1. What Is an Israeli Trust Under the Trust Law 1979?
The Chok HaNe'emanut (Trust Law 5739-1979) is Israel's primary statute governing trusts. Section 1 defines a trust as an obligation imposed on a person — the trustee — to hold or act with an asset for the benefit of another person (a beneficiary) or for another purpose. That definition is deliberately broad. An Israeli trust can hold real estate, bank accounts, securities, or company shares. It can benefit named individuals, a class of persons (such as "all children of X"), or even a charitable purpose.
Every Israeli trust has three parties. The settlor (Yotzair HaNe'emanut) creates the trust and transfers property into it; they can be Israeli or foreign, resident or non-resident. The trustee (Ne'eman) holds legal title to the trust assets, but purely in a fiduciary capacity — they cannot use those assets for personal benefit — and can be an individual or a licensed Israeli trust company. The beneficiaries (Neheneh) receive the benefit: they can be residents or non-residents, named individuals, or a broader class, and can include the settlor themselves in living trust structures.
Anyone familiar with English equity or continental European trust law will recognize the framework, though some terminology differs from both traditions.
In Practice: The Trust Law 5739-1979 contains 24 sections. The most relevant for foreign nationals are Section 2 (creation of a trust by deed or will), Section 7 (trustee's duty of loyalty and care), Section 10 (trustee's right to reimbursement), Section 15 (court supervision), and Section 19 (trustee removal). Israel has no trust registration requirement comparable to UK or US practice — there is no public register of Israeli trusts unless the trust holds real estate, in which case the trustee's name appears at the Land Registry (Tabu) as registered owner.
2. Types of Israeli Trusts
Section 2 of the Trust Law recognises three ways a trust can come into existence: by deed (an express trust created during the settlor's lifetime), by will (a testamentary trust that takes effect on death), or by operation of law (resulting and constructive trusts, which arise automatically in certain circumstances).
Living (Inter Vivos) Trust
A living trust is created by a deed signed during the settlor's lifetime. The settlor transfers Israeli assets — most commonly real estate — to the trustee, who holds them according to the trust deed's terms. For a diaspora family that wants to avoid Israeli probate on an apartment, this is the most direct tool. The settlor can retain a beneficial interest (the right to use the property during their lifetime) while the legal title already sits with the trustee, ready to pass to the beneficiaries immediately on death without any court process.
Testamentary Trust
A testamentary trust is created within a valid Israeli will. Instead of leaving property directly to a beneficiary, the testator leaves it to a named trustee "to hold on trust for [beneficiary] on the following terms." The trust only comes into existence on the testator's death, after the will has been admitted to probate. Testamentary trusts do not bypass Israeli probate: the asset still goes through the Registrar of Inheritance Affairs (Rasham HaYerushot) first. They are useful when the beneficiary is a minor or incapacitated, or when the testator wants to impose conditions on how assets are used over time.
In Practice: Testamentary trusts for minor beneficiaries fall under the supervision of the Administrator General and Official Receiver (*HaKamtzar HaRashi*, part of the Ministry of Justice) under the Trusteeship Law and related regulations. Before a trustee can sell real estate held in a testamentary trust for a minor, court approval is required. The Administrator General's office can be reached at 02-5087700; applications must be submitted to the relevant district office (Jerusalem, Tel Aviv, Haifa, or Be'er Sheva depending on where the trust property is situated).
Foreign Trust Holding Israeli Assets
Many diaspora families already have a trust structure in their home country — a US revocable living trust, a UK discretionary trust — and sometimes ask whether that foreign trust can simply hold Israeli real estate. It can, but with complications. The Land Registry (Tabu) registers the foreign trustee as legal owner of the Israeli property. Israeli real estate tax rules still apply regardless: betterment tax on sale, purchase tax on acquisition, and income tax on rental income. The foreign trust is also classified under one of the four categories in Chapter 4B of the Income Tax Ordinance for Israeli purposes, and that classification affects the overall tax position significantly. Get Israeli tax advice before transferring any Israeli asset into a foreign trust structure.
3. How to Create an Israeli Trust
Under Section 3 of the Trust Law, a trust by deed comes into existence when the trustee has accepted the role and the trust property has been transferred. In practice that means two things need to happen: a trust deed clearly identifying the parties, the property, and the terms must be signed, and the property must actually be moved into the trustee's name.
The Trust Deed
The trust deed should cover at minimum:
- Identity of the settlor, trustee, and beneficiaries (with passports or ID numbers)
- Description of the trust property
- Trustee's powers of management (investment, sale, lease, distribution)
- Distribution rules: when and how beneficiaries receive income or capital
- What happens on the settlor's death or incapacity
- Successor trustee provisions if the original trustee dies or resigns
- Governing law (which should be Israeli law for Israeli-situated assets)
- Duration of the trust (Israeli law does not impose a strict perpetuities rule in the English sense, but clarity on duration avoids disputes)
Transferring Israeli Real Estate Into a Trust
For a trust that holds Israeli real estate, the property must be formally transferred from the settlor's name to the trustee's name at the Land Registry (Tabu). This involves executing a transfer deed (*shtar maavar*), paying any applicable purchase tax (note that transfers to a trust may be treated as a taxable sale depending on the structure — always verify with an Israeli tax attorney beforehand), and registering the transfer at the Tabu.
In Practice: Transferring Israeli real estate into a trust does not automatically trigger betterment tax (*mas shevach*) — but it may trigger purchase tax (*mas rechisha*) on the trustee as the acquiring party, depending on how the transaction is characterised. Under Section 4 of the Land Taxation Law 5723-1963, transfers to a trust where the beneficiaries are the same persons who transferred the property (e.g., a revocable self-settled trust) can sometimes be structured to avoid immediate tax crystallisation. However, this requires advance tax ruling from the Israel Tax Authority (*Reshut HaMisim*) in complex cases. ITA rulings take 3–6 months and cost NIS 5,000–15,000 in legal fees to prepare. Tabu registration fees run approximately NIS 820 for a standard property transfer; stamp duty no longer applies to real estate transfers in Israel.
Using a Professional Trustee
For larger or more complex trusts, using a licensed Israeli trust company rather than an individual trustee offers several advantages: professional management, continuity (a company does not die or emigrate), regulatory supervision by the Capital Markets, Insurance and Savings Authority (CMISA), and a clear audit trail. Licensed trust companies in Israel typically charge annual management fees of 0.3–0.8% of assets under management, plus a one-time setup fee. This is worth considering when the trust assets are NIS 2 million or more.
4. Trustee Duties and Court Supervision
Section 7 of the Trust Law imposes two core duties on every Israeli trustee: a duty of loyalty (chovat ne'emanut) and a duty of care (chovat zehirut). The trustee must act in the interests of the beneficiaries, never their own, and must manage trust assets with the prudence of a reasonable person handling their own affairs.
What that looks like in practice:
- No buying trust property for the trustee's own account (self-dealing is void)
- No mixing trust funds with personal funds
- Proper accounts must be kept; beneficiaries can request financial information at any time
- Assets must be invested prudently — leaving cash idle in a low-interest account when the deed permits investment is a potential breach
- The trustee is personally liable for losses caused by any breach of duty
Court supervision
The Israeli Family Court has supervisory jurisdiction over trusts under Section 15 of the Trust Law. Any beneficiary, or the Administrator General, can apply to the court for directions, for an accounting from the trustee, or to remove a trustee acting against the trust's interests. Applications go to the Family Court in the district where the trust property is mainly situated or where the trustee resides.
In Practice: In practice, courts rarely supervise well-drafted private trusts on a routine basis — the supervisory jurisdiction is invoked when a dispute arises. However, for testamentary trusts holding assets for a minor under 18, the trustee must report to the Administrator General's office annually on the trust's financial position. This reporting requirement under Regulation 4 of the Trusteeship Regulations does not apply to inter vivos (living) trusts unless a court specifically orders it. If you are named as trustee for an Israeli estate that includes minor beneficiaries, contact the Administrator General's district office within 30 days of accepting the role.
5. Using a Trust to Bypass Israeli Probate
When the settlor of a living trust dies, the trust keeps running. The trustee holds trust property on the same terms as before — no succession order to obtain, no Registrar of Inheritance to petition, no Israeli probate proceedings for trust-held assets. Beneficiaries receive what the trust deed provides, when the deed says they receive it.
Compare that to the alternative. Even an uncontested Israeli probate involves:
- Obtaining an apostilled death certificate and translating it into Hebrew
- Locating and apostilling the will (or establishing intestacy)
- Submitting an application to the Registrar of Inheritance Affairs (*Rasham HaYerushot*) with all required documentation
- A mandatory 45-day public notice period during which objectors can appear
- Receiving the succession or probate order (typically 4–6 months from application in uncontested cases, years in contested ones)
- Using the order to unlock Israeli bank accounts, transfer real estate at the Tabu, and deal with Israeli financial institutions one by one
For heirs living abroad, managing this process remotely means chasing apostilled documents, coordinating with Israeli attorneys across time zones, and dealing with banks that operate on Israeli business hours. A living trust removes all of that for the assets it holds.
In Practice: The probate bypass only works if the trust was properly funded — that is, the property was actually transferred into the trustee's name before the settlor's death. An unfunded trust (one where the settlor drafted the deed but never transferred the assets) provides no probate protection at all. Verify that the Land Registry (Tabu) shows the trustee as registered owner of any Israeli real estate that is meant to be in the trust. For bank accounts, the account must be re-titled in the trustee's name — a trust deed alone does not change the account ownership. Israeli banks typically require the original trust deed, the trustee's identity documents, and sometimes a legal opinion before re-titling an account.
6. Tax Rules for Trusts With Foreign Parties
Chapter 4B of Israel's Income Tax Ordinance (*Pekudat Mas Hachnasa*) — Sections 75C through 75L — governs the taxation of trusts. The rules are complex and were significantly updated in 2014 and again in 2026. The key variable is the tax residency of the settlor and the beneficiaries at the time of each relevant event.
The four trust classifications
Chapter 4B classifies every trust based on the residency of its settlor and beneficiaries. The category determines whether Israel taxes the trust on worldwide income or on Israeli-source income only.
Where the settlor is an Israeli resident, or at least one beneficiary is an Israeli resident at any point during the trust's life, the trust is an Israeli Resident Trust under Section 75D. The trustee is taxed on worldwide income as if the trust were an Israeli resident individual — the most heavily taxed outcome.
Where the settlor and all beneficiaries are foreign residents, the trust is a Foreign Resident Trust under Section 75C. The trustee pays Israeli tax only on Israeli-source income: rent, gains from Israeli property, Israeli dividends. Foreign-source income is not taxed in Israel at all.
An Oleh or Returning Resident Trust is created by a new immigrant or long-term returning resident (toshav chozer) during their 10-year foreign-income exemption under Section 14(a). The trust inherits that exemption for the same period. Once the exemption expires, the trust is reclassified into one of the other categories.
Finally, a Foreign Trust With an Israeli Beneficiary — created under foreign law where the settlor is non-resident but at least one beneficiary lives in Israel — is caught by Section 75E. Israeli tax applies to the Israeli beneficiary's share of trust income as if it had been distributed, even if no distribution has actually occurred.
In Practice: The most common tax trap for diaspora families is inadvertently converting a Foreign Resident Trust into an Israeli Resident Trust by adding an Israeli-resident child as a beneficiary. Once any beneficiary becomes an Israeli resident — through Aliyah, long-term presence, or simply buying an apartment and staying — the trust reclassifies and the trustee faces Israeli tax on worldwide income from that date. Carefully consider whether to name specific Israeli residents as beneficiaries, or whether to use a discretionary trust structure where the trustee has power to benefit them without naming them as fixed beneficiaries. This requires specialist advice from both an Israeli tax attorney and your home-country advisers.
How Trust Income Is Reported and Paid
The trustee is responsible for filing annual Israeli tax returns for the trust and paying tax on trust income. The trustee registers with the Israel Tax Authority (*Reshut HaMisim*) and receives a file number. For a Foreign Resident Trust with only Israeli rental income, the trustee typically files Form 1301 annually and pays tax at the applicable rate — 10% flat on gross rent under Section 122 of the Income Tax Ordinance, or at marginal rates on net income after expenses.
7. The 2026 Trust Reporting Requirements
Amendment 268 to the Income Tax Ordinance, which took effect on 1 January 2026, introduced new reporting obligations that affect trusts with Israeli connections. For the first time, new immigrants (*olim*) and long-term returning residents (*toshavim chozrim*) who arrive in Israel on or after 1 January 2026 must report their worldwide assets — including their interests in foreign trusts — to the Israel Tax Authority, even during the 10-year foreign-income exemption period when no Israeli tax is actually owed on foreign income.
What Must Be Reported
Under the new rules, a settlor or beneficiary who is an Israeli resident must report to the ITA:
- Any foreign trust in which they hold a settlor or beneficiary interest, including the trust's country of registration, the trustee's identity, and the approximate value of assets
- Any Israeli trust for which they are the settlor or a beneficiary, with annual income and asset reporting
- Distributions received from a foreign trust, regardless of whether they are taxable in Israel
Failure to report triggers penalties starting at NIS 500 per month of delay under Section 191(b) of the Tax Ordinance, with escalating civil penalties and potential criminal exposure for deliberate concealment under Section 220.
In Practice: The first reporting cycle for the 2026 tax year is due by 30 April 2027 (or 31 May 2027 with an extension, through the ITA's Shaam online portal at shaam.gov.il). New olim who arrived before 1 January 2026 are not subject to these new requirements under the transitional provisions of Amendment 268. Those who arrived on or after that date must report from year one. If you are planning Aliyah and have interests in foreign trusts, it is worth timing the immigration date carefully and obtaining pre-immigration tax planning advice — ideally from an Israeli attorney who works with your home-country tax adviser — before arrival.
8. Trusts vs. Wills: Which Is Right for You?
A trust and a will serve different purposes, and for most foreign nationals with Israeli assets the right answer is both: a living trust for the main property, and a will to catch anything not transferred into the trust and to name guardians for minor children.
When a will is usually enough
If you own one Israeli apartment and your adult heirs are comfortable navigating a 4–6 month probate process, the cost of establishing and maintaining a trust — NIS 8,000–25,000 upfront, plus ongoing trustee fees — probably is not justified. Similarly, if your heirs are Israeli residents who can deal with banks and institutions directly, probate is a manageable inconvenience rather than a genuine obstacle. A testamentary trust within a will is also the natural choice when the goal is to protect assets for a minor, where the probate process itself provides useful court oversight of the trust setup.
When a living trust is worth the cost
The case for a living trust gets stronger when your intended beneficiaries are overseas and have no familiarity with Israeli law. Removing the probate requirement is a practical gift to them. Privacy is another factor: a will becomes a public document once admitted to probate; a trust deed does not. That matters when the estate is significant or family relationships are complicated.
A living trust also does something a will cannot: it keeps working during the settlor's incapacity. Paired with a registered Enduring Power of Attorney, it provides continuous management of Israeli assets whether the owner is abroad, incapacitated, or deceased. For anyone with multiple Israeli properties, significant financial assets, or business interests in Israel, that continuity is worth paying for.
In Practice — Cost Comparison: A basic Israeli witnessed will drafted by a competent attorney costs NIS 2,000–6,000. A living trust with Israeli real estate — including the trust deed, property transfer at the Tabu, and any ITA advance ruling needed — typically costs NIS 15,000–40,000 to establish. Ongoing trustee fees for a professional trust company run 0.3–0.8% of assets annually. For a NIS 3 million apartment (a typical Tel Aviv property price), that is NIS 9,000–24,000 per year. Against that, weigh the savings in probate costs (attorney fees, translations, apostilles, court fees) that the trust eliminates — typically NIS 20,000–60,000 for an average Israeli estate with overseas heirs — and the time saved.
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