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Can a creditor in Israel reach assets the debtor transferred into a trust?

Often yes, if the transfer was made to put the assets out of reach. The Trust Law 5739-1979 separates trust assets from the trustee's own property, which is what makes a trust look attractive to a debtor. That separation does not protect a transfer that stripped the debtor of value while creditors were already circling: the Insolvency and Economic Rehabilitation Law 5778-2018 allows transactions at undervalue and preferential transfers to be set aside, and Israeli courts look at substance rather than the label on the deed.

Two separate questions arise. The first is whether the trust is real: a settlor who keeps the power to revoke the trust, direct the trustee and draw the income has not truly parted with the asset, and an Israeli court can treat the arrangement as a facade and allow enforcement against the property. The second is whether a genuine transfer can still be unwound. Under the insolvency legislation a court may cancel a transaction that transferred assets for no consideration or for less than their value within the statutory look-back period before proceedings opened, and the period is longer where the recipient is a relative or otherwise connected. Outside formal insolvency a creditor can bring an ordinary civil claim to set the transfer aside as a conveyance intended to defeat creditors.

For a foreign creditor the practical sequence matters more than the theory. Move first for an attachment over whatever remains in the debtor's own name, then obtain judgment, then attack the transfer, because an unwinding claim takes far longer than an enforcement file. Trust arrangements are also more visible than debtors expect: Israeli-resident settlors, trustees and beneficiaries carry reporting duties to the Israel Tax Authority, and the transfer of Israeli real estate into a trust leaves a trail at the Land Registry. Both give a creditor documentary evidence of the date and value of the transfer. Our guide to fraudulent asset transfers and creditor remedies sets out the pleading and the evidence courts expect.

⚖ In Practice
  • Governing law: Trust Law 5739-1979 (separation of trust assets); voidable transaction provisions of the Insolvency and Economic Rehabilitation Law 5778-2018
  • Competent authority: District Court for insolvency and for setting aside a transfer; the Execution Office (Hotza'a LaPoal) for enforcement of a judgment
  • Look-back: transfers at undervalue are generally attackable within roughly two years before proceedings open, with a longer window for relatives and connected recipients
  • Sham trusts: a trust the settlor can revoke and control at will is commonly treated as the settlor's own property
  • Timeline and cost: an unwinding claim runs as a civil action, typically 1 to 2 years, with court fees calculated on the value of the assets in dispute
  • Paper trail: trust reporting duties to the Israel Tax Authority and Land Registry entries usually establish the date and value of the transfer

From the full guide: Fraudulent Asset Transfers and Creditor Remedies in Israel

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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