacity, that is, must be at least eighteen (18) years old and of sound mind during the drafting of the Will; 
3. The signing of the Will must be witnessed by at least two (2) independent and competent witnesses. Each of the witnesses must sign the Will in the presence of the testator. 

In Kenya, it is not a requirement for written Will to be registered. 

Once a written Will is drafted, the testator has the option to either keep it or entrust it to their lawyer for safekeeping. It is generally advisable to have your lawyer retain custody of the Will and provide instructions regarding the timing for its disclosure to family members. For instance, if the Will contains provisions pertaining to burial preferences, prompt disclosure upon the testator's passing may be necessary.

ii. Registration of a Family Trust – 

A family trust is an estate planning tool that is created by a settlor (the founder of the Trust) by transferring his or her assets (known as the ‘trust fund’) to a private trust and placing them under the control of a trustee for the benefit of the named beneficiaries.  

A Family Trust can be set up in the two ways:
a. Testamentary Trusts:  

This is a trust arrangement that is created in a Will and comes into effect once the Will has been confirmed through the court probate process. It is also called a trust under a Will.  

b. Living Trust:  

This is a trust arrangement that is created and takes effect while the founder is alive. This type of trust gives the founder an opportunity to oversee the management of his or her assets while he or she is still alive and make any changes when needed.    

With the help of a seasoned estate planning lawyer (hyperlink WPC profile), an expatriate employee can create a trust and transfer his or her assets to the trust. These assets can be managed by the expatriate’s family members or professional trustees such as corporate trustees. Appointing a corporate trustee may be beneficial as it has industry experience and can manage the assets on behalf of the family who may be indisposed or domiciled in another country. 

Registering a family trust can afford an expatriate employee the following advantages: 

1. Once property is transferred to the trust, it becomes trust property and does not form part of the personal property of the founder. Therefore, no probate or court process is needed for succession of trust property. 
2. Trust property is not considered matrimonial property. To this end, section 6 (2) of the Matrimonial Property Act Cap 152 provides that trust property, including property held in trust under customary law, does not form part of matrimonial property. 
3. Trusts are largely private and information about the trust property and holdings is limited to the family members. 
4. Living irrevocable trusts protect trust assets from claims by creditors or third parties on the personal property of the founder. 
5. A registered family trust enjoys certain tax incentives that make it efficient wealth management tools. 

For more information on family trusts, please read our article Family Trusts as an Effective Estate Planning tool (hyperlink article).

iii. Power of Attorney 

A Power of Attorney is a legal instrument that allows a person known as the donor to appoint a donee to act on his or her behalf when the donor is indisposed. 

It allows the donee to undertake tasks such as signing of documents, attendance to bank duties, collection of rent, signing of cheques, transfer of properties, to name a few, on behalf of the expatriate employee. 

The donor can donate the following kind of powers: 

1. General Powers: these are powers that are broadly provided to the donee to do anything the donor can do lawfully; or 
2. Specific Powers: These are powers given in respect of specific or particular actions, essentially limiting the actions the donee is authorized to do. For instance, the donee could be given the power to collect rent, issue notices and manage the real properties of the donor only or the power to execute a particular contract on behalf of the donor only. 

A power of attorney remains in effective until the donor becomes mentally incapacitated, passes away or is revoked by the donor during his or her lifetime.

iv. Deed of Gift 

A deed of gift is the transfer of property to a loved one as a gift. It involves actual transfer of ownership of property from one individual (termed the 'donor') to another (termed the 'donee') during the donor's lifetime.  

Once the transfer is completed, the donee receives a title document that bears his or her name as proof of ownership. 

A deed of gift is irrevocable once the property is transferred to the donee, meaning it cannot be amended or reversed unless under specific circumstances. These exceptions include instances where the donor lacked the legal capacity to bestow the gift initially, or if the gift was given under duress, as a result of fraud, or under false pretences. 

For a deed of gift to be duly registered through a transfer, both the donor and donee have to be of sound mind and above the age of 18 years. However, minors can receive gifts that are held in trust for them by their legal guardian.

v. Nomination 

Nomination is a direction given by a nominator to another person or entity who is holding funds on their behalf, to pay the funds to a nominee of their choice, after they have passed away. 

Such benefits include, but are not limited to, payouts from insurance policies, cooperative societies, SACCOs and retirement benefit schemes such as pension schemes. Nominees do not necessarily need to be family members, they can include the nominator’s close friends, partners, or any other person the nominator may choose. 

For expatriate employees, nomination can take place when the employee is part of a pension scheme or has taken up a life insurance policy. During the on-boarding process, the nominator is required to list his or her beneficiaries and the percentage of the benefit that they are entitled to after the nominator pass away. 

Upon nomination, the benefits that pass to a nominee no longer form part of the nominator’s estate that is subject to probate and administration proceedings after the nominator passes away. For example, for pension benefits, Section 36A of the Retirement Benefits Act (Act No. 3 of 1997) provides that upon the death of a member of a pension scheme, the benefits payable is paid out in accordance with the rules of the retirement scheme and do not form part of the estate of the deceased member.  

Based on the above, upon the demise of the nominator, the entity concerned is required to reach out to the nominees and pay them the benefits as instructed by the nominator. 

Why is Estate Planning Crucial for Expatriate Employees?

a. Safeguarding assets acquired in a foreign jurisdiction: 

Estate planning is vital for expatriates to safeguard assets acquired in a foreign country. Without proper planning, assets in foreign jurisdictions can be at a heightened risk of loss in the event of incapacity or death. By establishing robust estate plans, expatriates can ensure the protection of their hard-earned assets, providing security for themselves and their loved ones.

b. Protecting Dependents in Kenya: 

Proper estate planning not only shields assets but also safeguards dependents residing in Kenya. It ensures that loved ones are not left stranded in a foreign country in the unfortunate event of an expatriate's passing. Given the complexities of immigration residency statuses, especially after years of residence, an effective estate plan facilitates a smoother transition for dependents, alleviating potential challenges they may face.

c. Strategic Tax Management: 

Effective estate planning enables individuals to minimize tax liabilities on gifts to beneficiaries, whether during their lifetime or posthumously. Through mechanisms like family trusts or Wills, strategic tax planning can substantially reduce or eliminate tax burdens.

d. Efficient Asset Transfer: 

Estate planning facilitates the seamless transfer of assets to beneficiaries, ensuring a swift and cost-effective process. Whether through Wills, deeds of gifts, or trusts, individuals can outline clear directives for asset distribution, mitigating the risk of disputes and ensuring their wishes are accurately carried out. 

Conclusion 

Ultimately, estate planning is not a one-size fits all task; every estate planning method has its own unique characteristics, advantages and disadvantages. Therefore, it is advisable to consult a Private Wealth lawyer who will assess your desired objectives and preferences, and help devise the best estate plan for your family. 

How CM Advocates LLP can assist you: 

We have a team of seasoned Private Wealth and Immigration lawyers with a wealth of industry and practical experience, ready to assist expatriate employees in the following areas: 

• Estate Planning Matters;  
• Probate and Administration;  
• Procuring the relevant immigration documents for expatriate employees and Immigration advisory; 
• Tax advisory. 

Whether you are based in Kenya or abroad, we offer support over email, a phone call, videoconferencing, etc. For any enquiries on this or any other matter do not hesitate to contact us via email at our Wealth & Private Clients Unit & Immigration & Global Mobility practice group through privatewealthlawyers@cmadvocates.com / immigration @cmadvocates.com  or book a virtual consultation here https://cmadvocates.com/cm-request-consultation. 

Disclaimer 

This article is for informational purposes only and should not be construed as legal advice. 

Contact Persons & Contributors 

Shalma E. N. MAINA (Associate Advocate) Wealth & Private Law Unit  

-Email: snyambura@cmadvocates.com  

Wahu WAMBUGU (Immigration Lawyer)-Email: mwambugu@cmadvocates.com