At a Glance
A Family Trust is one of the most effective tools for preserving wealth, protecting beneficiaries, and ensuring the orderly succession of family assets. However, a trust is only as effective as the trust deed that creates it.
The trust deed is the governing document of the trust that sets out the powers of the trustees, the rights of the beneficiaries, and the rules by which the trust will operate. If it is poorly drafted, it can create uncertainty, disputes, and unintended consequences that undermine the very purpose for which the trust was established.
Below are some of the most common mistakes made when drafting Family Trust deeds and why they matter.
Failing to Clearly State Whether The Trust is Revocable or Irrevocable
One of the first questions that should be addressed when establishing a trust is whether it is intended to be revocable or irrevocable.
A revocable trust generally allows the settlor to amend or revoke the trust during their lifetime, whereas an irrevocable trust is intended to provide greater permanence and certainty. The trust deed should expressly state the settlor’s intention.
Leaving this issue unclear can create uncertainty regarding the settlor’s powers and the administration of the trust. As a general principle, where a trust deed does not reserve a power of revocation, the trust may, particularly upon the settlor’s death, be treated as irrevocable. Clear drafting avoids ambiguity and ensures that the trust operates as intended.
Imposing Absolute Restrictions on Trustees
Understandably, a settlor may wish to protect important family assets. However, trust deeds sometimes go too far by imposing absolute restrictions on trustees.
For example, a trust deed may state that trustees can never sell a particular property or never dispose of certain investments. While these restrictions may reflect the settlor’s wishes at the time the trust is created, circumstances inevitably change.
A property that is valuable today may become uneconomical to maintain in the future, or selling it may become necessary to preserve the overall value of the trust fund.
Rather than imposing inflexible prohibitions, a well-drafted trust deed should guide while allowing trustees sufficient discretion to act in the best interests of the beneficiaries and in accordance with their fiduciary duties.
Making the Trust Too Easy to Amend
Some trust deeds give trustees broad powers to amend almost every aspect of the trust with little or no oversight. While this may appear convenient, it can expose the trust to abuse.
Future trustees may amend provisions that the settlor regarded as fundamental, such as changing the class of beneficiaries, altering the distribution provisions, or removing important governance safeguards.
A carefully drafted trust deed should strike the right balance by allowing amendments where genuinely necessary while ensuring that significant changes are subject to appropriate safeguards, such as the consent of the settlor (during their lifetime), a protector, an enforcer, or another independent party where appropriate.
Failing to Distinguish Between Capital & Income
One of the most common technical drafting mistakes is failing to distinguish between capital and income. A trust deed may simply state that the trustees should distribute “30%” to a beneficiary without explaining whether this refers to capital, income, or both.
Without clear definitions, trustees may struggle to administer the trust consistently, and beneficiaries may have differing expectations regarding their entitlements.
A properly drafted trust deed should clearly define these concepts and specify how each should be treated throughout the life of the trust.
Using Generic or Template Trust Deeds
Not every family has the same assets, objectives, or succession concerns. Yet many trust deeds are prepared using generic precedents or templates that are only minimally adapted to the family’s circumstances.
Some are based on foreign precedents without sufficient consideration of Kenyan law or local practical realities.
A trust deed should never be treated as a standard-form document. It should reflect the settlor’s objectives, the nature of the trust assets, the needs of the beneficiaries, and the governance framework required for that particular family.
Overlooking Trustee Succession & Governance
Trusts are often established to last for many years, and in some cases, for generations. It is therefore important to consider what happens if a trustee dies, resigns, becomes incapacitated, or is no longer suitable to continue acting.
A trust deed should clearly set out how new trustees are appointed, who has the authority to make those appointments, and what qualifications or criteria replacement trustees should satisfy.
Similarly, where the trust includes an enforcer, the deed should provide clear succession mechanisms for those roles.
Without appropriate governance provisions, the trust may face unnecessary uncertainty or administrative difficulties over time.
Conclusion
A Family Trust can be an invaluable tool for protecting wealth and preserving a family’s legacy, but its success depends largely on the quality of the trust deed. Careful drafting is essential to ensure that the trust reflects the settlor’s intentions, provides appropriate flexibility, and establishes a governance framework that will remain effective for years to come.
At Sterling Law, we advise individuals and families on the establishment, review, and ongoing administration of Family Trusts.
By carefully tailoring each trust deed to the family’s unique circumstances and objectives, we help ensure that family wealth is protected for current and future generations.
