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What are the standard clauses for a Trust Agreement?
Standard Clauses for a Trust Agreement in Kenya
Introduction
A trust agreement is a legal document that establishes a trust and outlines the terms and conditions under which the trust operates. In Kenya, trust agreements are governed by various laws, including the Trustees (Perpetual Succession) Act, the Law of Contract Act, and common law principles. This document is crucial for ensuring that the settlor's intentions are honored and that the trustee manages the trust assets in the best interests of the beneficiaries.
Table of Contents
Definition and Purpose of a Trust Agreement
Key Parties in a Trust Agreement
Standard Clauses in a Trust Agreement
Declaration of Trust
Appointment of Trustees
Duties and Powers of Trustees
Beneficiaries
Trust Property
Duration of the Trust
Distribution of Income and Principal
Trustee Indemnity and Liability
Amendment and Revocation
Governing Law
Relevant Case Laws
Conclusion
TLDR
1. Definition and Purpose of a Trust Agreement
A trust agreement is a legal document that allows a settlor to transfer assets to a trustee, who holds and manages these assets for the benefit of the beneficiaries. The primary purpose of a trust agreement is to ensure that the settlor's wishes regarding the management and distribution of the trust assets are carried out.
2. Key Parties in a Trust Agreement
Settlor: The person who creates the trust and transfers assets into it.
Trustee: The individual or entity responsible for managing the trust assets according to the terms of the trust agreement.
Beneficiaries: The individuals or entities who are entitled to benefit from the trust.
3. Standard Clauses in a Trust Agreement
3.1 Declaration of Trust
This clause formally establishes the trust and outlines its purpose. It includes a statement by the settlor declaring the creation of the trust and the transfer of assets to the trustee.
Example: "The Settlor hereby declares that they have transferred and assigned the property described in Schedule A to the Trustee, to hold in trust for the benefit of the Beneficiaries, subject to the terms and conditions set forth in this Trust Agreement."
3.2 Appointment of Trustees
This clause identifies the initial trustee(s) and outlines the process for appointing successor trustees. It may also specify the qualifications required for trustees.
Example: "The Settlor appoints [Name of Trustee] as the initial Trustee of this Trust. In the event of the resignation, incapacity, or death of the Trustee, a successor Trustee shall be appointed by [method of appointment]."
3.3 Duties and Powers of Trustees
This clause outlines the responsibilities and powers of the trustee, including the management of trust assets, investment decisions, and distribution of income and principal to beneficiaries.
Example: "The Trustee shall have the power to manage, invest, and reinvest the trust assets, to collect and distribute income, and to make distributions of principal to the Beneficiaries as provided in this Trust Agreement. The Trustee shall act in the best interests of the Beneficiaries and in accordance with the terms of this Trust Agreement."
3.4 Beneficiaries
This clause identifies the beneficiaries of the trust and specifies their respective interests in the trust assets. It may also outline the conditions under which beneficiaries may receive distributions.
Example: "The Beneficiaries of this Trust are [names of beneficiaries]. Each Beneficiary shall be entitled to receive distributions of income and principal as specified in this Trust Agreement."
3.5 Trust Property
This clause describes the assets that are initially transferred to the trust and any additional assets that may be added in the future.
Example: "The trust property initially consists of the assets described in Schedule A. Additional assets may be added to the trust by the Settlor or any other person, subject to acceptance by the Trustee."
3.6 Duration of the Trust
This clause specifies the duration of the trust, which may be for a fixed term, until a specific event occurs, or for the lifetime of the beneficiaries.
Example: "This Trust shall continue until [specific event] or until the death of the last surviving Beneficiary, whichever occurs first."
3.7 Distribution of Income and Principal
This clause outlines the terms and conditions under which the trustee may distribute income and principal to the beneficiaries.
Example: "The Trustee shall distribute the net income of the trust to the Beneficiaries [frequency of distributions]. The Trustee may also distribute principal to the Beneficiaries for their health, education, maintenance, and support, as the Trustee deems necessary."
3.8 Trustee Indemnity and Liability
This clause provides for the indemnification of the trustee against liabilities incurred in the performance of their duties, except in cases of willful misconduct or gross negligence.
Example: "The Trustee shall be indemnified out of the trust assets against any liability incurred in the administration of the trust, except for liability arising from the Trustee's willful misconduct or gross negligence."
3.9 Amendment and Revocation
This clause outlines the conditions under which the trust agreement may be amended or revoked by the settlor or other authorized parties.
Example: "The Settlor reserves the right to amend or revoke this Trust Agreement, in whole or in part, by delivering a written instrument to the Trustee. Any amendment or revocation shall be effective upon receipt by the Trustee."
3.10 Governing Law
This clause specifies the law that will govern the interpretation and administration of the trust agreement.
Example: "This Trust Agreement shall be governed by and construed in accordance with the laws of the Republic of Kenya."
4. Relevant Case Laws
Re Estate of the Late John Musambayi Katumanga (Deceased) [2014] eKLR:
Parties: The estate of John Musambayi Katumanga.
Outcome: The court emphasized the importance of adhering to the terms of the trust and the duties of the trustee to act in the best interests of the beneficiaries.
Relevance: This case underscores the fiduciary duty of trustees and the need for clear terms in the trust agreement.
In Re Estate of the Late George M’Mboroki M’Muthuri (Deceased) [2018] eKLR:
Parties: The estate of George M’Mboroki M’Muthuri.
Outcome: The court ruled on the proper administration of the trust and the distribution of assets to the beneficiaries.
Relevance: This case highlights the court's role in ensuring that trusts are administered according to their terms and the interests of the beneficiaries.
Mwangi & Another v Mwangi & Another [2015] eKLR:
Parties: Family members disputing the administration of a family trust.
Outcome: The court provided guidance on the interpretation of trust terms and the duties of trustees.
Relevance: This case illustrates the importance of clear and unambiguous terms in a trust agreement to avoid disputes.
5. Conclusion
A well-drafted trust agreement is essential for ensuring that the settlor's intentions are honored and that the trust is administered effectively. By including standard clauses such as the declaration of trust, appointment of trustees, duties and powers of trustees, and provisions for beneficiaries, trust property, duration, distribution, indemnity, amendment, and governing law, the trust agreement can provide a clear framework for the management and distribution of trust assets.
6. TLDR
A trust agreement in Kenya should include standard clauses such as the declaration of trust, appointment of trustees, duties and powers of trustees, beneficiaries, trust property, duration, distribution, indemnity, amendment, and governing law to ensure effective administration and adherence to the settlor's intentions.
Sources
Answered by mwakili.com