Quick Answer: Israel's Trust Law 5739-1979 recognises trusts as valid legal arrangements for holding Israeli assets — but an Israeli trust does not automatically bypass the succession order process the way a US revocable living trust bypasses probate. A testamentary trust inside a valid Israeli will is the most common and cost-effective form for foreigners; a living trust transferring real property during the settlor's lifetime triggers purchase tax at non-resident rates of 8–10%, making it expensive for single-property estates. Trusts work best for minor beneficiaries, structured lifetime income, and complex multi-asset estates.

If you own property or financial assets in Israel and an adviser has suggested "putting everything in a trust," you need to understand how Israeli trust law actually works — because it is quite different from what most foreigners expect based on US, UK, or Australian trust practice.

The Trust Law 5739-1979 (Hok HaNamanut) is Israel's governing statute. It creates a workable trust framework — but Israeli trusts are not always the most efficient estate planning tool for foreign owners of a single Israeli apartment. Whether a trust or a will serves you better depends on your family situation, the assets involved, and the tax costs you are willing to absorb now versus later.

1. The Trust Law 5739-1979: What It Establishes

Israel's Trust Law defines a trust as a legal arrangement in which a naaman (trustee) holds or uses assets for the benefit of a nehena (beneficiary) or for a defined purpose. Unlike in England or the United States, an Israeli trust is not a separate legal entity — it is a legal relationship governed by a deed, a will, or operation of law. There is no "trust corporation" that can own property in its own name; the trustee holds assets in a personal capacity, albeit in a fiduciary capacity.

Several provisions matter most to foreigners dealing with Israeli trust law. Under Section 2, a trust can be created by deed, by will, or by operation of law. Section 3 requires a trust to have an identifiable object — either named beneficiaries or a defined purpose; a trust with neither cannot be enforced. Section 7 provides that the trustee holds assets on behalf of the beneficiaries and not as personal property, though third parties who deal with the trustee in good faith are protected. Sections 9 and 10 impose the core fiduciary duties: the trustee must act exclusively in the beneficiaries' interest and must keep trust assets strictly segregated from personal property at all times. Section 17 allows a trustee to resign on reasonable notice (while remaining liable for acts during their tenure), and Section 18 allows a court to remove a trustee who fails to act, acts in bad faith, or is irreconcilably at odds with the beneficiaries.

The Trust Law applies to any trust where the assets include Israeli-situated property or where the trustee is Israeli-resident. Foreign nationals can freely be settlors, trustees, or beneficiaries without restriction.

In Practice (§2 Trust Law; Ministry of Justice — Inheritance Registrar): Foreigners most commonly encounter the Trust Law when they are named as sole trustee of a testamentary trust created inside an Israeli will — typically to manage a real estate inheritance for minor grandchildren until they turn 25, or to provide a surviving non-Israeli spouse with structured income during their lifetime. Once the will is probated before the Inheritance Registrar, the Registrar's succession order formally vests the trust assets in the trustee. This registration takes 6–9 months from the date of death and costs approximately NIS 2,500–5,000 in court fees plus attorney representation.

2. Types of Israeli Trusts

There are four main trust structures that arise in Israeli estate planning for foreign nationals:

Testamentary Trust (Namanut B'Tzava'a)

Created by a clause inside a valid Israeli will under Section 2 of the Trust Law. The trust takes effect only after the will is admitted to probate and a succession order (*tzav kiyum tzava'a*) is issued by the Inheritance Registrar at the Ministry of Justice. Until probate is complete, the trust has no legal effect — assets remain part of the deceased's estate. This is the most widely used trust form in Israel for managing inheritances involving minor heirs or a surviving spouse who should receive income rather than capital immediately.

Living (Inter Vivos) Trust (Namanut B'Chayim)

Created by a written deed during the settlor's lifetime, with assets transferred to the trustee immediately. This is the closest Israeli equivalent to a US revocable living trust, but with critical differences: Israeli living trusts that hold real property trigger purchase tax on the transfer, do not automatically avoid the need for subsequent succession proceedings upon the trustee's death, and require ongoing compliance with the ITA. Revocable living trusts — where the settlor retains the right to revoke the trust and reclaim assets — are permitted under Israeli law but receive less favorable tax treatment than irrevocable arrangements.

Purpose Trust (Namanut Matara)

Created for a defined objective rather than for identifiable beneficiaries — for example, maintaining a family grave site, funding ongoing charitable grants, or preserving a specific property in perpetuity. Purpose trusts without identifiable beneficiaries who can petition for enforcement are viewed with caution by Israeli courts and require careful drafting to ensure they can be legally enforced. The Registrar of Nonprofit Organizations at the Ministry of Justice exercises supervision over charitable purpose trusts.

Charitable Trust (Namanut Tziburi)

A trust created for a charitable or public benefit purpose, subject to supervision by the Attorney General and the Registrar of Nonprofit Organizations. Foreign-origin charitable trusts that hold Israeli assets are increasingly subject to ITA reporting requirements and must register separately from any foreign registration in the settlor's home country.

In Practice (§2 Trust Law; Israel Tax Authority): Living trusts created in Israel are not registered with any government body — unlike companies, amutot (nonprofit associations), or land rights, no public trust register exists. However, where the trust earns Israeli-source income, the trustee must file a tax return with the ITA (Form 6111) within 90 days of the end of the applicable tax year. Failure to file carries fines under Section 188 of the Income Tax Ordinance starting at NIS 250 per month of delay.

3. Setting Up an Israeli Trust: Costs, Steps, and Practicalities

Creating a living trust in Israel involves four practical stages — drafting, transferring assets, appointing a local presence, and maintaining ongoing compliance. Each stage has costs that are often underestimated by foreigners accustomed to simpler arrangements in their home countries.

Step 1: Draft the Trust Deed

The trust deed must be in writing and must specify: the settlor (meyased), the trustee, all current and contingent beneficiaries, a complete description of the trust assets, the trustee's investment and distribution powers, conditions or timelines for distribution, a mechanism for appointing a successor trustee, and the governing law (Israeli law for Israeli-situated assets). There is no prescribed statutory form. Attorney fees for a straightforward family trust deed range from approximately NIS 4,000–8,000; complex trusts involving multiple jurisdictions, real estate, or business interests typically cost NIS 12,000–35,000 for the deed alone.

Step 2: Transfer Assets to the Trustee

  • Bank accounts and financial assets: The account must be retitled in the trustee's name "as trustee for [trust name]." Israeli banks (Bank Leumi, Bank Hapoalim, Mizrahi-Tefahot, Discount Bank) require certified copies of the trust deed, a legal opinion from an Israeli attorney, and may conduct know-your-customer procedures on both the settlor and the trustee.
  • Israeli real property (Tabu registration): Transferring land into a living trust requires a deed of transfer filed at the Israel Land Authority (ILA) and registered in the Land Registry (Tabu). This transfer is treated as a sale under the Real Estate Taxation Law 5723-1963. Purchase tax (Mas Rechisha) is calculated at non-resident rates: 8% on the first NIS 6,055,070 and 10% above that (brackets frozen until 15 January 2028). Betterment tax on any appreciation since the original purchase is also payable by the transferring party at 25% of real gains for non-residents. These two taxes combined represent the largest barrier to using a living trust for Israeli real estate.
In Practice (§§ 9–10 Real Estate Taxation Law; Israel Land Authority): Consider a non-resident who bought an Israeli apartment in Tel Aviv for NIS 1.8 million in 2018 and wants to transfer it into a living trust today (2026 value: NIS 3.2 million). The transfer triggers: purchase tax of approximately NIS 256,000 (8% on NIS 3.2 million, non-resident rate) plus betterment tax of approximately NIS 350,000 (25% on the NIS 1.4 million gain). Total tax cost of the transfer alone: roughly NIS 606,000. A succession order for the same apartment after the owner's death — using a valid Israeli will — costs NIS 7,000–15,000 in total attorney and court fees with no transfer tax.

Step 3: Appoint a Reachable Local Presence

There is no statutory requirement that a trustee be Israeli-resident. However, a non-resident trustee creates persistent logistical friction: every Land Registry interaction, ITA filing, bank transaction, and legal correspondence requires either the trustee's physical presence or a valid Power of Attorney to a local representative. Israeli courts, the ITA, and the Tabu all prefer dealing with a local contact who can respond within Israeli business hours. Most Israeli estate attorneys recommend appointing either an Israeli co-trustee or engaging a licensed professional trustee service.

Professional trustee services offered by Israeli law firms and licensed fiduciary companies typically charge NIS 5,000–15,000 per year for asset custody and administration. Where the trust holds actively managed rental property, fees are often structured as 5–8% of annual gross rental income.

Step 4: Ongoing Compliance

An Israeli trust with ongoing assets is not a "set and forget" arrangement. The trustee must: maintain accurate accounts of all assets and transactions, provide annual statements to beneficiaries on request, file ITA returns for any Israeli-source income, and renew any Land Registry notations when the trustee changes. If the original trustee dies, resigns, or becomes incapacitated and no successor was named, a court application under Section 18(b) is required to appoint a replacement — a process that takes 3–6 months and costs approximately NIS 15,000–30,000 in attorney fees.

4. Tax Treatment of Israeli Trusts

Israeli tax law treats trusts as pass-through (transparent) entities — income and gains flow through the trust to the beneficiaries and are taxed at the beneficiary level, not accumulated as trust income and taxed separately. The specific rules depend on whether the trust is classified as an Israeli trust or a foreign trust under Sections 75c–75n of the Income Tax Ordinance 5721-1961.

Income Tax

Where the beneficiaries are Israeli residents, income from the trust is attributed to them and taxed at their marginal rate — up to 47% for high earners, or the flat 10% Section 122 rate for rental income if the individual beneficiary makes that election directly. Where the beneficiaries are non-residents, Israeli-source income (rent, Israeli bank interest, dividends from Israeli companies) is taxed at the applicable non-resident withholding rates regardless of the trust wrapper: 25% on dividends and capital gains, 15–25% on interest depending on the source, 25% on rental income. Routing income through a trust does not reduce the rate. The trustee must file ITA Form 6111 within 90 days of the tax year end for any Israeli-source income; failure to file makes the trustee personally liable for the tax owed.

Real Estate Taxes

Transfer of Israeli real property into a living trust: purchase tax at 8–10% on the transfer value (non-resident rate) and betterment tax at 25% on capital gains (Section 121 Real Estate Taxation Law) — as detailed in Section 3 above. Transfer of real property out of the trust to a beneficiary on distribution: this is a further taxable event treated as a sale at fair market value, again triggering betterment tax on any gain since the trust's original acquisition.

Surtax (Mas Yesef)

Non-residents who receive Israeli capital income — including rental income and real property gains — above the annual threshold of NIS 721,560 (2026) are subject to an additional 2% surtax under Section 121B of the Income Tax Ordinance, on top of the standard 25% rate. This surtax applies whether or not the income flows through a trust.

In Practice (§§ 75c–75n Income Tax Ordinance; ITA circular on foreign trusts): The Israel Tax Authority classifies a trust as "foreign" if both the settlor and all beneficiaries are non-residents at the time of creation. Foreign trusts pay Israeli tax only on Israeli-source income. Where a trust holds Israeli real estate, the ITA requires annual rental income reporting regardless of whether any distributions are made to beneficiaries in that year. A trustee who fails to file the trust's Israeli tax return can be held personally liable for the unpaid tax plus 4% annual interest and CPI linkage under Section 159B of the Ordinance.

5. Trustee Duties and Beneficiary Rights

The trustee of an Israeli trust is a fiduciary — the law holds them to a higher standard than an ordinary commercial party. The Trust Law sets out five duties that matter in practice.

Loyalty (Section 9). The trustee must act exclusively in the beneficiaries' interest. Any transaction in which the trustee has a personal stake requires full disclosure and beneficiary consent beforehand.

Segregation (Section 10). Trust assets must be held in separate accounts and titled separately from the trustee's personal property. Commingling is a criminal offence under Section 42 of the Trust Law, punishable by up to two years' imprisonment. Banks take this seriously — an Israeli trustee who mixes trust funds with personal funds faces both criminal exposure and personal liability to beneficiaries.

Prudent management (Section 11). Investments must meet the standard of a prudent person managing property for others' benefit, not the trustee's own risk appetite. An investment strategy perfectly reasonable for the trustee personally may breach this duty when applied to trust assets.

Accounting (Section 12). The trustee must maintain complete accounts and provide written statements to beneficiaries on request. Where the trust instrument specifies an accounting frequency, that is a floor, not a ceiling.

Non-delegation of core judgment (Section 13). The trustee may employ agents — accountants, property managers, attorneys — for administrative tasks, but cannot hand off the core trustee judgment (investment decisions, distributions, beneficiary dealings) to someone else without express authorisation in the trust deed.

Beneficiary Rights and Remedies

Beneficiaries can petition the Family Court (for testamentary trusts arising from estate proceedings) or the District Court (for living trusts) to compel accounting, remove a trustee in breach, or seek damages for breach of fiduciary duty. Foreign beneficiaries living abroad can bring or defend proceedings through an Israeli-licensed attorney acting under a notarised Power of Attorney.

Court removal of a trustee under Section 18 is available where: the trustee persistently fails to act, acts in bad faith, misappropriates trust assets, or has an unresolvable conflict of interest with the beneficiaries. In uncontested cases where the trustee consents to removal, court proceedings typically take 3–6 months and cost NIS 10,000–20,000 in legal fees. Where the trustee contests removal, proceedings take 12–24 months at the Family Court and often significantly more.

In Practice (§18 Trust Law; Family Court; Land Registry): The most common practical problem in foreign-family Israeli trusts is trustee succession — when the original trustee (typically a sibling or family friend of the settlor) dies, loses capacity, or emigrates, and the trust deed has no clear successor trustee appointment. The ITA will halt tax filing, the bank will freeze the trust account, and the Land Registry will refuse to register any dealing with the property until a new trustee is validly appointed by court order. This process takes a minimum of 3 months even where all parties agree, and can take considerably longer where family disagreements arise. Including a clear written successor-trustee appointment mechanism, with at least two named alternates, is essential when drafting an Israeli trust deed.

6. Trust vs. Will: Which Is Right for Foreign Nationals?

For most foreign families, the practical question is not whether trusts are theoretically useful but whether they justify the cost in your specific situation. The calculation is almost entirely financial — what will the transfer taxes and ongoing administration fees cost you, compared with the cost of running a succession order after your death?

Cases where a trust genuinely helps

Minor beneficiaries are the clearest case. If you want to leave an Israeli apartment to children or grandchildren under 18, a testamentary trust inside your will is the standard mechanism — minors cannot legally hold real property directly, and the court-supervised alternative (a property administrator under the Legal Capacity and Guardianship Law 5722-1962) is slower and more expensive. The trust clause in the will names a trustee and specifies when and how the assets are distributed — "at age 25" or "for education and health costs until age 30" are both enforceable conditions.

A surviving non-Israeli spouse who needs income, but where you want the underlying property to eventually pass to your children, is another legitimate use. The trustee manages the property, pays income to the surviving spouse, and transfers capital to the children on the spouse's death. This structure is impossible to replicate cleanly with a simple will.

Where the Israeli estate includes multiple properties, business interests, and financial assets across several institutions, a trust can centralise management under a single trustee rather than forcing each beneficiary to deal separately with banks, the Land Registry, and the ITA. Creditor protection is a less common but sometimes legitimate reason: an irrevocable living trust created when the settlor has no known creditors may shield assets from future claims, though Israeli courts scrutinise such arrangements under the Insolvency and Economic Rehabilitation Law 5778-2018 as potential fraudulent transfers.

Cases where a will is simply better

If your Israeli estate is a single apartment and your beneficiaries are adults, a living trust is almost certainly the wrong tool. A valid Israeli will combined with a succession order at the Inheritance Registrar transfers ownership to your heirs in 6–9 months, at a total cost of NIS 7,000–15,000. A living trust that achieves the same result requires NIS 256,000 or more in purchase tax on a NIS 3 million apartment — for no practical gain.

Succession order proceedings at the Inheritance Registrar are bureaucratically manageable and can be handled entirely from abroad through a Power of Attorney. A trust with ongoing assets requires active management, annual ITA filings, and attorney fees for years or decades. And privacy — a reason some clients mention — is largely a non-issue: Israeli probate proceedings are not fully public anyway, and the Registrar does not publish wills.

In Practice (§§ 2, 17 Trust Law; Inheritance Registrar; Land Registry): For most diaspora families with a single Israeli apartment and adult Israeli beneficiaries, the recommended approach remains: a valid Israeli will (witnessed or notarial under Sections 20–23 of the Succession Law 5725-1965) executed while the testator has capacity, combined with a notarised Power of Attorney authorising a trusted local representative to manage the estate and succession proceedings after death. This route costs NIS 2,000–4,000 to establish and NIS 7,000–15,000 to administer. A living trust for the same property costs NIS 256,000+ in purchase tax at the outset, plus ongoing administration costs of NIS 5,000–15,000 per year. Trusts should be reserved for the cases where they add genuine structural value: minors, blended families, complex multi-asset estates, or charitable objectives.