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News & Updates: 2022 Updates

NEW LAW ON FAMILY TRUSTS

1st December, 2022

The Family Trust is a revolutionary development and a panacea for family property and estate challenges. Kenya has established a new legal framework for family and non-charitable trusts to accumulate and preserve wealth for multiple generations. 

The Trustee (Perpetual Succession) (Amendment) Act, 2021 (the Amendment Act) came into force in December, 2021 introducing a new regime of registration of Family Trusts. Up until last year, probate had been the main tool for estate planning in Kenya. Probate proceedings require the institution of succession or inheritance causes in court. They are of a public nature and can lead to the private affairs of the deceased being a matter of public record. They can be lengthy, costly and adversarial leading to disagreements within families. Consequently, before the Amendment Act came into force, families were forced to resort to either setting up Family Trusts in offshore jurisdictions with well established trust laws such as Jersey, the Isle of Man and the British Virgin Islands; or registering companies limited by guarantee: both also costly and time consuming feats. 

The benefits of registering Family Trusts under this new regime can therefore not be overstated. 

FAMILY TRUSTS AND ESTATE MANAGEMENT 
Family Trusts are a helpful tool for managing a family's estate and ensuring preservation of wealth through successive generations. Further, the tax breaks offered to Family Trusts are evidence of the government’s effort to support estate planning by encouraging their formation. 

They aid the creation and preservation of sustainable generational wealth: Family Trusts protect family assets throughout multiple successive generations since the property is held by a trust.

FAMILY TRUSTS AND SAFEGUARDING TESTAMENTARY POWER 
They safeguard the deceased's living and testamentary power. There are several court decisions where the deceased’s testamentary power was called to question and their will was invalidated. A Family Trust ensures that the deceased's wishes for the distribution of their estate are adhered to. 

FAMILY TRUSTS AND ASSET PROTECTION
They aid in asset protection against creditors and bankruptcy proceedings. In the event of bankruptcy proceedings, the trust property cannot be sold or transferred for purposes of settling the debts of the settlor or the beneficiaries. This is a crucial estate plan and should be explored by individuals whose assets may be at risk because of insolvency.

FAMILY TRUSTS AND TAX PLANNING
Following the enactment of the Finance Act, 2021, several amendments were made to the Income Tax Act and the Stamp Duty Act with respect to registered Family Trusts. These amendments provide for tax exemptions for some transactions affecting Family Trusts. 
These include:

Exemptions under the Income Tax Act

Income Tax Exemptions
The Amendment Act provides for exemption on the income of a Family Trust. To the extent that income paid out of a registered Family Trust to any beneficiary does not exceed Kenya Shillings Ten Million (Kshs. 10,000,000.00) in a year, or where it is used exclusively for the purpose of education, medical treatment or early adulthood housing, such income is not subjected to tax on the beneficiary. 

Capital Gains Tax Exemptions
Property which is sold for purposes of transferring proceeds into a registered Family Trust are exempted from capital gains tax (CGT). Individuals who transfer their property into registered Family Trusts are exempted from CGT payment for those transactions.

Exemptions under the Stamp Duty Act

Stamp Duty Exemptions
With the introduction of S.52(2)(b), conveyancing transactions of registered Family Trusts are now exempt from paying stamp duty during the transfer of land, investment shares etc. The expected outcome is that individuals will have an opportunity to safeguard wealth for future generations in a tax-efficient manner and within a more elaborate legal framework.

TRUST DEEDS
A Trust Deed is a legal contract that creates a trust, giving a person, persons or corporate entities the legal ownership and right to manage money, assets and property for someone else, and defining the terms and conditions under which such management should be done.

PARTIES TO A TRUST DEED
Settlor: this is the person transferring ownership and management of his property to a trust. Trustees: these are third parties who are authorized by a settlor to execute and manage trust assets. Trustees hold the title of the trust assets and as such take legal ownership of the trust property and manage the day-to-day running of the trust. The trustees must manage trust assets in accordance with the rules set out in the Trust Deed and the Amendment Act. Trustees are required to know the trust’s financial position. Accordingly, they should be people trusted by the settlor. Trustees can be friends or family members who do not benefit from the trust. It is also possible to employ a professional trustee.These are held to a higher standard and are paid by the trust. 

Beneficiaries: these are those individuals selected by the settlor to receive the benefits of the trust. Beneficiaries may include the settlor himself in instances where the trust is required to provide for him throughout his lifetime; his children; grandchildren; children yet to be born; and others as nominated. The Amendment Act provides that beneficiaries need not be related to the settlor. Consequently, settlors may include corporate entities or charities as beneficiaries. Through the Trust Deed, the settlor may provide for the addition or exclusion of persons eligible to be beneficiaries of the trust and also impose obligations or conditions on the beneficiaries. Beneficiaries may benefit from the trust regularly or intermittently. Alternatively, beneficiaries may not benefit from the trust until the trust comes to the end when the trust assets are distributed amongst the selected beneficiaries. 

Enforcer: the Amendment Act introduces the concept of an enforcer who can be an individual or corporate entity appointed by the settlor or the beneficiaries. The role of the enforcer is to monitor the administration of the trust for the benefit of the beneficiaries. An enforcer cannot however also be a trustee. An enforcer has a duty to report to the settlor or trustees any financial breaches and in such an event can either require trustees to take remedial action or pursue legal action against the trustees. Though it is not mandatory for a trust to have an enforcer, the introduction of this concept helps to guarantee transparency and accountability with regard to the management of a trust.

TRUST PROPERTY
Any property from the settlor or any person or entity may be added to trust. These include land, securities, cash, shares, artwork, vehicles etc. A settlor, during and after the registration of a trust, can also add property to which they are beneficially entitled, this means that the settlor is not limited to adding property to the trust that is legally in their name.

TYPES OF TRUSTS 
a) Revocable Living Trusts
A Living trust is revocable if it contains an express revocation clause in the Trust Deed, exercisable by the Settlor in his lifetime. The Settlor has absolute control over the administration of the revocable living trust. This type of Trust does not offer protection in insolvency and creditor proceedings as the Settlor maintains significant control over the affairs of the Trust. It can therefore be presumed that the Settlor may use the Trust property to settle personal debts.

b) Irrevocable Living Family Trust
In the Amendment Act, a Living Trust is formed and becomes operational during the settlor's lifetime. An Irrevocable Living Family Trust does not contain a revocation clause. Once formed, the settlor cannot make changes to the terms of the trust. Property transferred by the settlor is deemed to be solely owned by the trust and seizes to be part of the settlor’s personal property. This provides creditor protection in the event of the settlor’s bankruptcy or proceedings by the creditors.

REGISTRATION PROCESS
The Amendment Act provides for trusts to be registered with the Principal Registrar of Documents rather than the Cabinet Secretary, a move aimed at reducing the bureaucracy in the process of registering trusts. The timeline for registration and issuance of a certificate of incorporation by the Principal Register is anticipated to be within 60 days.

Victoria Wambui 
Partner

THE LAW AND COVID 19

THE COVID-19 VIOLENCE CRISIS

25th July, 2020

Research has shown that domestic violence increases whenever families spend time together and current lockdowns, isolations, quarantine, restricted movement and social distancing measures occasioned by the COVID-19 pandemic have caused women and girls to spend more time with potential abusers or known abusers. 

According to a UN research, intimate partner violence is on the increase now more than ever, with two in three women experiencing violence as compared to one in three before COVID-19. Further, pandemics of whatever nature diminish the support networks and coping capacities of women and girls, heightening their vulnerabilities. 

School closures by the Kenyan government in response to COVID-19 (from March 2020 until January 2021) and lockdown measures taken have seen a spike in the number of child sex abuse cases in homes. The closures have resulted in girls and young women being either shut up at home or left, sometimes with relatives, without parental supervision, to the effect that they now face greater risks of exploitation and domestic violence. As a result, many women and girls are suffering from injuries and serious physical, mental, sexual, and reproductive health problems, including sexually transmitted infections, HIV, and unplanned pregnancies.

On 1st April, 2020, about two weeks after the school closures, the National Council for the Administration of Justice announced that there had been a significant spike in sexual offences in many parts of the country. These offences constituted 35.8% of the criminal matters reported during that period and has remained as high since. They also reported that in many cases, the perpetrators of such offences are close relatives, guardians and or persons living with the victims. However, due to lack of funding for these kinds of cases the Judiciary and the Children’s Department are unable to provide legal representation. 

During the three to four months of lockdown (March to July 2020) at least 152,000 Kenyan teenage girls became pregnant, a 40 per cent increase on the monthly average. Data released by the ministry of health shows that in just one county more than 4,000 teenage girls have become pregnant since the start of the year. In this county they reported what we already knew - most of the pregnancies are as a result of defilement (rape, incest) by close family members with about 200 of the affected girls being below 14 years.

The COVID-19 lock down has been enforced brutally by the police. There is currently in place a night time curfew and an obvious mistrust for the police means that there is little reprieve for a victim during curfew hours in a country with barely any refuges for victims of domestic violence. We can hardly look away faced with these realities. 

COVID-19 has resulted in job loses for at least 30 percent of low-income earners.  Widespread job loses and unemployment across the country resulting from the lockdown, coupled with a severe locust invasion in East Africa that has diminished food supply, have made it harder for victims to report abuse or to get legal intervention and for underfunded service providers to respond timeously and efficiently. It is widely accepted that domestic violence is rooted in power and control. The inability to provide for families and the economic uncertainty have added an extra strain of pressure for many families. An inadvertent outcome is loss of control, irritability, anger, fear and frustration that are often meted out in the form of violence to women and children in the household. Emotional and psychological harm to the children who witness this abuse is also a reality to contend with. 

Another challenge coming out of the pandemic is economic exploitation. Sex for food is a plausible economic model for many girls who find themselves without an income. Many middle-class families bade farewell to their nannies (usually young women and girls from poor homes) as a safety precaution against the virus, leaving them to contend with bleak financial realities. Additionally, there is an assumption, in poor communities, that since they are not in school, children can serve as breadwinners. When food becomes scarce, everyone must fend for the family - even under-age schoolgirls.In Kenya, it is predicted that the pandemic will peak in September, 2020 and with over five months of school closures to go, we must brace ourselves for a dark season our women and children. 

A LEGAL INTERVENTION 

GSLaw LLP in inundated with referrals of such women and children seeking free legal representation. While we are willing and able to offer free legal representation, many of these women and children are unable to afford fees for matters ancillary and incidental to their cases. 

Although the Kenyan Constitution guarantees the right to be represented by an advocate at the state’s expense, this is limited to criminal cases and even then the right is not absolute. It is only available where ‘substantial injustice' would otherwise result if the accused is unrepresented. Unfortunately, the Constitution neither defines substantial injustice nor does it give guidelines of determining what substantial injustice entails. Consequently, courts have taken it upon themselves to identity instances of substantial injustice as follows: cases involving complex issues of fact or law; instances where the accused is unable to effectively conduct his or her own defense owing to disabilities or language difficulties; instances where the public interest requires that some form of legal aid be given to the accused because of the nature of the offence; and cases where person is accused of a capital offence whose penalty is loss of life (although no execution has been carried out in Kenya since 1987, thousands remain on death row and continue to be sentenced to death due to the automatic nature of the death penalty).

The suits we file on behalf of our clients, being of a civil nature, hardly qualify for legal aid as defined by the Constitution and the Legal Aid Act. While domestic violence, sexual and child abuse constitute criminal offences, the prosecution of which is the mandate of the state, our focus is to procure court orders security the protection of victims and compelling perpetrators to make provision for the victims' welfare. 

We do this in two ways: 

i. instituting civil proceedings under the Protection Against Domestic Violence Act for protection orders and orders for the provision of maintenance, accommodation, counselling, hospital and medication allowances for victims; and
ii. instituting civil proceedings under the Children's Act for child protection, custody and maintenance orders until the children reach the age of majority. 

Victoria Wambui 
Partner

THE EFFECT OF COVID-19 ON COMMERCIAL TRANSACTIONS

23rd June, 2020

Many of our business and corporate clients have been grappling with the question of how COVID – 19 affects the performance of binding contractual commercial obligations.

Two doctrines of the law of contract allow for the setting aside of contracts where an unforeseen event renders contractual obligations impossible to honour: force majeure; and frustration.

1. FORCE MAJEURE 

1.1 A force majeure clause describes a contractual condition found in most commercial agreements that relieves parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal or impossible. 

1.2 The party seeking to rely on a force majeure clause will need to be able to demonstrate that the force majeure event is captured by the clause and that it is linked to the party’s inability to perform the contract. “Acts of God” are often covered by a force majeure clause: earthquakes, hurricanes, floods, volcanic eruptions etc. Public health emergencies or pandemics may also be included.

1.3 The effect of the clause is that the defaulting party notifies the other party of its inability to perform its obligations under the contract in order to be excused from performance for a period. It acts as a defence for a party unable to perform its obligations under the contract.

1.4 There are exceptions, however. Generally, force majeure will not apply:

i. if the contract does not have a force majeure clause;
ii. if the force majeure clause does not cover an event being claimed by a party (for instance, if a force majeure clause does not include events such as pandemics, a party may not rely on it to cite the effect of COVID – 19);
iii. where a contract is entered into after the force majeure event; and
iv. if the force majeure event occurs after the affected party’s delay in performance.

2. FRUSTRATION

2.1 In the event that the contract does not include a force majeure clause or the force majeure clause does not include a pandemic or epidemic such as COVID – 19, it is possible for parties unable to perform their obligations to invoke the doctrine of frustration. A party seeking to terminate a contract under the doctrine of frustration should be able to demonstrate that an event has occurred which: was not foreseen; is beyond the parties’ control; and it makes the performance of the contract impossible or radically different from that which the parties contemplated at the time of entering into the contract.

2.2 In order to rely on the doctrine of frustration to terminate a contract, one would demonstrate that the frustrating event “significantly” changes the nature of the outstanding contractual rights or obligations rendering it impossible for parties to proceed with the implementation of the contract as previously envisaged.

2.3 Frustration brings a contract to an end immediately and automatically. Examples of instances where the doctrine of frustration will apply include:

i. acts of God;
ii. war, rioting and civil unrest; 
iii. a court injunction which prevents performance of the contract to continue;
iv. death or incapacity of one of the contracting parties;
v. destruction of the subject matter of the contract; and
vi. change of law such as 
- banning of sale of particular products (food, drinks etc.) 
- outlawing services such as particular types of financial services, money or lending services or methods of providing those services
- trade embargoes imposed on a country or person, for the sort of goods or services to be delivered
- banning attendance at event venues following a virus outbreak and
- prevention of entry to countries in the interests of public health, by the government of a country.

3. LEGAL SOLUTIONS

3.1 Consequently, in the event that performance of contracts is affected by COVID – 19, parties have several options to consider such as:

i. suspension of contracts where feasible under the force majeure clause;
ii. reliance on contractual clauses to exclude liability; 
iii. extension of long stop dates and performance deadlines;
iv. negotiation of standstill arrangements;
v. mutual variation of contracts; and
vi. termination of contracts under contractual clauses and the doctrine of frustration. 

Accordingly, GSLaw LLP will review your existing contracts to ensure that your company is adequately covered. We offer legal audit services which include negotiating favourable contract terms, drafting complex template contracts with protective clauses, identifying breaches of contracts, compliance failures, risk of penalties and reputational damage, mitigating loss and monitoring contract performance. 

As many parties to commercial contracts have discovered, it is important to ensure that a contract contains a well drafted force majeure clause in order for parties to be able to rely on in the event that performance is affected.

Victoria Wambui 
Partner

THE DOMESTIC VIOLENCE PANDEMIC

30th January, 2021

When the Covid-19 pandemic hit Kenya, cases of domestic violence exploded. Calls to a national helpline rose by more than 300% in the first two weeks of the national lockdown. Within a year, Kenya had recorded more than 5000 cases of gender-based violence. And yet we now have recourse in the law. 


For such a brief piece of legislation, the Protection Against Domestic Violence Act, 2015 is probably one of the most progressive, liberal laws enacted in Kenya in recent years. This Act should be the Kenyan definition of short and sweet.

It bestows the court wide powers that reach further than those in the Children Act and the Marriage Act. It focuses not on retribution for the crime but on protection and provision for victims and children. Which is why by this Act, the court now has powers to award monetary compensation to a victim of domestic violence!


So radical is the Act that to ensure that those affected are protected from violence the court can grant them the right of exclusive occupation of the home shared with the domestic violence perpetrator even when they have no ownership. 


Here is why it is worth pursuing:


- The court will issue an interim protection order, without notice, for protection outside ordinary court hours or on a day which is not an ordinary court day;


- The court will issue a protection order once it is clear that the perpetrator is using or has used, domestic violence against the applicant and their children or dependants;


- The court will grant the right of exclusive occupation of the shared residence or a specified part of it by excluding the perpetrator from the shared residence, regardless of whether the shared residence is solely owned or leased by the perpetrator or jointly owned or leased by both parties;


- The court will order the perpetrator to pay all expenses or emergency monetary relief in respect to the applicant's needs and those of children or dependants;


- The court will award temporary custody of any child or dependant of the perpetrator to any person or institution and regulate access by the perpetrator to such child or dependant;


- The court will issue a restraining order against the perpetrator;


- The protection order will remain in place for as long as the court deems necessary; and


- Finally, the perpetrator who contravenes the court order is liable to a fine of up to Kshs. 100,000.00 or imprisonment for up to a year, or to both.


The Act is wide in scope and it recognises very many different forms of violence:


(a) abuse that includes - child marriage; female genital mutilation; forced marriage; forced wife inheritance; interference from in-laws; sexual violence within marriage; virginity testing; and widow cleansing;
(b) damage to property;
(c) defilement;
(d) depriving the applicant of or hindering the applicant from access to or a reasonable share of the facilities in the applicant's place of residence;
(e) economic abuse;
(f) emotional or psychological abuse;
(g) forcible entry into the applicant's residence where the parties do not share the same residence;
(h) harassment;
(i) incest;
j) intimidation
(k) physical abuse;
(l) sexual abuse;
(m) stalking;
(n) verbal abuse; or
(o) any other conduct against a person, where such conduct harms or may cause imminent harm to the safety, health, or well-being of the person.


Victoria Wambui 
Partner

News & Updates: The Law and Covid-19

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