What Is a Family Trust?
A trust (Neemanut) is a legal arrangement in which one person (the settlor) transfers assets to a trustee who holds and manages those assets for the benefit of specified beneficiaries. In Israel, trusts are governed by the Trust Law (1979) and can serve as powerful estate planning tools — particularly for protecting assets across generations, providing for dependants, and minimising tax exposure.
Uses of Family Trusts in Israel
- Protecting minors: Holding assets for children or grandchildren until they reach a specified age or milestone.
- Providing for a disabled beneficiary: Managing assets for a beneficiary who cannot manage them independently.
- Intergenerational transfer: Transferring wealth across generations in a structured way that avoids probate delays.
- Asset protection: In certain structures, a properly established trust can protect assets from creditors of the beneficiaries (subject to limitations).
Tax Implications
Creating a trust in Israel has tax consequences that must be analysed carefully. Transfers to the trust may trigger capital gains tax. The trust itself may be liable for income tax on earnings within the trust. International trusts — involving non-resident settlors or beneficiaries — are subject to complex rules under Israel's tax treaties and domestic law.
Does a family trust replace a will in Israel?
No — a family trust and a will serve different functions and should be coordinated rather than treated as alternatives. A trust holds specific assets that are transferred into it during the settlor's lifetime; those assets do not pass through the estate. However, assets not placed in the trust — including assets acquired after the trust is created — pass through the estate according to the will or the Inheritance Law. For most families, a combination of a trust and a will provides the most comprehensive estate plan.
