The Importance of Selecting Suitable Trustees

Every time we give a talk, conduct a training or pitch the idea of a family trust as a tool for effective estate planning and protection of family wealth to a potential client, the Njenga Karume Trust always comes up.

The Njenga Karume Trust was thrust into the news headlines just months after his passing at a time when the most popular succession planning tool was Wills and the concept of Trusts was uncommon and deemed as “innovative lawyering”.

The late Njenga Karume was a renown Kenyan politician whose estate was estimated at being worth at least Kenya Shillings 40 Billion. Prior to his demise, he had gone against the grain and had chosen to register a family trust as the means of devolving his vast estate. He appointed various Trustees from different fields but who largely constituted his personal friends. The Trustees were charged with the running of his businesses and distribution of the trust fund to the Late Karume’s beneficiaries. Things seemed to be running well and the trust structure was even praised in various quarters as being a progressive way of ensuring continuity of business and avoiding family squabbles which had characterized several succession matters.

Soon after, however, cracks started emerging with court battles which pitted some beneficiaries (children of the late Njenga Karume) against other beneficiaries and the Trustees of the Njenga Karume Trust. The legal principles re-affirmed by the Court in that matter shone a bright light on the lapses in the law on the establishment of family trusts in Kenya so much so that in December, 2021 our country adopted the a new legal regime on registration of Family Trusts in Kenya.

The Njenga Karume case mainly brought to light the issue of errant Trustees who were accused of grossly breaching the terms of the Trust Deed by doing the following:

1. Appointing new Trustees unprocedurally;
2. Failing to account for the funds of the Trust;
3. Borrowing substantially from financial institutions without consulting the beneficiaries of the Trust;
4. Discriminating against some of the Beneficiaries;
5. Commencing various transactions with the aim of disposing off the assets of the Trust without notifying the beneficiaries and accounting for all such dispositions.

Some of the beneficiaries of the Njenga Karume Trust sought the removal of the Trustees alleging manifest breaches of the fiduciary and statutory duties owed by Trustees under the Trust Deed and the law.

The Court in carefully examining the evidence adduced by the parties stated that when a Trustee is given legal title to the Trust property, in accepting that title, he or she owes a number of fiduciary duties to the Beneficiaries. The primary duties owed include the duty of loyalty, the duty of prudence and the duty of impartiality. These are supported by the duties of openness and transparency and the duties of record-keeping, accounting and disclosure

which heavily lacked in the management and administration of the Njenga Karume Trust.

Further, the court noted that it was apparent that the relationship between the Trustees and the Beneficiaries had irretrievably broken down and which was likely to jeopardize the proper administration of the Trust going forward.

The Court in ordering the removal of all the Trustees save for one Trustee who was a Beneficiary pronounced itself as follows:

“As stated elsewhere in this determination, the Trustees are found to have breached the provisions of the Trust Deed by failing to comply with its express provision in relation to appointment of the new Trustees to wit Mr. Gatabaki and Mrs. Kamithi. The Trustees further failed in their duty to keep proper books of accounts and further to provide information to the beneficiaries. The Trustees further failed to inform the beneficiaries in the dealing with the property of the Trust. Despite them having been bestowed with discretion by the Trust Deed the Trustees further discriminated against some of the beneficiaries by denying payment of allowances on the basis that the said beneficiary did not sign the handbook indemnifying the beneficiaries.

The structuring of a Trust must take into account the proper wording of the Trust Deed as well as careful consideration when appointing Trustees as this is critical to the proper management and administration of the Trust. The Trustees are essentially the gatekeepers of the Trust and should always exercise good faith while exercising their duties in the Trust Deed. In truth, a Trust largely succeeds or fails with the choice of the Trustees.

Conclusion

One of the ways in which a Settlor can ensure the proper administration of their Trust is by appointing a Corporate Trustee solely or jointly with other Trustees along with an Enforcer whose mandate is to ensure adherence of the Trust Deed.

A Corporate Trustee is a duly registered company with perpetual succession that is licensed to undertake corporate trustee services. Unlike individual trustees, a corporate trustee is a legal person and an autonomous entity and can be held to account by the Beneficiaries in the event of breach of trust so as to avoid a distasteful experience as was in the case of the Njenga Karume Trust.

Appointing an independent and impartial Corporate Trustee or Enforcer such as Gabael Trust Corporation Limited, solely or jointly with other Trustees in your family trust, is highly advantageous and important to the proper administration and management of the Trust.

advantageous and important to the proper administration and management of the Trust.

Gabael Trust Corporation Limited is a full-service premier company that provides independent and client-centric fiduciary and corporate trustee services in Kenya. We have a breadth of experience in providing fiduciary and related services which we draw from our wide variety of resources and skills on matters estate planning and trust administration spanning across the East African Region.

At Gabael, our clients are our first priority and we welcome you to take advantage of our excellent, cost-effective and timely legal solutions to all your fiduciary and trustee related matters.