Gifting property to minors in Kenya is a thoughtful way of providing them with a financial foundation for the future. There are various legal methods available for gifting property to minors, each with its unique legal framework and practical considerations. In this article, we explore the most common methods of gifting property to minors in Kenya and their legal frameworks, as well as practical considerations that donors should bear in mind.
Before we delve into the legal aspects, it is crucial to distinguish between real and movable property that minors can receive. Real property includes land and anything permanently attached to it, while movable property refers to anything that can be moved from one location to another, such as money, shares, or personal possessions. So, let us dive in and explore the ins and outs of gifting property to minors in Kenya.
Methods of gifting property to minors in Kenya
a) During one’s lifetime: Gifts inter vivos
Gifts inter vivos are one of the most common methods of gifting property to minors during the lifetime of the donor. Under the Law of Succession Act (Cap 160) Laws of Kenya (the “Act”), gifts inter vivos are recognized as one of two types of gifts. These gifts involve the transfer of property from a living donor to a recipient (“donee”) during the donor’s lifetime. To effect a gift inter vivos, the donor must settle it using either a deed or instrument in writing, delivery, or by way of a declaration of trust.
It is worth noting that gifts inter vivos require the donor and recipient to be living persons. This method of gifting property to minors is a popular choice in Kenya, as it provides an opportunity to see the impact of the gift during the donor’s lifetime and removes such a gift from the process of succession and probate.
Section 42 of the Act provides that gifts inter vivos made and settled during the donor’s lifetime will not form part of the deceased’s estate, but they will be taken into account in determining the share of the net intestate estate accruing to the beneficiary. This is known as bringing the property to the Hotchpot.
b) Through Estate planning tools
Three main estate planning tools can be used to gift property to minors: Wills, nominations, and trusts. We will discuss trusts as a means of vesting property to minors in one of our upcoming articles.
I. Wills – Testamentary Gifts & Bequests
A testamentary gift is a property transfer that occurs through a donor’s Will. The term “testamentary” implies that the transfer is related to the provisions of a Will. A testamentary gift cannot be revoked at any time, unless by way of a codicil or drafting a new Will. Moreover, a testamentary gift does not become effective until after the donor’s demise.
On the other hand, a bequest is a type of donation in which the donor leaves property to a beneficiary through their Will. Similar to testamentary gifts, bequests are irrevocable and only become effective upon the donor’s death. However, a bequest can only apply to personal property, whereas testamentary gifts may pertain to both personal and real property.
II. Nomination
Nomination is a direction made by a person to another who is holding investment on their behalf, to pay the funds on the nominator’s death to a nominee. Personal or movable property can be gifted to minors through nomination. This method involves naming the minor as a beneficiary in the relevant documentation, allowing for a smoother transfer of property in the event of the donor’s death.
Nominations operate under the rules of a particular scheme. Since they dispose of property upon death, they do not need to comply with the requirements of a will and are not subject to the law of succession. The subject of a nomination does not form part of the nominator’s estate. It is for that reason that the person holding the funds, or the scheme manager, does not require a grant of representation before paying out the funds to the nominee or beneficiaries. They only require proof of death before effecting payment.
The only time nominated funds fall for distribution under the law of succession is when the nomination has been revoked by either the subsequent marriage of the nominator or by the death of the nominee before that of the nominator. Where the nominee dies after the nominator’s death, the nomination would still be valid, and the funds would accrue to the estate of the nominee and would vest in the nominee’s personal representatives.
Certain instances when nominations are made in Kenya include savings and investments in cooperative societies and provident or pension schemes. For Savings in cooperative societies, Section 39(1) of the Co-operative Societies Act of 1997 provides that such gifts will not be subject to the probate process and will be passed to the minor and held in trust for them by their legal guardian. Section 36A of the Retirement Benefit Authority Act provides that upon the death of a member of a scheme, the benefit payable from the scheme shall not form part of the estate of the member for administration and shall be paid out by the trustees in accordance with the scheme rules.
For instance, if a donor has a discretionary pension scheme, they might have the option to choose someone to receive their benefits if they pass away. However, it is important to note that this choice is not usually cast in stone. The trustees of the scheme ultimately get to decide who gets the benefits.
c) In Contemplation of Death: Mortis Causa
Donatio Mortis Causa or gifts in contemplation of death are dealt with by section 31 of the Law of Succession Act. Donatio Mortis Causa is a Latin term that refers to a type of gift that is given during the donor’s lifetime, but only takes effect upon their death. The assets of the subject of a Donatio Mortis Causa do not form part of the estate of the deceased, such assets pass directly to the donee.
However, if the estate is unable to pay off the donor’s debts, the property given as a Donatio Mortis Causa may be used to cover those debts. Section 31(c) of the Act states that no gift made in contemplation of death shall be valid if the death is caused by suicide.
From the case of In re Estate of Godana Songoro Guyo (Deceased) [2020] eKLR, the issues surrounding a Donatio Mortis Causa require proof of three things:
- The gift was made in contemplation of death;
- The subject matter was delivered to the donee, and the gift was made under circumstances that showed that the thing is to revert to the donor in case of recovery. In this case, the evidence does not show that the deceased relinquished dominion over the title to land; and
- Gift inter vivos or mortis causa requires the donor to provide means for putting the land under the effective control of the donee, and a gift of registered land becomes effective upon execution and delivery of the transfer.
In conclusion, transferring property to a minor may seem like a straightforward process, but it can quickly become complicated due to the various legal and tax implications involved. It is crucial to be well-informed of the laws and regulations governing such transfers and take the necessary steps to ensure compliance to avoid potential legal and financial penalties. In our next article, we will delve deeper into the practical steps involved in transferring property to a minor, including tips for minimizing tax liabilities and ensuring a seamless transfer of ownership.
By Cindy Terry
