Author: Winnie Kungu
A New Chapter for Trust Law in Kenya
The Trust Administration Act No. 28 of 2026 (the Act) was recently assented into law and came into force on 25 September 2026. The Act harmonizes the legal framework governing trusts in Kenya by overhauling the previous regimes, which were fragmented under the Trustees (Perpetual Succession) Act (Cap. 164) and the Trustees Act (Cap. 167).
The new law is a welcome development, particularly because the previous regime consisted of laws enacted before independence. Cap. 164, for instance, came into force on 31 May 1923, while Cap. 167 came into force on 16 November 1929.
Commonly known trusts such as family trusts, charitable trusts and non-charitable purpose trusts are required to comply with the Act within a transition period of 24 months. This requirement extends to implied trusts and trusts created under other laws.
Your Mobile Wallet and the Trust Behind It
There are six e-money issuers licensed by the Central Bank of Kenya (CBK), offering e-money services through payment service providers (PSPs). Popular platforms include M-Pesa, Airtel Money and T-Kash. Under the National Payment System framework, PSPs are required, as a licensing condition, to maintain trust accounts with banks to safeguard customer funds held in electronic wallets.
These trusts directly affect every Kenyan household, given the widespread use of e-money in daily transactions. Although the underlying flow of these transactions may be complex, it is important to understand that customer funds are held in bank trust accounts, with the customers being beneficiaries under the respective trusts.
Funds held in any trust account in a bank enjoy deposit insurance protection in the event of a bank failure. This is through a principle known as pass-through or derived protection, as defined under the Kenya Deposit Insurance Regulations. Ideally, this means that should the bank in which the trust account is held fail, the Kenya Deposit Insurance Corporation (KDIC) will be able to refund the beneficiaries upon compliance with the requirements under the law. The same principle applies to other trust accounts maintained in banks, including advocates’ client accounts.
The Right to Be Identified: Beneficiaries and Protection of Trust Accounts
The Act imposes several compliance obligations on trusts, trustees and beneficiaries. Of particular importance is section 19 of the Trust Administration Act, which requires that the beneficiaries of a trust be identifiable by name, or ascertainable by reference to a class or a relationship with another person, whether living or not, at the time the trust is created.
Section 49 of the Trust Administration Act provides for access to information and sets out the information that a trustee is required to disclose. Among other things, the trustee must disclose information in order to comply with the Proceeds of Crime and Anti-Money Laundering Act, the Prevention of Terrorism Act, a court order or any other written law. Failure to comply attracts a fine not exceeding one million Kenya shillings, imprisonment for a term not exceeding two years, or both. For a corporate body, the fine is three million Kenya shillings.
The identification of beneficiaries matters for reasons that it furthers deposit insurance, particularly in the event of a bank failure. The deposit insurance framework under the Kenya Deposit Insurance Act, Cap. 487C (the KDI Act), protects e-money customers from the failure of the bank where the trust account is held.
Under Regulation 10(1)(0) of the National Payment System Regulations (Legal Notice 109 of 2014), Central Bank of Kenya requires PSPs to maintain a trust account that is consistent with trust legislation and the Regulations. Failure to do so may result in the revocation or suspension of their licences.
The identification of beneficiaries is therefore paramount. The trustee is obliged to ensure that beneficiaries are identifiable by name or capable of being identified in line with section 19 of the Trust Administration Act.
Additionally, the trustee is obliged to disclose the details of the beneficiaries to the bank where the trust account is held, and penalties may be imposed for non-compliance. Beneficiaries must be disclosed and identifiable so that, in the event of a bank failure, they are able to benefit from pass-through deposit insurance protection.
Where the Safety Net Holds, and Where It Stops
The KDI Act defines the scope of protection for funds held in a trust account. It does not itself define what amounts to a trust. Instead, it relies on specific trust laws, such as the Act, to define the four corners of a valid trust where a claim arises on payment following a bank failure.
Section 2 of the KDI Act defines a "trust account" to include monies held in such accounts for purposes of a trust. The KDI Act recognizes these accounts as protected deposits, so long as they meet the parameters set in the KDI Act and other written law.
Those parameters are set out in section 29 of the KDI Act. Where a bank is under a lawful obligation to repay monies to a depositor acting as a trustee for another, or as a joint owner with another, and this is disclosed in the bank's records, the deposit is treated as separate from any other deposit the depositor holds in their own name or in another capacity. Where a trustee acts for two or more beneficiaries, the deposit held for each is deemed a separate deposit. A deposit held in trust for a beneficiary is also treated as separate from any deposit the beneficiary holds in their own name, and from any deposit another trustee holds for them.
To give effect to this, the bank must indicate in its records the named beneficiaries of a trust account. The bank must keep these records and submit returns to the regulators.
Trustees, on their part, must maintain detailed records as prescribed by KDIC. They must submit those records to the bank when required and, when called upon, file a statutory declaration certifying their accuracy. The trustee must ensure that the information given is true and complete, and must indemnify the bank against any legal proceedings arising from those records. This means that e-money issuers, or any trustee holding a trust account, must disclose such information to the bank and keep the records up to date at all times.
A beneficiary under a trust must therefore ensure that the trustee complies by delivering this information to the bank. It is the only way a beneficiary under a trust account is able to enjoy deposit insurance protection.
Deposit insurance protection only covers the failure of the bank where the funds are placed. It does not extend to a situation where an agent, custodian or the PSP fails to deposit the customer's funds in a bank.
The current deposit insurance cover stands at KES 500,000. If the bank goes into liquidation, KDIC is obligated to promptly pay out the insured deposits to beneficiaries who meet the qualifications under these laws. Subsequent payments are made as the assets of the failed bank are realized.
Compliance Road Ahead: The Kenya Deposit Insurance Regulations (Legal Notice 166 of 2015)
Regulation 10 speaks directly to trust accounts. Insured deposits in trust accounts include co-mingled or pooled balances in custodial accounts holding funds that underlie mobile money transfer services, provided the funds are placed with an institution licensed by the Central Bank and a member of the Corporation.
A trustee of a trust account must obtain protection or insurance for the beneficiary of the account. However, this protection only covers the failure of the bank where the funds are placed. It does not extend to a situation where an agent or custodian fails to deposit the customer's funds in the first place. This is the concept of derived protection under the Regulations.
A bank opening a trust account must designate the account to indicate the nature of the trust. It must also obtain and keep a certified copy of the irrevocable trust deed or agreement governing the relationship between trustee and beneficiary, satisfy itself that the deed defines the rights and obligations of the parties, and ensure that the account is operated in line with the deed.
It is on the strength of these laws that money held in a trust account enjoys protection under the deposit insurance framework.
With the Act now in force, compliance questions come into play, particularly as mobile money transactions change rapidly and at short intervals. The question also extends to the amount of data to be retained. The Act will streamline deposit insurance protection, as beneficiaries are now aware of the information, they need to disclose to ensure protection against future eventualities. Trustees, for their part, are obliged to disclose that information, and penalties may be imposed under the Act for failure to do so.