Succession Planning Options in Kenya
Succession planning is a crucial aspect of financial and estate management, ensuring that one's assets are distributed according to one's wishes upon demise. Various legal frameworks and options exist in Kenya to facilitate effective succession planning.
This article explores the various succession planning options available to Kenyans and some benefits of each option.
Succession Planning Options
1. Wills
A will is a legal declaration by a person of his wishes or intentions regarding the disposition of his property after his death. In Kenya, a will must be written, signed by the testator (the person making the will), and witnessed by two or more competent individuals to be valid. The testator appoints an executor in the will, responsible for managing the estate and ensuring that the deceased’s wishes are carried out.
Oral wills may be valid only if they are made before two or more competent witnesses and the testator dies within three months from the date of making the will.
A will allows the testator to make specific gifts to individuals or organizations, distribute any remaining assets not specifically bequeathed, appoint guardians for minor children, and can be revoked or amended by the testator at any time before death.
Some benefits of having a will include;
Clarity: Clearly outlines the distribution of assets, reducing disputes.
Control: Ensures that assets are distributed according to the testator’s wishes.
Efficiency: Streamlines the legal process for heirs.
By creating a will, individuals can ensure their assets are managed and distributed as they desire, providing peace of mind and security for their loved ones.
2. Intestate Succession
If a person dies without a will, their estate is distributed according to the rules of intestate succession under Kenyan law. The Law of Succession Act outlines the order of inheritance, prioritizing spouses, children, parents, and other close relatives.
Process: A surviving spouse and children are typically the primary beneficiaries. In their absence, other relatives inherit according to a prescribed hierarchy.
Challenges: Intestate succession can lead to disputes and may not reflect the deceased's wishes.
3. Trusts
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A trust is a legal arrangement where one party, the trustee, holds and manages assets for the benefit of another party, the beneficiary. Trusts can be established during a person's lifetime (living trust) or upon their death (testamentary trust).
Types of Trusts:
Revocable Trusts: These can be altered or revoked by the settlor during their lifetime.
Irrevocable Trusts: Cannot be changed once established, providing more asset protection and tax benefits.
For the purposes of this article, we will explore a Family trust as a succession planning tool.
The Trustee (Perpetual Succession) Act defines a family trust as a trust, whether living or testamentary, partly charitable, or non-charitable, that is registered or incorporated by any person or persons, whether jointly or as an individual, for the purposes of planning or managing their personal estate. Further, the Act states that a family trust shall be:
It is worth noting that a family trust shall not be invalid for the reason that the settlor or joint settlors are also beneficiaries of the trust.
To incorporate a trust, a trust deed is prepared by an advocate and thereafter signed by all the trustees. The signed trust deed is then submitted for stamping and registration with the Registrar of Documents. Once the trust deed is registered, the trust is then incorporated under the Trustee (Perpetual Succession) Act. Once the family trust has been established, the various individuals will transfer their investments to the trust.
The transfer of investments into a trust enjoys several tax benefits such as exemption from capital gains tax, VAT, and Stamp Duty. Furthermore, the income or principal sum of a registered family trust is exempt from income tax. Therefore, any dividend or interest income would not be subject to tax. Additionally, in the event of a future divestment, any future capital gains realized by the trust would not be subject to income tax in the form of capital gains tax.
The above is based on the tax law as of the date of this article (03 July 2024).
4. Other form of succession
Holding assets in joint ownership: holding assets in joint ownership with rights of survivorship allows the surviving owner to automatically inherit the deceased's share of the property without the need for probate.
Conclusion
Effective succession planning is essential for ensuring that one's assets are distributed according to one's wishes and minimizes potential disputes among heirs. By taking proactive steps in succession planning, individuals can secure their legacy and provide for their families' future.
In the next issue, we will explore unclaimed financial assets, how they arise, and the retrieval process by surviving members.