Many Kenyans spend years building wealth through homes, land, Sacco savings and investments, but far fewer think about what happens to the loans tied to those assets after they die.
However, unpaid mortgages, bank loans, digital credit and even hospital bills can determine whether beneficiaries inherit property or walk away empty-handed.
“Under Kenyan law, a person’s debts do not die with them; they must be identified and paid from the estate before inheritance is shared out,” says Njuguna Muri, senior partner at MMTK Law, whose response was prepared jointly with senior associate Mary Audi and associate Fridah Muriithi.
Many people also misunderstand what legally constitutes an estate. “Section 3 of the Law of Succession Act defines an estate as the deceased’s ‘free property’,” Mr Muri says.
An estate comprises all the property a person legally owned at the time of death that can be distributed through succession after liabilities have been settled. This includes land and houses, money held in bank and mobile money accounts, cars, shares, SACCO deposits, livestock, business stock, jewellery and other personal belongings.
One of the biggest misconceptions, he says, is that spouses and children automatically inherit a deceased person’s debts. Executors or administrators of the estate are responsible for identifying assets, settling liabilities and distributing what remains, but they are not expected to repay debts from their own pockets unless they misuse estate assets or breach their legal duties.
That also means beneficiaries cannot access inherited property until creditors have been dealt with.
“Heirs are only entitled to the net estate after debts and liabilities have been paid,” Mr Muri says, noting that any attempt to distribute land, houses or money before settling creditors can be challenged in court and reversed.
However, not every asset forms part of an estate. Jointly owned property, Mr Muri says, are generally passed on automatically to the surviving owner, while nominated pension benefits and insurance proceeds go directly to the named beneficiaries. Mortgaged property presents one of the biggest challenges during succession.
According to Mr Muri, beneficiaries can continue servicing the mortgage and retain the property, redeem the outstanding loan, rely on mortgage life insurance where available, sell the property to clear the debt or allow the lender to realise its security through an auction.
He notes that while banks holding charged property can exercise their security rights, they must comply with statutory notice requirements before selling the property.
The position is different for unsecured creditors. Mr Muri says lenders without security cannot simply send auctioneers to seize estate assets. Instead, they must pursue repayment through succession proceedings or obtain the necessary legal authority before recovering any money.
He adds that digital loans are often overlooked during estate planning despite their potential to complicate succession.
Mr Muri says many liabilities only emerge after death when lenders present claims against an estate, resulting in delays, disagreements among beneficiaries.
He recalls advising in a succession matter involving a businessman who died intestate while owing Sh17 million secured against a commercial property in Nairobi.
The family spent almost two years disagreeing over who should administer the estate. During that time, the loan attracted penalty interest, pushing the debt above Sh23 million before the lender moved to auction the property.
When administrators eventually obtained a grant, the court declined to stop the sale, allowing the lender to recover the outstanding loan, accrued interest and related charges from the proceeds.
“A Will would have brought clarity right from the beginning,” Mr Muri says.
Estate planning, Mr Muri says, goes beyond writing a Will. He advises borrowers to maintain an updated record of assets, liabilities, guarantees and insurance policies, ensure trusted family members know where financial information is kept, maintain mortgage life insurance where appropriate and regularly review beneficiary nominations.
He also cautions against keeping debts secret. “Avoid hiding loans from your spouse or adult children; secrecy is a major source of shock, anger and litigation after death,” Mr Muri says.
Rich Kenyans often hold their wealth through family companies and trusts. Mr Muri likens such arrangements to “three separate cups”. One holding wealth, the individual, the company and the trust. Each of these are governed by different legal rules.
“Personal debts, like loans taken or guarantees made in a person’s own name, are still paid from their personal estate after death,” Mr Muri says. The deceased’s shares go through succession. Similarly, trust property belongs to the trust rather than the settlor personally, meaning creditors cannot automatically claim trust assets simply because the settlor has died.
Even so, Mr Muri cautions against viewing trusts and companies as a way of escaping liabilities. “Kenyan insolvency law and court practice allow challenges where someone transfers assets into a trust or company in order to cheat or evade creditors,” he says.
