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Setting up a nest egg helps secure children's future – Business Daily

As the number of wealthy Kenyans grows, many families are now setting up trust funds for their children as a form of insurance for their future. These funds are established alongside bank savings in the children’s names to steady their financial future.
This fund enables the children of the benefactor to continue to acquire education, medical care and other needs, including their general well-being, without interruptions upon the demise of the parent or guardian.
Today, many financial institutions, including banks and insurance companies, and even exclusive trust entities, have children’s trust funds as part of their product portfolio, with many reporting increased uptake in recent years.
So, what does it take to establish a trust fund for one’s children?
Peter Wachira, the principal officer at ICEA Lion Trust Company Limited says trusts are set up to ensure proper accountability and preservation of assets so that they can take care of the needs of the beneficiaries “during their needy period”.
Wachira says the founder of the trust must define three things, namely the asset being held in trust, the purpose of the trust and the beneficiary.
“In most cases, the asset is cash in a bank account. It could also be a financial instrument. Details of the asset, the source and its distribution are important.” The asset could be property, including a house or land.
He adds: ‘‘In most cases, the purpose is to provide for children’s education, their medical care or upkeep.’’
Peter Wachira, principal officer at ICEA LION Trust Company. PHOTO | POOL
Wachira notes it is critical to clearly define who the beneficiaries of the trust are. ‘‘You cannot just say the trust is for my children. You must name them to guide the trustee accordingly. This way, they will know what you are putting in trust, for what reasons and for whom.’’
Since a trust is normally established for minors, identifying a guardian is necessary. The guardian must also be a competent person who can provide oversight of the trust.
‘‘This is normally a close family member who is able to facilitate the fund. It is necessary to have more than one guardian to avoid gaps in the caretaking of the trust because it will usually run for a long period of time of, say, 20 years.’’
He explains: ‘‘Their role is to interact with the trust and to make sure that the financial needs of the child are taken care of. This may include processing school fees for the child.’’
The guardian, he says, does not benefit from the trust. ‘‘Their job is simply to facilitate the process. That is why, the founder of the trust, the guardian must be someone you trust.’’
In most cases, the trust will pay school fees or medical expenses directly to the institution where it is needed rather than going through the hands of the guardian. ‘‘The receiving entity is then required to provide accounting to the guardian.’’
On choosing a trustee, Financial expert Happi Kilongosi of CPF Financial Services says a corporate trustee or a person that the parent trusts enough to carry on their vision and that of the family is normally chosen. ‘‘It must be someone with your best interests at heart,’’ she notes.
On use, the deed may come with provisions around what amounts of money, for instance, may be withdrawn from the fund at a certain age of the beneficiary and when they attain certain milestones such as marriage, graduation and even pregnancy.
These are determined by the founder, also called the settler. It is also the settler who decided when full control of the fund us handed over to the beneficiary.
Trust fund experts agree that giving access to the wealth should be a calculated move, to avoid doing so too early when the beneficiaries are too young and inexperienced or delaying it too much to inconvenience them.
‘‘Access is given when the beneficiary is considered to have matured enough so as to take care of the trust balance. Twenty-five years is an ideal age when the child has finished higher education and has gotten their first job.’’
At this stage, they can spend the money on the continuity of their needs.
While a trust fund is meant to cushion the beneficiary from financial shocks and to give them a solid fiscal foundation, it can also be counterproductive in some instances.
The fund may create the impression of wealth and, therefore, used as grounds for denying them grants, student loans, scholarships and other statutory support.
Wachira says this should never be the case. ‘‘The child does not own this asset by themselves. They are merely a beneficiary of the fund. Even if anything were to happen to them, the kit is fully protected. Legally, no creditor can touch it.’’
He notes, though, that some children are tempted to be less aggressive seeing as there is money in store for them. ‘‘Some children will take advantage of the fund sometimes by buying the most sophisticated electronic gadgets such as phones and laptops.’’
Some of these elements may fall outside the regulation of the trust, in which case the guardian may be required to counsel the child to avoid wastage. ‘‘We advise them that whatever is in that trust is like money in their wallet that they must protect so as to take care of their future.’’
Neither a trustee nor a guardian can dictate the contents of the trust. ‘‘They only follow the instructions of the founder.’’
In the same vein, a beneficiary cannot amend the trust deed. The founder may, however, include provisions for reviewing the deed ‘‘to accommodate emerging needs and circumstances.’’
The adjustments can also only be made in the beneficiary’s best interests.
Are these funds popular in Kenya? ‘‘Trusts are gaining traction since the social fabric is no longer holding. Relatives and the ‘‘village’’ can no longer be relied upon to raise orphans,’’ says Kilongosi.
Trust funds, though, are not just for high net-worth individuals (HNWIs). Anyone can set up a fund to enable their dependants to go on with their lives without disturbances in the event they are incapacitated or they pass on.
Like all other transactions involving money where a lawyer’s signature is required, setting up a trust too requires the advisory role of a legal expert.
Faith Okaalo, a lawyer at Anjawalla of Khanna, however, says it is critical to engage a legal expert to forestall some of the legal complications that may arise during the process, making it difficult to achieve the purpose of the trust.
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Financial.co.kewas founded by Mr. Jospeh Muongi Kamau. He holds a Master of Science in Finance, Bachelors of Science in Actuarial Science and a Certificate of proficiencty in insurance.