The Process Of Setting Up A Family Trust

01 February 2023

3 minute read

The Process of setting up a Family Trust
Establishing a trust for the benefit of your family is not a complicated and time-consuming process. Once you engage the services of a seasoned Wealth and Private Clients lawyer, he or she will be able to guide you through the following simple but critical steps of setting up a trust:

Step 1: Highlighting the purpose (objectives) and apprehensions of setting up the trust.

The founder of the trust (the settlor) has to identify the purpose and objectives of setting up a trust, which can include: succession planning– securing your children’s inheritance, family business succession planning, personal financial planning, asset protection and separation, to name a few. It is also critical that the settlor communicates their apprehensions or foreseeable challenges usually brought about by unique family dynamics for example, children born out of wedlock, polygamy, polyandry, minors or vulnerable dependants or any other unique dynamic that has a bearing on the succession plan.  Understanding these unique challenges aids the Wealth and Private Clients lawyer in devising a trust structure that guards against or at least mitigates the same.

Step 2: Identifying how the trust will be funded

The founder of the trust has to identify the assets (both movable and immovable) that will form the trust fund. For example, any government bonds, company shares, employment benefits, pension benefits, Sacco benefits or savings, land, apartments or commercial properties that they own. The trust can also be funded by 3rd parties other than the founder of the trust. This can be done through transfers from 3rd Parties to the trust, donations, debt settlement by the founder’s debtors into the trust account or contributions from other family members.

Step 3: Deciding who will manage the trust

A trustees is an individual or a company that is tasked with the mandate of managing and administering the trust. The first trustees of the trust are usually appointed by the founder of the trust while any subsequent or replacement trustees are appointed by the Board of Trustees in accordance with the terms of the trust deed. The founder may appoint his or her peers, relatives or adult children to be a trustee. He or she may also engage the services of a professional, independent corporate trustee (hyperlink Gabael Profile) to undertake the administrative tasks and assist other family member trustee to smoothly run the trust and protect their legacy.

Step 4: Preparing the Trust Deed and related documents.

This should be done by an experienced professional, preferably, a Wealth and Private Client lawyer. They are responsible for ensuring that the trust deed is self-executing and meets the objectives of the founder of the trust. Contrary to popular belief, setting up a trust is not just drawing a trust deed. It is a complex process that involves devising a tax efficient and legally enforceable document that operationalises the objectives of the settlor or founder.  It is not a one-fit-all scenario and standard trust deed or templates should be avoided as they not only deny the settlor the benefit of customization but also lead into unforeseeable legal problems later on.

Step 5: Registration of the Trust.

Following the amendment of several legislations on trusts and the introduction of A New Legal Regime on Registration of Family Trust in Kenya, the process of registration of trusts has been simplified and streamlined propelling family trusts into the forefront of efficient and effective estate planning tools in Kenya. The initial registration of a simple Trust Deed is done in the Registry of Documents. Thereafter and pursuant to the Trustee (Perpetual Succession) (Amendment) Act of 2021, an application for the incorporation of a registered family trust is done under the office of Principal Registrar of Documents and must be approved or rejected within sixty (60) days.

Step 6: Settlement of the trust assets into the trust.

Once the trust has been registered or incorporated, the founder of the trust can proceed with settlement of assets into the trust. Settlement is the transfer of property by its registered owner into the trust. Upon settlement, the assets cease to belong to the founder and ownership is transferred to the Trust.  The assets settled into the trust can be either the founder’s assets or even assets owned by third parties – refer to step 2 above. Accordingly, setting up a trust and settling assets simplifies the process of wealth consolidation and preservation among large families.Please click here to download the article

How can we help?

The Wealth and Private Clients team at CM Advocates LLP prides itself in having a wide variety of resources, skills and experience on matters estate planning spanning, trust management and trust administration spanning across the East African Region. It offers an edge to its clients based on its legacy of having structured, re-structured, amended, incorporated several forms of trusts and therefore well capable of guiding you through the process of creating a valid trust. Should you have any questions regarding the subject of establishing a blind trust or a family trust, or related topic, please do not hesitate to contact  us on law@cmadvocates.com or dgichuru@cmadvocates.com

Contact Persons & Contributors

Dianah Gichuru- Partner & Head of Unit Shalma E. Maina  – Associate

Disclaimer

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

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