Trust law in Kenya, similar to many common-law jurisdictions, primarily relies on common law principles establishing the fundamental relationship between a settlor (creator), trustee (manager), and beneficiary (recipient). However, compared to other global economies, Kenya’s trust regime is often perceived as less flexible for sophisticated succession and tax planning of family assets. Consequently, trust structures in Kenya are predominantly utilized by charitable organizations and religious institutions.
The Basics of a Trust:
At its core, a trust is a legal arrangement where a settlor transfers legal ownership of assets to a trustee, who holds and manages these assets for the benefit of designated beneficiaries. These parties can be individuals or legal entities. The terms and conditions governing the trustee’s duties and powers are typically outlined in a written document, such as a trust deed or a declaration of trust.
Legal Framework for Trusts in Kenya:
Trusts in Kenya are primarily governed by the Trustees Act and the Trustees (Perpetual Succession) Act (Cap. 164 of the Laws of Kenya) (referred to as “the Act”). Additionally, other statutes like the Income Tax Act and the Tax Procedures Act can impact the operation of trusts in Kenya.
Registration of Unincorporated Trusts under the Registration of Documents Act (Cap. 285):
Once a trust deed is created, it must be stamped and then registered at the Lands Registry under the Registration of Documents Act (Chapter 285 of the Laws of Kenya). This process establishes the trust as an unincorporated trust, which lacks a separate legal personality distinct from its trustees.
Challenges of Unincorporated Trusts:
The key implication of an unincorporated trust is its inability to own property, enter into contracts, or conduct business in its own name. All such actions must be undertaken in the names of the individual trustees. This poses significant challenges, particularly when there are changes in trustees, either due to legal requirements or provisions within the trust deed. Each change necessitates individual updates across all ownership documents. Furthermore, an unincorporated trust does not possess a legal existence separate from its trustees.
The Crucial Step: Registration under the Trustees (Perpetual Succession) Act (Cap. 164):
A common oversight in the formation of trusts in Kenya is the failure to pursue registration under the Trustees (Perpetual Succession) Act (Cap. 164). This Act governs the incorporation of trusts and establishes a defined structure for their operations and the duties of trustees.
Benefits of Incorporation under the Trustees (Perpetual Succession) Act:
Registration under the Act grants a trust the status of a separate legal entity. This crucial distinction allows the incorporated trust to:
- Own property in its own name: The trust can hold title to assets directly.
- Enter into contracts in its own name: The trust can independently engage in legal agreements.
- Conduct business in its own name: The trust can operate and transact as a distinct legal entity.
Upon receiving a certificate of incorporation under the Act, the trust acquires a separate and distinct legal identity, resolving the challenges associated with unincorporated trusts.
Eligibility for Incorporation under the Act:
Section 3 (1) of the Act specifies that trustees appointed by any body or association established for religious, educational, literary, scientific, social, athletic, or charitable purposes, or trustees who have constituted themselves for any such purpose, are eligible to apply for incorporation under the Act.
Vesting of Property upon Incorporation:
Section 4 of the Act clearly states that upon the issuance of the certificate of incorporation, all movable and immovable property and any interest therein belonging to or held by any person for the benefit of the trust concerned shall be conferred upon and vested in the newly incorporated body corporate (the trust).
Conclusion:
While the initial registration of a trust deed under the Registration of Documents Act establishes its existence, it is the subsequent registration under the Trustees (Perpetual Succession) Act (Cap. 164) that provides the trust with a separate legal identity, enabling it to function effectively as an independent entity. For charitable and other eligible organizations in Kenya, understanding and completing this crucial step is paramount for the seamless management and succession of trust assets.