1 2 Contents trust & estate planning a collection of articles

introduction

The articles compiled in this booklet were presented to the participants of the STEP Israel conference 2019.

This year marks 21 years since the founding of the STEP Israel branch and 71 years since the State of Israel’s independence.

Few countries in the world have the experience of absorbing waves of millions of immigrants coming from many jurisdictions and establishing a home, profession and business different from the culture and law of their origin.

The articles included in this collection portray the law and practice used by professionals in accommodating the needs and requirements of the complex society in Israel which grew from a community of less than one million people in 1948 to close to more than nine million in 2019.

The articles represent a small portion of the vast legal writing on this subject.

The team of writers of the articles in this booklet deserve special praise for their contribution.

Alon Kaplan July 2019

Contributors & Editors

Dr. Alon Kaplan, Meytal Liberman, Lyat Eyal

3 Contents Panoramic view of Jaffa

4 Contents table of contents

Articles 2018 Page

Estate Planning from the Talmud > 6

Case Studies from Israel > 13

Case Studies From Israel: Family Wealth Transfers > 19

Features: Residence and Citizenship in Israel > 30

Israel - Estate Planning Considerations for the New Immigrant > 32

Succession in Israel > 37

The Tales of a Family Business in Israel > 40 Articles 2019

Inheritance Law and Procedure in Israel > 44

Israel: The Trust Law and the Hekdesh Deed > 49

Power Surge > 52

The Israeli Trust > 56

The Use of Real Estate Trust for Holding of and Management of Property in Israel > 64

Trusts and Estates in Israel > 68

Trusts and Estate Planning in Israel > 74 Book Reviews Trust & Estate planning in Israel - Juris Publishers > 78-79

82 - 80 < נאמנות בישראל הלכה למעשה - הוצאת הלכות

Trusts in prime jurisdictions - Globe Law Publishers > 83-85

5 ESTATE PLANNING FROM THE TALMUD >

ESTATE PLANNING FROM THE TALMUD a story ”choni ha'meagel”* Last month I participated in a professional conference in Lisbon. We took a tour out of the city and visited a production site using cork taken from the cork trees. We were shown that the cork is part of the trunk of the tree. It takes 25 years after plantation until the first harvest of the cork tree can be used as raw material for the industry. The next time the the tree can be harvested will be 9 years from the last harvest. This amazing information reminded me the story of “ Choni Ha’meagel” from the Talmud time:

One-day Choni saw in the field an old man planting a carob tree. Choni asked the man when this newly planted tree would bear fruit. He was told that this type of carob tree bears fruit only seventy years after it is first planted. Choni wondered “Do you intend to eat from this tree?”

“Just as my ancestors saw to it that when I came into the world I found fruit trees that I could eat from, so I am making sure my descendants will have fruit trees available when they come into the world” answered the old man. Each generation makes sure the following generations’ needs are provided. The story tells that Choni fell into a deep sleep. Seventy years later he woke up. He saw that the tree that had been planted on the day he fell asleep, was now bearing fruit.

Choni asked the man who stood by the tree: “Did you plant this tree?”

the man answered: “No, it was my grandfather who planted this tree seventy years ago “.

Choni went to his home and asked about his son. He was told the son had passed away but his grandson is alive.

Choni went to the synagogue. Nobody recognized him and people ridiculed him for presenting himself as Choni Ha’ Meagel the famous scholar. Choni said in frustration: “If I am not recognized and appreciated for who I am, I’d rather die.” G-d took his soul.

what is the lesson we should learn?

“Just as my ancestors saw to it that when I came into the world I found fruit trees that I could eat from, so I am making sure my descendants will have fruit trees available when they come into the world.”

estate planning was already considered in the time of the talmud.

Khoni, Choni, or Ḥoni, HaMa’agel; lit. Honi the Circle-drawer) was חוני המעגל) Wikipedia: Honi ha-Me’agel* a Jewish scholar of the 1st-century BC, prior to the age of the tannaim, the scholars from whose teachings the Mishnah was derived. Honi ha-Me’agel, was famous for his ability to successfully pray for rain.

6 7 Contents אָמַר רַ' יוֹחָנָן: כָּל יָמָיו שֶׁ ל אוֹתוֹ צַדִּיק הָיָה מִצְטַעֵר עַל הַמִּקְרָא הַזֶּה: "שִׁיר הַמַּעֲלוֹת בְּשׁוּב ה' אֶת שִׁיבַת צִיּוֹן הָיִינוּ כְּ חֹלְמִ ים" )תהילים קכו, א( - אָמַר: "וְכִי יֵשׁ מְנַמְנֵם שִׁבְעִים שָׁנָה בַּחֲלוֹם?" - פַּעַם אַחַת הָיָה מְהַלֵּךְ בַּדֶּרֶךְ, רָאָה אָדָם אֶחָד שֶׁהוּא נוֹטֵעַ חָרוּב. אָמַ ר לוֹ: זֶה לְכַמָּה שָׁנִים טוֹעֵן פֵּ רוֹת? אָמַ ר לוֹ: לְשִׁבְעִים שָׁנָה. אָמַ ר לוֹ: כְּלוּם בָּרִי לְךָ שֶׁתִּחְיֶה שִׁבְעִים שָׁנָה, וְתֹאכַל מִמֶּ נּוּ? אָמַ ר לוֹ: אֲנִי מָצָאתִי אֶת הָ עוֹלָם בַּחֲרוּבִים; כְּשֵׁם שֶׁנָּטְ עוּ אֲבוֹתַי לִי כָּךְ אֶטַּ ע אֲנִי לְבָנַי. יָשַׁ ב חוֹנִי לֶאֱכֹל, נָפְלָה עָלָיו שֵׁנָה וְנִתְנַמְנֵם. עָלָה צוּק וְהִקִּ יף עָלָיו וְנִתְכַּסָּה מִן הָעַיִן וְיָשֵׁן שִׁבְעִים שָׁנָה.

כְּשֶׁנִּנְעַר רָאָהוּ לְאָדָם אֶחָד שֶׁהוּא מְלַקֵּט מֵ אוֹתוֹ חָרוּב. אָמַ ר לוֹ: אַתָּ ה הוּא שֶׁנְּטַעְתּ וֹ? אָמַ ר לוֹ: אֲבִי אַבָּ א. אָמַר: וַדַּאי מְנַמְנֵם הָיִיתִי שִׁבְעִים שָׁנָה. רָאָה אֲתוֹנוֹ שֶׁיָּלְדָ ה לוֹ עֲיָרִים עֲיָרִ ים. הָלַךְ לְבֵ יתוֹ, אָמַר לָהֶם: בְּ נוֹ שֶׁ ל חוֹנִי הַמְּעַגֵּל הֵיכָן? אָמְ רוּ לוֹ: בְּ נוֹ אֵ ינוֹ בָּ עוֹלָם, אֲבָל יֵשׁ בֶּן בְּ נוֹ. אָמַר לָהֶם: "אֲנִי חוֹנִי הַמְּעַגֵּל" – וְלֹא הֶאֱמִ ינוּ לוֹ. הָלַךְ לְבֵית הַמִּדְרָשׁ , שָׁמַע הַחֲכָמִ ים אוֹמְרִים: בְּרוּרָה לָנוּ שְׁמוּעָ ה זוֹ עַכְשָׁו כִּבְיָמָיו שֶׁ ל חוֹנִי הַמְּעַגֵּ ל, שֶׁכְּשֶׁהָיָה נִכְנָס לְבֵית הַמִּדְרָשׁ , כָּל קֻשְׁיָה שֶׁהָיְתָה לָהֶם לַחֲכָמִים הָיָה מְיַשְּׁבָהּ . אָמַר לָהֶם: "אֲנִי חוֹנִי", וְלֹא הֶאֱמִ ינוּ לוֹ, וְלֹא נָהֲגוּ בּ וֹ כָּ בוֹד כָּרָאוּי לוֹ. חָלְשָׁה דַּעְתּ וֹ וּבִקֵּשׁ רַחֲמִים - וָמֵ ת. אָמַר רָבָא! זֶה שֶׁ אוֹמְרִין הַבְּרִיּוֹת: "אוֹ חַבְרוּתָ א אוֹ מִ יתוּתָ א".

תלמוד בבלי, מסכת תענית, דף כג’, עמוד א’

6 7 Contents about us

Established in 1975, the firm offers a full range of services in the fields of Commercial Law, International Trusts and Estates, cross border estate planning, Real Estate Trusts, International Taxation. The firm has extensive activity in Europe, in the areas of Trusts and Estates, Private Banking, International Transactions and Taxation, Companies and Commercial Agencies and Distributors.

Writing in various respectable international legal publications such as Trusts& Trustees, Tottel Publishing’s International Succession Laws, and Planning and Administration of Offshore and Onshore Trusts and Kluwer Law Online publications – the firm is responsible for writing, and periodically updating, the chapter in each one dealing with Israel.

practice areas

Trusts

The Practice advises on foreign and Israeli trusts for Israeli and overseas clients. Trusts are structured to meet the client’s particular needs, including succession planning, asset protection and forced heirship issues. The Practice maintains close relationships with reputable banks in Israel and abroad, as well as with numerous law firms and licensed trust companies.

Estates

The Practice advises on all matters of estate planning, trusts, probate and inheritance proceedings. This includes legal services, such as drafting of trust deeds and wills, as well as providing services relating to probate and inheritance orders, administration of estates and cross-border inheritance matters.

International Taxation

The Practice provides tax advice to individuals and companies with international business activities, including tax planning advice involving personal tax law and international tax issues. In order to provide this comprehensive service. The practice works closely with lawyers, tax experts and accountants in several jurisdictions with the required expertise in this filed.

8 9 Contents Family Office

The Practice provides legal advice to family offices in matters of structuring and organizing family businesses, creation of trusts, and drafting of wills.

Distributors & Agents

The Practice provides legal advice to distributors, agents and suppliers from Israel and overseas on the law and practice of distribution agreements. The Practice advises foreign companies regarding the appointment of agents and distributors in Israel and Israeli companies regarding the appointment of agents and distributors overseas.

Real Property and Financial consultations

The Practice advises on purchasing, holding and managing real estate in Israel with a special focus on investments by overseas companies and individuals, including aspects of taxation and the creation of real estate trusts. Special expertise in serving “Olim” – immigrants to Israel in all financial and assets arrangements.

Company Law

The Practice advises on all aspects of company law in Israel, including legal advice for foreign investors and entrepreneurs wishing to start or operate a business in Israel.

8 9 Contents authors

dr. alon kaplan

Advocate & Notary, PHD, TEP Founder & Managing Partner

Dr. Alon Kaplan, LLM (Jerusalem), PhD (Zurich), TEP, was admitted to the Israel Bar in 1970, was appointed a notary in 1989, and practices law in Tel Aviv. He was admitted to the New York Bar in 1990 and became a Member of the Frankfurt Bar in 2010.

Among the founders of STEP Israel in 1998, he is currently the President of STEP Israel, and has advised the Israel Tax Authority on Trust legislation.

Alon is co-chairman of The Committee for Private International Law of the Israel Bar Association.

Alon has taught in the LLM program at Tel Aviv University’s Faculty of Law and is a Lecturer and Academic Coordinator of the STEP Diploma Course in Israel.

He is an Academician of the International Academy of Estate and Trust Law and a member of ACTEC The American Trust and Estate College.

He is the Israel Country Correspondent for the Oxford Journal “Trusts and Trustees”.

Alon is General Editor of Trusts in Prime Jurisdictions (4th edition, April 2016, Globe Law and Business). He is author of Trusts in Israel: Development and Current Practice (2015 Helbing Lichtenhahn Verlag), Trusts and Estate Practice in Israel (2016 Juris Publishing) and a book in Hebrew on Trusts in Israel – Theory and Practice (Dec. 2017, Halachot Publishing).

Alon is a member of the New York State Bar Association, the American Bar Association, and the International Bar Association.

Alon is a member of the Board of Trustees of IMPACT, a charitable trust that awards scholarships to IDF soldiers who have completed their term of duty, and is also a member and a director of the of the Israel -Switzerland and Liechtenstein Chamber of Commerce.

He has been an active member of the Society of Friends of the Weizmann Institute of Science since 1999 and in November 2016 was appointed a member of the International Board of the Weizmann institute.

Direct Office King David Boulevard 1 Tel: +972-3-508-4966 Tel: +972-3-695-4463 [email protected] Tel Aviv 6495301 Israel Fax: +972-3-508-4969 www.alonkaplan-law.com

10 11 Contents lyat eyal

Advocate LLB, TEP Partner | Aronson, Ronkin-Noor, Eyal Law Firm & Notary

Lyat manages the firm’s private client practice and advises clients on cross border estate planning, trusts, taxation of trusts, pre-immigration planning and private international laws relating to estate planning. Lyat also provides services in connection with probate and inheritance proceedings in Israel and estate administration services. Lyat was admitted to the New York State Bar in 1998 and practiced law at the New York law firm of Faust Oppenheim, LLP until 2003. Lyat was admitted to the Israel Bar in 2005 and was an attorney at Alon Kaplan Law Firm until 2015. Lyat is a member of the New York State Bar Association, Trusts and Estates Section and International Section, as well as a member of the International Tax Specialist Group (ITSG). Lyat is an Academician of the International Academy of Estate and Trust Law (TIAETL) and a Fellow of the American College of Trust and Estate Counsel (ACTEC). Lyat publishes in leading professional journals and lectures widely in her areas of expertise.

meytal liberman

Advocate LLM, TEP Herzog & Neeman

Meytal Liberman was admitted to the Israel Bar in 2013, and today she advises clients from Israel and overseas on trusts and estate planning as an Associate Advocate at Herzog Fog & Neeman’s Private Client Practice, after she had acquired an expertise in her filed of practice as an Associate Advocate at the practice of Dr. Alon Kaplan, Advocate & Notary. Meytal Earned her LLB degree at Bar Ilan University in 2012, and her LLM degree in Commercial Law at Tel Aviv University in 2015. She has been a member of the Society of Trusts and Estates Practitioners (STEP) since 2015, after she had completed two years of studies and earned a Diploma in International Trust Management. Meytal is the General Editor and contributor of the book “Trust in Israel: Theory and Practice” by Dr. Alon Kaplan, which was published in Hebrew in 2017.

10 11 Contents articles 2018

Masada Judean desert

12 13 Contents Case Studies from Israel

case studies from israel

Dr. Alon Kaplan | Meytal Liberman

cross-generation transitions of the ownership, control and management of the family business

The state of Israel is a small country, about the both Israelis and foreign residents who wish to invest in same size as New Jersey in North America. It’s located the Israeli market and engage in business to increase their on the eastern shore of the Mediterranean Sea and wealth. has excellent access by air and sea to Europe, Africa, Asia and North America.1 It’s becoming an important family business sold jurisdiction for wealthy families. Keter Plastics develops, manufactures and The Credit Suisse Global Wealth Report of distributes a broad range of plastic consumer November 2017 found that there were 120,464 ultra-high- products throughout the world. It’s regarded as an net-worth (UHNW) individuals in Israel in 2017.2 “UHNW innovative global leader in the production of plastic Israeli Individuals,” p. x., shows how they’re divided.” products for the home and garden using the do-it- yourself method.3 Wealth Range (USD) Number of Adults Percentage The group has over 25,000 sales points 1-5 m 104,609 86.838% around the world, 18 manufacturing plants and two 5-10 m 9,301 7.721% distribution centers spread over nine countries. It 10-50 m 5,685 4.719% enjoys strong ties with retailers in all the markets in which it operates. The company has 4,000 workers, 50-100 m 506 0.420% including nearly 2,000 in Israel, and its products are 100-500 m 315 0.261% sold in 100 countries.4 500 - 1 bn 28 0.023% Keter Plastics was founded in 1948 in Jaffa as a over 1 bn 20 0.017% factory for making toys and household utensils, with Joseph Sagol among its founders. Sami and Yitzhak As is evident, Israel provides a fertile ground for Sagol, his sons, have managed the company since

1. Central Intelligence Agency, Israel, www.cia.gov/library/ 3. “BC Partners signs deal to buy Keter Plastic,” Globes (July 28, 2016,) publications/the-world-factbook/geos/is.html. www.globes.co.il/en/article-bc-partners-signs-deal-to-buy-keter- 2. Credit Suisse, Global Wealth Databook 2017, http:// plastic-1001142672; Assaf Kamar and Nadav Tsantsipar, “The Huge Exit publications.credit-suisse.com/index.cfm/publikationen- of Keter: The Brothers who Made a Fortune out of Plastic,” YNET (July shop/research-institute/global-wealth-databook-2017- 21, 2016), www.ynet.co.il/articles/0,7340,L-4831260,00.html (Hebrew). en/ (November 2017). 4. Ibid. 12 13 Contents the early 1980s. In 2016, the Segol family sold their the group. Ofra’s appointment followed a series of 80 percent stake in the company to the investment management positions she had held in the company. fund BC Partners. The acquisition is believed to be at Ofra still runs the family business today.8 a company value of $1.3 billion.5 In a lecture by Ofra given at a scientific It’s also reported that, according to the Segol conference of the Israeli Cattle Breeders’ Association close family circle, the decision to sell Keter Plastics in July 2013, she stressed the significance of long-term was made because the third and fourth generations planning to a family business, and said: of the family – four daughters and grandchildren – In Strauss, until 1995 the family was alone pursued careers in other fields and don’t intend to in the business. We made a principle decision not continue the family business.6 to sell the control over the business, to keep it a family business. … we built an organizational international identity to distinguish ourselves from our corporation continues partners. … Thus, when we came to the passing of the baton in the early 2000s, we implemented it In 1936, Dr. Richard and Hilde Strauss based on organizational foundations laid down immigrated to Israel from Germany with their son, years beforehand. When the third generation Michael and settled in Nahariya. Around the cabin in joined the management of the company, the which they lived, they grew vegetables, set up a small administrative infrastructure of the first and cowshed and cared for two cows. Shortly afterwards, second generations was there and upon it the they began to sell dairy products from their farm, which change of generations was executed.9 slowly gained popularity. Eighty years later, is an international corporation that manages court litigation and develops its business to offer a wide range of food and beverage brands to entire populations, which are marketed through various commercial Ofer Investments Group was founded by Sammy channels. The group has 14,000 employees worldwide and Yuli Ofer in 1957, who began their activities in the and is active in more than 20 countries. The group’s shipping industry under the name “Mediterranean turnover was estimated at IS 7.9 billion ($2.3 billon) in Lines.” By the 1960s, the brothers owned dozens of 2016, of which its international operations account for ships and decided to expand their operations into the 49 percent. Strauss has collaborations with Danone, income-generating real estate sector. The company PepsiCo, Haier and Virgin.7 has grown and expanded over the years, acquiring and constructing many properties and becoming one In 1975, shortly after Richard’s death, his of the leading players in its field. Today, the group children Michael and Raya took over the management is active in income-generating real estate, residential of the family business. In 2001, the baton was passed real estate, hotels and banks.10 to the next generation with the appointment of Ofra Strauss, Michael’s daughter, as chairperson of Yuli passed away in 2011,11 and after his death,

5. Ibid. articles/0365/365.2013.13.pdf (Hebrew). 6. Ibid. 10. Ofer Investments, www.oferinvest.com/ofer-investments/ 7. History & Legacy, www.strauss-group.com/about-us/history_ group/?langId=2. and_legacy/; Our Portfolio, www.strauss-group.com/company/ 11. Nadav Shemer, “Businessman Yuli Ofer Passes Away at the strauss-coffee/. Age of 87,” The Jerusalem Post (Sept. 12, 2011), www.jpost.com/ 8. Ibid. Business/Business-News/Businessman-Yuli-Ofer-passes- 9. Ofra Strauss, “Cross-Generational Transaction in the away-at-the-age-of-87. Family Business – Experience of the Strauss Family,” 365 12. Efrat Neuman, “Liora Ofer Wins Inheritance Dispute With Economy of the Cattle and Milk 16 (2013), www.icba.org.il/ Brother Doron Ofer,” Haaretz (Dec. 17, 2013), www.haaretz.

14 15 Contents a dispute arose between his son Doron, who was Given the importance of the family disinherited from his father’s estate, and his daughter Liora. The long battle between the siblings was constitution and the challenges it’s eventually concluded in a ruling of the Family Court in Tel Aviv in December 2013, whereby Liora received the intended to face, it would be advisable to entire stake of her father in Ofer Investments, leaving complement the family constitution with her with 51 percent of the company.12 separate documents that are legally binding avoiding disputes and can be enforced.

Elco Holdings Ltd’s founder and controlling shareholder, Gershon (Georg) Salkind, passed away in Salkind family.15 September 2017 at age 87. Elco is one of the largest Israeli industrial groups. Elco has several production It can therefore be assumed that Gershon took centres in Israel, Italy, France and China, where it the trouble and made the necessary arrangements produces household appliances, air conditioning to efficiently transfer the family business to the units and electro-mechanical equipment. Gershon next generation while minimizing potential disputes founded the group in 1949 and owned 65 percent of its among his children. shares. In 2007, Michael and Daniel Salkind, Gershon’s two sons, were appointed joint CEOs, and according the legal enviroment to sources familiar with the company since their appointment, Gershon resigned from all the boards of directors on which he was previously active and Here are the elements of the legal environment remained as a partner in strategic decisions only.13 for UHNW individuals and family businesses.

After Gershon’s death and in accordance with The family constitution and contracts law. A his last will and testament, his shares in Elco were family constitution is a formal document that sets divided equally between his two sons, each half out the rights, values, responsibilities and rules estimated at IS 700 million. In addition, the Salkind applying to stakeholders in the family business and brothers had signed a shareholders’ agreement provides plans and structures to deal with situations designed to establish mechanisms for joint that arise in the course of the family business. Such management of the company.14 a document may: assist the family in dealing with unexpected events; keep focus on the matters that In addition to his two sons, Gershon had a are most important to the family; manage disputes; daughter, Dr. Daphna Sessler. According to reports, and create a common language and values to serve Daphna didn’t inherit any shares in Elco, but rather as the guidelines for the family business, even for inherited other private assets of her father’s. As far as future generations who weren’t involved in the is known, there are no inheritance disputes within the business when it was first established. A family

com/israel-news/business/.premium-liora-ofer-wins-battle-of-wills- between-sons-1001220212; Aviv Levy, “Elco Shares Divided with-brother-doron-1.5304738. between Salkind’s Sons; What About his Daughter?” 13. Globes correspondent, “Elco Controlling Shareholder Gershon Globes (Jan. 21, 2018), www.globes.co.il/news/article. Salkind Dies,” Globes (Sept. 26, 2017), www.globes.co.il/en/article- aspx?did=1001220484 (Hebrew). elco-controlling-shareholder-gershon-salkind-dies-1001206339. 15. Levy, ibid. 14. Globes correspondent, “Gershon Salkind’s Elco Shares to be Divided 16. Taryn Hartley, “Family Constitutions – What, When and Equally between Sons”, Globes (Jan. 18, 2018), www.globes.co.il/ Why,” Lexology (Nov. 2, 2015), www.lexology.com/library/ en/article-gershon-salkinds-elco-shares-to-be-divided-equally- detail.aspx?g=e5d5c264-e453-4d03-b1a6-b93f958f9f17.

14 15 Contents constitution tends not to be legally binding on the family members.16 The principle of freedom of testation is one of the cornerstones of the inheritance Given the importance of the family constitution law in Israel. and the challenges it’s intended to face, it would be advisable to complement the family constitution with of the founder, who may then asses how efficiently separate documents that are legally binding and can the business is managed by the next generation and be enforced. make changes accordingly. Furthermore, this course of action prevents the need to undergo inheritance In Israel, a family constitution may be proceedings, which may result in costly and unwanted constructed under the applicable law of contracts, litigation, such as in the case of the Ofer family.20 which includes the Contracts Law (General Part),17 the Contracts Law (Remedies)18 and relevant case On the other hand, under certain circumstances, law. In such cases, the family constitution may be this option isn’t available, such as in the case of the enforceable against only the parties who’ve agreed Segol family,21 where none of the founder’s children to it, but given that the family constitution is meant was in a position to assume control over the family to regulate the family relations within the family business. Furthermore, such transfer may not be business across generations, such a contract would desirable by the founder of the family business, who most likely become ineffective over time as members would be reluctant to relinquish his control over the of the family change. Moreover, to enforce such a family business in his lifetime. contract, a claim must be filed with the court, which may result in unwanted litigation. inheritance

Due to these reasons, a founder of a family business should take into account other means or A family business may be transferred to the structures under other laws to enable the transfer next generation by way of succession. The Succession of the family business to the next generation more Law22 governs individuals who were residents of Israel effectively. or owned assets in Israel at the time of their death.23 The succession procedure has its perils, and the gifts heirs or other members of the family may challenge the bequests under the testament,24 and litigation in court may arise, such as in the case of the Ofer The founders of the family business may family.25 transfer ownership of the business to other members of the family at any time they choose to by way of a Freedom of testation. The principle of gift. The Gift Law19 governs this procedure. There’s no freedom of testation is one of the cornerstones of the gift tax in Israel between family members. inheritance law in Israel. 26

The advantage of this procedure is that it allows The prohibition to grant a gift to be effective the transfer of the family business during the lifetime on death. Another issue that must be taken into

17. Contracts (General Part) Law, 5733-1973, 27 LSI 117 (1972–1973) (Isr) 21. See ibid. (Contracts Law (General Part)); 22. Succession Law, 5725-1965, 19 LSI 215 (1964–1965) (Isr). 18. Contracts (Remedies for Breach of Contract) Law, 5731-1970, 25 23. Ibid., Section 136. LSI 11 (1970–1971) (Isr) (Contract Law (Remedies)). 24. Ibid., Section 67. 19. Gift Law, 5728-1968, 22 LSI 113 (1968) (Isr). 25. Supra note 20. 20. See Section on Gershon Salking, p. c. 26. Supra note 22 Section 27.

16 17 Contents account for estate planning is the time when the protect their rights and to ensure the implementation transfer is to become effective. Section 8 of the of the family constitution through the Companies Law Succession Law states in Subsection (a) that, “an and the corporate documents of the company. agreement regarding a person’s inheritance or a waiver of his inheritance, made during the lifetime of For example, the articles of association can that person, is void.” Subsection (b) states that, “[a] provide several classes of shares, thereby allowing gift made by a person, such that it shall be granted the founder to control management while assigning to the recipient only following the death of the donor, dividend shares, which don’t grant voting rights to shall have no validity, unless made in a will pursuant other family members. The management shares to the provisions of this law.” can afterwards be bequeathed to selected family members. Such separation of classes is also possible In the context of the cross-generational in the United Kingdom.30 transfer of the family business, it follows that should a founder choose to transfer the family business by We assume that Gershon Salkind used such a way of gift, his intention must be implemented by mechanism to ensure the cooperation of his two sons the transfer of the control over the business during in the management of Elco. his lifetime. It also follows that a family constitution (a contract) containing provisions relating to the time period after the founder’s demise won’t be It should also be noted that the choice enforceable. of the form of the trust, as mentioned above, requires consideration of personal Corporate structure. Another possible course and family circumstances, as well as tax of action a founder can take in order to transfer planning considerations. the family business to the next generation is in accordance with the applicable law of contracts,27 the Succession Law and the Companies Law.28 Other relevant mechanisms can be added to the articles of association, such as alternative dispute In this context, the articles of association of the resolution clauses, for example under the Arbitration company can be regarded as a contract between the law.31 shareholders and the company, as well as a contract between the shareholders among themselves, in Trust structure. A trust structure can be a good accordance with the well-known theory of nexus of way to hold assets under central management and contracts, which views the business as a collection of regulate its activities according to the wishes of the contracts among different parties.29 head of the family business, who would be the settlor of the trust. The articles of association of the company operating the family business can therefore be drafted The trust has been part of Israeli society for to better meet the needs of the family business, and many years, even before the establishment of the in effect, constitute the family constitution within a state in 1948. The Israeli Trust Law32 defines a trust as company framework. This allows the shareholders to the duty imposed on a person to hold or to otherwise

27. Contracts Law (General Part), Contracts Law (Remedies) and and Wales): Overview”, Thomson Reuters Practical Law case law. (June 1, 2015), https://uk.practicallaw.thomsonreuters. 28. Companies Law, 5759-1999, 1711 SH 189 (1999) (Isr). com/5-613-3685?transitionType=Default&contextData=(sc. 29. Williamson, “Corporate Governance,” 93 Yale LJ 1197 (1984); Default)&firstPage=true&bhcp=1. Uriel Procaccia, New Company Laws in Israel 14 (1989) 31. Arbitration Law, 5728-1968, 22 LSI 210 (1967–1968). (Hebrew). 32. Trust Law, 5739-1979, 33 LSI 41 (1966–1967) (Isr). 30. Spencer Summerfield and Beliz McKenzie, “Shareholders’ Rights in Private and Public Companies in the UK (England 33. Ibid., at Section 2.

16 17 Contents deal with assets under his control for the benefit of the form of the trust, as mentioned above, requires another or for some other purpose. consideration of personal and family circumstances, as well as tax planning considerations. A trust may be created by a contract, a deed or a testament, as set out below: the family office

• A trust created by contract requires an agreement between the settlor and the trustee with no A family office34 may appoint a person who will specific procedure necessary for its validity;33 manage the financial assets of a family. It may also • A trust created by a deed must be in writing and choose the appropriate administration offices and signed in the presence of an Israeli notary. This trust is management of the economic strategy of the family. known as hekdesh (that is, inter vivos trust). It becomes operative during the lifetime of the settlor on the transfer In Israel, there are two types of family office – of the assets of the settlor to the control of the trustee; the single family office (SFO), which provides services • A testamentary trust, also referred to under to one family exclusively, and the multi-family office, the Trust Law as hekdesh, refers to a trust that’s created which provides services to more than one family at a by way of probate proceedings under the Succession time. Law. Accordingly, a testamentary trust must comply with the formal requirements under the Succession In Israel’s modern economy, we find new rich Law for executing a will. These include signing the will families whose wealth was created in the high-tech in the presence of two witnesses or an Israeli notary.A industry. When the entrepreneur makes his first exit, testamentary trust becomes valid only on the issuance his lifestyle continues, but to enable him to go on with of a probate order with respect thereof. his business activities, he needs the family office to manage his wealth and take care of the family needs, Due to the limitations set by Section 8 of the including transfer to future generations. Succession Law mentioned above, a trust contract between the settlor and the trustee, under which additional legal control of the trust’s assets passes to the trustee instruments only on the death of the settlor, is invalid. The control must be granted during the lifetime of the settlor, or alternatively, the trust must be a hekdesh with assets Israelis view the family constitution as an effectively transferred to the control of the trustee or important document, as evident from Ofra Strauss’ a testamentary trust that becomes effective on the words. However, we believe that such a constitution issuance of a probate order with respect thereof. isn’t sufficient for the cross-generation transitions of the ownership, control and management of the family It therefore follows that in a trust created business. Reality shows us that situations such as pursuant to a contract the death of the settlor – one of marriage, divorce, death and incapacity require more the parties to the contract - will require a succession than a contractual treaty among the family members, procedure to transfer the rights of the deceased to his and the legal instruments of matrimonial agreements, heirs. succession and estate planning, corporate instruments and trusts may provide solutions that are more It should also be noted that the choice of comprehensive.

34. Phillip J Weil, Troubles of Wealthy People 35, 39–43 (2017) (Hebrew).

18 19 Contents Case Studies From Israel: Family Wealth Transfers

case studies from israel: family wealth transfers

Dr. Alon Kaplan | Meytal Liberman

introduction • Between 2000 and 2016, the average Israeli 1.1 Israel as a growing economy citizen’s wealth has doubled from $92,589 to $176,263. The median wealth of an Israelis stood at only $54,384 – The state of Israel is a small country, about the about a third of the average wealth. same size as New Jersey in North America. It is located Furthermore, according to the 2017 report of on the eastern shore of the Mediterranean Sea and PwC,3 Israeli high-tech ‘exits’ (a merger, an acquisition has excellent access by air and sea to Europe, Africa, or an initial public offering) in 2017 totalled $7.44 billion Asia and North America.1 It is becoming an important – 110% more than the $3.5 billion in ‘exits’ in 2016. jurisdiction for wealthy families. As is evident, Israel provides a fertile ground for • The Credit Suisse Global Wealth Report of both Israelis and foreign residents who wish to invest November 2016 has found that2: in the Israeli market and engage in business in order to • In 2016, 2% of Israelis (105,000 people) are increase their wealth. defined as possessing more than $1 million worth of holdings in cash, property and investments – an increase 1.2 The framework of this article of 19% (17,000 people), out of which: 18 people are considered to be billionaires, 25 people are estimated to This article will first present the reality of a few have between $500 million and $1 billion and 277 people dominant wealthy families in Israel and of their family have between $100 million and $500 million; businesses, as well as the challenges they face in their • In addition, 32% of Israelis are defined as efforts to preserve the family wealth, and to transfer it possessing between $100,000 and $1 million; 42.5% of to the next generation. These families and their stories Israelis are defined as possessing between $10,000 and can be considered as good examples of the challenges $100,000; and 23.5% of Israelis are defined as possessing a wealthy family faces in Israel. between $10,000 or less; • The majority of wealth in Israel (70%) is financial Based upon these cases, this article will discuss instruments such as cash and securities, while the other the relevant legal framework under Israeli law and the 30% is comprised of real estate and other properties; tools it provides for such families to deal with those

1 Central Intelligence Agency, Israel, https://www.cia.gov/library/publications/the-world-factbook/geos/is.html. 2 Roy Bergman, “The Wealthiest in Israel: 105 Thousand Millionaires, 18 Billionaires”, YNET (22 November 2016), https:// www.yediot.co.il/articles/0,7340,L-4882814,00.html (Hebrew); Albert Hecht, “There are 105,000 Israeli Millionaires and 18 Billionaires”, Jewish Business News (27 November 2016), http://jewishbusinessnews.com/2016/11/27/there-are-105000-israeli- millionaires-and-18-billionaires/. 3 ISRAEL21c Staff, “Israeli High-Tech Exits in 2017 Totaled $7.44 Billion”, ISRAEL21c (31 December 2017), https://www. israel21c.org/israeli-high-tech-exits-in-2017-totaled-7-44-billion/.

18 19 Contents challenges. The legal fields which will be discussed in Calcalist, Eitan stated: “It was important for us to sell this article include contracts, gifts, inheritance, trusts, the business before family problems arise. We see what legal capacity and guardianship, matrimonial property, is happening in other family businesses, and there is and dispute resolution. no need to wait for problems.” Eitan also added that This method of drawing conclusions from “the best course of action would be not to transfer selected cases is well accepted in this field of practice, family businesses to the next generation, but rather as explained by Nicholas Smith4: that each generation will start his own new business”.6 Much family business writing and teaching is based on case studies of real life family business 2.2. The ‘happy end’ of Sami Segol and situations. By applying an extended treatment to Keter Company a selected number of legal cases, we aim to use these to illustrate various issues of family business Keter Plastics develops, manufactures and dynamics as well as to explain legal principles. It distributes a broad range of plastic consumer products follows that some of the cases have been chosen throughout the world. It is regarded as an innovative on the basis that they illustrate issues of family global leader in the production of plastic products for business dynamics and whilst they are relevant to the home and garden using the do-it-yourself method.7 legal issues are by no means leading or landmark The group has over 25,000 sales points cases on the subject concerned. around the world, 18 manufacturing plants, and two This article will also address the family office distribution centres spread over nine countries. It from an Israeli perspective. enjoys strong ties with retailers in all the markets in which it operates. The company has 4,000 workers, a family story including nearly 2, 000 in Israel, and its products are sold in 100 countries.8 2.1 Stef and Eitan Wertheimer and the Keter Plastics was founded in 1948 in Jaffa as a Iscar Company factory for making toys and household utensils, with Joseph Sagol being among its founders. Sami and Iscar was founded in 1952 by Stef Wertheimer Yitzhak Sagol, his sons, have managed the company in the western Galilee town of Nahariya. In 1984, since the early 1980s. In 2016, the Segol family sold Stef handed over the reins to his son, Eitan. In 1995, their 80% stake in the company to the investment Eitan Wertheimer handed over the CEO seat to Jacob fund BC Partners. The acquisition is believed to be at a Harpaz (a non-family executive), and went on to serve company value of $1.3 billion.9 as Chairman, and later President, of Iscar. In 2006, It is also reported that, according to the Segol the Wertheimer family sold 80% of Iscar’s shares close family circle, the decision to sell Keter Plastics to Berkshire Hathaway, and subsequently sold the was made because the third and fourth generations remaining 20% to Berkshire Hathaway for US$2 billion.5 of the family – four daughters and grandchildren – In an interview with the Israeli newspaper pursued careers in other fields and do not intend to

4 Nicholas Smith, Advising the Family Owned Business (2017) (Introduction: https://store.lexisnexis.co.uk/__data/assets/ pdf_file/0018/412425/Advising-the-Family-Introduction.pdf). 5 Guy Rolnik, “Warren Buffett Buys out Israeli Tool Firm Iscar for $2 Billion”, Haaretz (2 May 2013), https://www.haaretz. com/israel-news/business/warren-buffett-buys-out-israeli-tool-firm-iscar-for-2-billion.premium-1.518655. 6 Galit Hami, “Eitan Wertheimer: ‘Family Businesses – the best would be not to pass on’”, Calcalist (1 May 2013,) https:// www.calcalist.co.il/markets/articles/0,7340,L-3601454,00.html (Hebrew). 7 “BC Partners signs deal to buy Keter Plastic”, Globes (28 July 2016,) http://www.globes.co.il/en/article-bc-partners- signs-deal-to-buy-keter-plastic-1001142672; Assaf Kamar and Nadav Tsantsipar, “The Huge Exit of Keter: The Brothers who Made a Fortune out of Plastic”, YNET (21 July 2016), https://www.ynet.co.il/articles/0,7340,L-4831260,00.html (Hebrew). 8 Id. 9 Id.

20 21 Contents Israel provides a fertile ground for both Israelis and foreign residents who wish to invest in the Israeli market and engage in business in order to increase their wealth

continue the family business.10 in Strauss, until 1995 the family was alone in the business. We made a principle decision not to sell the 2.3 The successful story of the Strauss family control over the business, to keep it a family business. … Business we built an organizational identity to distinguish ourselves from our partners. … Thus, when we came to the passing of In 1936, Dr Richard and Hilde Strauss immigrated the baton in the early 2000s, we implemented it based on to Israel from Germany with their son, Michael, and organizational foundations laid down years beforehand. settled in Nahariya. Around the cabin in which they When the third generation joined the management of the lived, they grew vegetables, set up a small cowshed company, the administrative infrastructure of the first and and cared for two cows. Shortly afterwards, they began second generations was there and upon it the change of to sell dairy products from their farm, which slowly generations was executed.13 gained popularity. Eighty years later, Strauss Group is an international corporation that manages and 2.4 The court litigation of the Ofer family develops its business in order to offer a wide range of food and beverage brands to entire populations, Ofer Investments Group was founded by Sammy which are marketed through various commercial and Yuli Ofer in 1957, who began their activities in the channels. The group has 14,000 employees worldwide, shipping industry under the name ‘Mediterranean and is active in more than 20 countries. The group’s Lines’. By the 1960s, the brothers owned dozens of turnover was estimated at IS 7.9 billion ($2.3 billon) in ships and decided to expand their operations into the 2016, of which its international operations account for income-generating real estate sector. The company 49%. Strauss has collaborations with Danone, PepsiCo, has grown and expanded over the years, acquiring Haier and Virgin.11 and constructing many properties, and becoming one In 1975, shortly after Dr Richard Strauss’s of the leading players in its field. Today, the group is demise, his children Michael and Raya took over active in income-generating real estate, residential the management of the family business. In 2001, the real estate, hotels and banks.14 baton was passed to the next generation with the Yuli Ofer passed away in 2011,15 and after his appointment of Ofra Strauss, Michael’s daughter, as demise a dispute arose between his son Doron, who chairperson of the group. Ofra’s appointment followed was disinherited from his father’s estate, and his a series of management positions she had held in the daughter Liora. The long battle between the siblings company. Ofra Strauss still runs the family business was eventually concluded in a ruling of the Family Court today.12 in Tel Aviv in December 2013, whereby Liora receives In a lecture by Ofra Stauss given at a scientific the entire stake of her father in Ofer Investments, conference of the Israeli Cattle Breeders’ Association leaving her with 51% of the company.16 in July 2013, she stressed the significance of long-term planning to a family business, and said:

10 Id. 11 History & Legacy, https://www.strauss-group.com/about-us/history_and_legacy/; Our Portfolio, https://www.strauss- group.com/company/strauss-coffee/. 12 Id. 13 Ofra Strauss, “Cross-Generational Transaction in the Family Business – Experience of the Strauss” Family, 365 Economy of the Cattle and Milk 16 (2013), http://www.icba.org.il/articles/0365/365.2013.13.pdf (Hebrew). 14 Ofer Investments, http://www.oferinvest.com/ofer-investments/group/?langId=2. 15 Nadav Shemer, “Businessman Yuli Ofer Passes Away at the Age of 87”, The Jerusalem Post (12 September 2011), http:// www.jpost.com/Business/Business-News/Businessman-Yuli-Ofer-passes-away-at-the-age-of-87. 16 Efrat Neuman, “Liora Ofer Wins Inheritance Dispute With Brother Doron Ofer”, Haaretz (27 December 2013), https://www.

20 21 Contents As is evident from the family stories outlined above, the cross-generational transfer of the family business may result in a costly and cumbersome court litigation that can, in turn, diminish the family wealth and disrupt the family business

2.5 Moshe (Muzi) Wertheim and other substantial rights he considered proper to implement during his lifetime.”19 Moshe ‘Muzi’ Wertheim, a Mossad agent who It can therefore be assumed, that after became a billionaire by getting the rights to bottle Wertheim had transferred the majority of the shares Coca Cola in Israel, died at age 86 in 2016. Central to his son, David, he had second thoughts, and worried Bottling Company, which he formed in 1967, was a that his son may use his majority shareholding in a ‘cash cow’ that today controls 40% of the Israeli drinks negative manner, and thereby affect the status and market and generates annual revenues of IS 6 billion rights of Drorit. This no doubt was what motivated him ($1.6 billion) and operating profits in the hundreds of to prepare the necessary legal documents in advance, millions of shekels. Cola profits enabled Wertheim to during his lifetime. build a business empire that included a 21.9% stake in Mizrahi-Tefahot, Israel’s fourth-largest bank, control of 2.6 Gershon Salkind and Elco the Channel 2 television franchisee ‘Keshet’, and a host of holding companies such as real-estate developer Elco Holdings Ltd’s founder and controlling Alony Hetz, BMW importer Kamor and a financial shareholder, Gershon (Georg) Salkind, passed away services firm. He also invested in energy exploration.17 in September 2017 at age 87. Elco is one of the largest In 2013, three years prior to his death, Wertheim Israeli industrial groups. Elco has several production transferred 63% of his holdings in Coca Cola Israel to centres in Israel, Italy, France and China, where it his son, David Wertheim, and the remaining 37% to his produces household appliances, air conditioning units daughter, Drorit Wertheim. Furthermore, David became and electro-mechanical equipment. Gershon Salkind chairman of the company, while Drorit became a founded the group in 1949 and owned 65% of its company director.18 shares. In 2007, Michael and Daniel Salkind, Gershon’s Shortly after his death, it turned out that two sons, were appointed joint CEOs, and according Wertheim had left an addendum to his last will and to sources familiar with the company since their testament, where he provided protection to his appointment, Gershon resigned from all the boards daughter’s rights as minority shareholder in Coca of directors on which he was previously active, and Cola Israel, mainly from possible dilution, as well remained as a partner in strategic decisions only.20 as a protection of her rights to act as director in the After Gershon’s demise and in accordance company and to receive dividends. Drorit commented with his last will and testament, his shares in in response: “I am happy that father has made certain Elco were divided equally between his two sons, adjustments and left specific instructions, binding and each half estimated at IS 700 million. In addition, clear, as to the changes that shall be implemented the Salkind brothers had signed a shareholders’ in the articles of association of the companies of agreement designed to establish mechanisms for joint the family allowing the protection of minority rights management of the company.21

haaretz.com/israel-news/business/.premium-liora-ofer-wins-battle-of-wills-with-brother-doron-1.5304738. 17 Eran Azran, “Moshe Wertheim, ex-Mossad Agent Who Built Fortune with Coca Cola, Dies at Age 86”, Haaretz (31 August 2016), https://www.haaretz.com/israel-news/business/muzi-wertheim-who-built-a-fortune-with-coca-cola-dies-at- age-86-1.5432997. 18 Hana Levi Julian, “Moshe Wertheim, Owner of Coca Cola Israel, Dies at 86”, Jewish Press (31 August 2016), http://www. jewishpress.com/news/breaking-news/moshe-wertheim-owner-of-coca-cola-israel-dies-at-86/2016/08/31/. 19 Calcalist Service, “Addendum to the Will of Muzi Wertheim Strengthens his Daughter Drorit”, Calcalist (4 November 2016), https://www.calcalist.co.il/local/articles/0,7340,L-3701087,00.html (Hebrew). 20 Globes correspondent, “Elco Controlling Shareholder Gershon Salkind Dies”, Globes (26 September 2017), http://www. globes.co.il/en/article-elco-controlling-shareholder-gershon-salkind-dies-1001206339. 21 Globes correspondent, “Gershon Salkind’s Elco Shares to be Divided Equally between Sons”, Globes (18 January 2018),

22 23 Contents In addition to his two sons, Gershon Salkind had legal incapacity of the founder of the family business, a daughter, Dr Daphna Sessler. According to reports, Dr prior to his demise. In such situations, the founder still Sessler did not inherit any shares in Elco, but rather holds control over the family business, but is not in a other private assets of her father’s. As far as is known, position to execute it. In such cases, a legal guardian there are no inheritance disputes within the Salkind may be appointed by the court,24 who would effectively family.22 assume control over the family business, yet he may not It can therefore be assumed that Gershon necessarily have the required expertise for the position; Salkind took the trouble and made the necessary • Changes in the composition of the family arrangements to efficiently transfer the family business members may also trigger disputes. Changes such as to the next generation while minimising potential these occur as a result of death, marriage, divorce and disputes among his children. in every change of generation. The longer the family business exists, the more changes are likely happen. the challenges entailed in the cross-generational the legal environment transfer of the family for high net worth business individuals and family businesses As is evident from the family stories outlined above, the cross-generational transfer of the family 4.1 The ‘family constitution’ & contracts law business may result in a costly and cumbersome court A family constitution is a formal document litigation that can, in turn, diminish the family wealth which sets out the rights, values, responsibilities and disrupt the family business. Court litigation may and rules applying to stakeholders in the family arise in various circumstances, such as: business and provides plans and structures to deal with situations which arise in the course of the family • Dispute between heirs under inheritance business. Such a document may assist the family to proceedings, as in the case of the Ofer family;23 deal with unexpected events; keep focused on the • Granting control to the next generation over matters that are most important to the family; manage the family business may result in insolvency proceedings disputes; and create a common language and values if these family members lack the skills to manage the to serve as the guidelines for the family business, business well. This may also bring about long court even for future generations who were not involved in litigation. Liquidation of the family business may result the business when it was first established. A family from personal bankruptcy, class action against a family constitution tends not to be legally binding on the member who owns the family business, and contested family members.25 divorce proceedings; • Court proceedings may also arise due to Given the importance of the family constitution

http://www.globes.co.il/en/article-gershon-salkinds-elco-shares-to-be-divided-equally-between-sons-1001220212; Aviv Levy, “Elco Shares Divided between Salkind’s Sons; What About his Daughter?”, Globes (21 January 2018), https://www.globes.co.il/ news/article.aspx?did=1001220484 (Hebrew). 22 Levy, id. 23 See Section 2.4 above. 24 Legal Capacity and Guardianship Law, 5722-1962, 16 LSI 106, §33 (1961–1962) (Isr) (‘Legal Capacity and Guardianship Law’). 25 Taryn Hartley, “Family Constitutions – What, When and Why”, Lexology (2 November 2015), https://www.lexology.com/ library/detail.aspx?g=e5d5c264-e453-4d03-b1a6-b93f958f9f17.

22 23 Contents and the challenges it is intended to face,26 it would be the transfer of the family business during the lifetime advisable to complement the family constitution with of the founder, who may then asses how efficiently separate documents, which are legally binding, and the business is managed by the next generation, and can therefore be enforced. make changes accordingly. Furthermore, this course of action prevents the need to undergo inheritance In Israel, a family constitution may be proceedings, which may result in costly and unwanted constructed under the applicable law of contracts, litigation, such as in the case of the Ofer family.30 which includes the Contract Law (General Part),27 the On the other hand, under certain circumstances Contracts law (Remedies),28 and relevant case-law. In this option is not available, such as in the case of the such cases, the family constitution may be enforceable Segol family,31 where none of the founder’s children against only the parties who have agreed to it, but was in a position to assume control over the family given that the family constitution is meant to regulate business. Furthermore, such transfer may not be the family relations within the family business across desirable by the founder of the family business, who generations, such a contract would most likely become would be reluctant to relinquish his control over the ineffective over time as members of the family change. family business in his lifetime. Moreover, in order to enforce such a contract, a claim must be filed with the court, which may result in 4.3 Inheritance unwanted litigation. A family business may be transferred to the Due to these reasons, a founder of a family next generation by way of succession. The Succession business should take into account other means or Law32 governs individuals who were residents of Israel structures under other laws to enable the transfer or owned assets in Israel at the time of their death.33 of the family business to the next generation more The succession procedure has its perils, and the heirs effectively. or other members of the family may challenge the bequests under the testament34 and litigation in court may arise, such as in the case of the Ofer family above.35 4.2 A gift 4.3.1 Freedom of Testation The founders of the family business may transfer ownership of the business to other members The principle of Freedom of Testation is one of of the family at any time they choose to by way of a the cornerstones of the inheritance law in Israel. 36 The gift. The Gift Law29 governs this procedure. There is no high significance of this principle was most evident gift tax in Israel between family members. in the case of Attorney-General v Lishitzky,37 where The advantage of this procedure is that it allows the Supreme Court applied the Trust Law38 in order to

26 See Section 3 above. 27 Contracts (General Part) Law, 5733-1973, 27 LSI 117 (1972–1973) (Isr) (Contracts Law (General Part)); 28 Contracts (Remedies for Breach of Contract) Law, 5731-1970, 25 LSI 11 (1970–1971) (Isr) (Contract Law (Remedies)). 29 Gift Law, 5728-1968, 22 LSI 113 (1968) (Isr). 30 See Section 2.4 above. 31 See Section 2.4 above. 32 Succession Law, 5725-1965, 19 LSI 215 (1964–1965) (Isr) (the Succession Law). 33 Succession Law, § 136. 34 Succession Law, § 67. 35 See Section 2.4 above. 36 Succession Law, § 27. 37 CA 4660/94 Attorney-General v Lishitzky [1999] IsrSC 55 (1) 88 (the Lishitzky case). 38 Trust Law, 5739-1979, 33 LSI 41 (1966–1967) (Isr) (the Trust Law).

24 25 Contents The founders of the family business may transfer ownership of the business to other members of the family at any time they choose to by way of a gift.

overcome certain issues related to the validity of the 4.3.2 The prohibition to grant a gift to be deceased’s will under the Succession Law. effective upon death In the Lishitzky case, the deceased made a will in which she left her assets to “a good soldier, a good Another issue that must be taken into account person, who wishes to study but does not have the for estate planning is the time upon which the transfer means of doing so, in order to assist him with his studies, is to become effective. Section 8 of the Succession Law to purchase an apartment for him, and to advance him states in Subsection (a) that “an agreement regarding a in life. The soldier will recite Kaddish39 in my memory.” person’s inheritance or a waiver of his inheritance, made Section 33 of the Succession Law states, among other during the lifetime of that person, is void”. Subsection things, that a will from which it cannot be determined (b) states that “[a] gift made by a person, such that to whom the testator left his property is insufficiently it shall be granted to the recipient only following the precise, and as such is void. Although Section 29 of the death of the donor, shall have no validity, unless made Succession Law allows the testator to specify a group in a will pursuant to the provisions of this law”. from which the inheritors will be selected by an agent In the Lola Beer case,42 Lola Beer, the deceased, appointed by him, this group needs to be sufficiently bequeathed her assets located in Israel to her family clearly defined. InLishitzky , the court agreed that the members; however, prior to her demise, she made a testator’s instruction in this instance was too broad written undertaking to grant a certain amount to Ben- to fall within the ambit of Section 29, and thus would Gurion University, but failed to execute it prior to her be void if treated simply as a will, as per Section 33. death. The university later initiated legal proceedings But rather than voiding the will, the court ruled that in order to enforce the undertaking against the heirs. the testatrix had, in effect, established ahekdesh (ie, a The Supreme Court, relying on the Gift Law, found that trust) under the Trust Law.40 the letter given by Beer, in which she expressed her Another interesting case which demonstrated intention to make a gift to the university, was valid the extent the court is willing to go to in order to under the Gift Law as an undertaking by her to grant enforce the wishes of the testator is Fox v Weinstein.41 that gift. As Beer failed to fulfil the undertaking due In this case, the Supreme Court held that a provision to her death, that undertaking passed to her estate in a will that conditions the entitlement of the heirs and became binding upon her heirs. Although the Gift to their settlement in Israel does not contradict public Law permits a future gift to be revoked by its donor, policy, and therefore is valid. that right of revocation is a personal prerogative of In the cross-generational transfer of the family the donor, and cannot pass to the donor’s heirs or business context, the freedom of testation enables estate upon the donor’s death. It was therefore held the founder of the family business to bequest in his that Beer’s estate was bound to complete the gift to testament who will be the successive leaders of the the university, which in her lifetime she had failed business and what would be the share and role in the to effect. It follows that where there is no doubt that business of the other members of the family. an undertaking to bestow a gift was made during the donor’s lifetime to become effective during the donor’s lifetime, the court will consider the gift as if it had been

39 Kaddish is the traditional Jewish memorial prayer. 40 See Section 4.5 above. 41 CA 5717/95 Fox v Weinstein 54(5) PD 792 [2000] (Isr). 42 CA 3727/99 Ben-Gurion Univeristy of the Negev v Ben-Bassat (7 July 2002), Nevo Legal Database (by subscription) (Isr) (the Lola Beer case).

24 25 Contents The succession procedure has its perils, and the heirs or other members of the family may challenge the bequests under the testament and litigation in court may arise, such as in the case of the Ofer family above.

given during the donor’s lifetime, and will enforce it. and the corporate documents of the company. In the context of the cross-generational transfer For example, the articles of association can of the family business, it follows that should a founder provide several classes of shares, thereby allowing choose to transfer the family business by way of gift, the founder to hold the management while assigning his intention must be implemented by the transfer dividend shares, which do not grant voting rights of the control over the business during his lifetime. to other family members. The management shares It also follows that a family constitution (a contract) can afterwards be bequeathed to selected family containing provisions relating to the time period after members. Such separation of classes is also possible the founder’s demise will not be enforceable. in the United Kingdom.46 In the Salking case,47 it can be assumed that 4.4 A corporate structure Gershon Salkind used such a mechanism to ensure the cooperation of his two sons in the management of Elco. Another possible course of action a founder Other relevant mechanisms can be added to can take in order to transfer the family business to the articles of association, such as alternative dispute the next generation is in accordance with both the resolution clauses, for example under the Arbitration applicable law of contracts,43 the Succession Law and law.48 the Companies Law.44 In this context, the articles of association of the 4.5 A trust company can be regarded as a contract between the shareholders and the company, as well as a contract A trust structure can be a good way to hold between the shareholders among themselves, in assets under central management and regulate its accordance with the well-known theory of ‘Nexus of activities according to the wishes of the head of the Contracts’, that views the business as a collection of family business, who would be the settlor of the trust. contracts among different parties.45 In Israel the trust has been part of society for The articles of association of the company many years, even before the establishment of the state operating the family business can therefore be drafted in 1948. The Israeli Trust Law49 defines a trust as the to better meet the needs of the family business, and duty imposed on a person to hold or to otherwise deal in effect, constitute the family constitution within a with assets under his or her control for the benefit of company framework. This allows the shareholders to another or for some other purpose. protect their rights and to ensure the implementation A trust may be created by a contract, by a deed of the family constitution through the Companies Law or by a testament, as set out below:

43 Contracts Law (General Part), Contracts Law (Remedies), and case law. 44 Companies Law, 5759-1999, 1711 SH 189 (1999) (Isr) ( Companies Law). 45 Williamson, “Corporate Governance”, 93 Yale LJ 1197 (1984); Uriel Procaccia, New Company Laws in Israel 14 (1989) (Hebrew). 46 Spencer Summerfield and Beliz McKenzie, “Shareholders’ Rights in Private and Public Companies in the UK (England and Wales): Overview”, Thomson Reuters Practical Law (1 June 2015), https://uk.practicallaw.thomsonreuters.com/5-613-3685?tr ansitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1. 47 See Section 2.6 above. 48 Arbitration Law, 5728-1968, 22 LSI 210 (1967–1968). 49 Trust Law, 5739-1979, 33 LSI 41 (1966–1967) (Isr) (the Trust Law)..

26 27 Contents In Israel there are two types of family office – the single-family office, which provides services to one family exclusively, and the multi-family office, which provides services to more than one family at a time.

A trust created by contract requires an agreement between the settlor and the trustee with no specific 4.6 Enduring power of attorney procedure necessary for its validity50; • A Trust created by a deed must be in writing and Amendment 18 of the Legal Capacity and signed in the presence of an Israeli notary. This Guardianship Law51 introduced a new instrument into Trust is known as hekdesh (ie, inter vivos trust). It Israeli legislation – the enduring power of attorney. becomes operative during the lifetime of the settlor This power of attorney allows a competent person (the upon the transfer of the assets of the settlor to the ‘appointer’) to appoint another person (the ‘delegate’) control of the trustee; to attend to his or her personal, and/or medical, and/ or property affairs when the appointer is no longer in a • A testamentary trust, also referred to under the position to properly understand the matter and attend Trust Law as hekdesh, refers to a trust which is created to these affairs by himself or herself, while certain by way of probate proceedings under the Succession matters require an express authorisation or approval Law. Accordingly, a testamentary trust must comply of the court. with the formal requirements under the Succession Amendment 18 details the relevant procedure. Law for executing a will. These include signing the will Generally, only an attorney who was specifically in the presence of two witnesses or an Israeli notary. A trained by the Administrator-General is allowed to testamentary trust becomes valid only upon the issuance provide this service, and such powers of attorney must of a probate order with respect thereof. be deposited with Administrator-General. Due to the limitations set by Section 8 of the Succession Such a power of attorney may offer a good Law mentioned above, a trust contract between the settlor and instrument for a founder of a family business who the trustee, under which control of the trust’s assets passes fears future legal incapacity, and who is also reluctant to the trustee only upon the death of the settlor, is invalid. The to transfer the ownership in the family business during control must be granted during the lifetime of the settlor, or his lifetime. As this power of attorney can be applied alternatively, the trust must be a hekdesh (ie, inter vivos trust) to personal and medical affairs, it can also be used with assets effectively transferred to the control of the trustee, or as a complementary instrument together with other a testamentary trust, which becomes effective upon the issuance arrangements. of a probate order with respect thereof. 52 It therefore follows that in a trust created pursuant to a the family office contract the death of one of the parties to the contract will require a succession procedure to transfer the rights of the deceased to 5.1 What is a family office? his or her heirs. It should also be noted that the choice of the form of Out of the various definitions of a family office, the trust, as mentioned above, requires consideration the following definition can be considered as one of of personal and family circumstances, as well as tax the simplest: planning considerations. A family office is an organization that assumes the day-to-day administration and management of a family’s affairs. To that end, to

50 Id at § 2. 51 Legal Capacity and Guardianship Law (Amendment 18), 5776-2016, 2550 SH 798 (2016) (Isr) (Amendment 18). 52 Phillip J Weil, Troubles of Wealthy People 35, 39–43 (2017) (Hebrew).

26 27 Contents A trust structure can be a good way to hold assets under central management and regulate its activities according to the wishes of the head of the family business, who would be the settlor of the trust.

honestly call itself a family office, an organization The Israeli family businesses are usually needs to provide more than just the standard composed of the first, second and third generations. wealth management functions. Most people in It is believed that 70% of the wealth is still held by the the industry would agree that a family office first generation. Only 20% is managed by the first and should be able to provide for tax compliance second generation and 10% is managed by the third work, access to private banking and private generation. The general trend is the development of trust services, document management and the single-family office, which is usually established by recordkeeping services, expense management, the second generation. bill paying, bookkeeping services, family member In Israel’s modern economy, we find new rich financial education, family support services, and families whose wealth was created in the high-tech family governance.53 industry. When the entrepreneur makes his first ‘exit’, In this context, a family office can assist as a his life-style would continue but in order to enable him consultant in the preparation of the cross-generational to go on with his business activities, he would need the transfer of the family business by serving as a ‘one- family office to manage his wealth and take care of the stop-shop’ for the client, and provide different advisory services to implement the transfer through its various family needs including transfer to future generations. experts. conclusion 5.2 How does a family office operate? A common practice by families looking to A family office may appoint a person who will regulate the family internal relationships in the context manage the financial assets of a family. It may also of a family business is by using a family constitution. choose the appropriate administration offices and A family constitution is a formal document which management of the economic strategy of the family. sets out the rights, values, responsibilities and rules The family office provides the following applying to stakeholders in the family business and functions: provides plans and structures to deal with situations • tax reporting including bookkeeping, auditing which arise in the course of the family business.54 by CPA and filing tax reports to the tax authorities; From an Israeli perspective, we view the family • day-to-day life-style – payments to employees, constitution as an important document, as evident insurance, cars, housing, education and household from Ofra Strauss’s words. However, we believe that expenditures. such a constitution is not sufficient for the cross- • estate planning for transfer of wealth – creating generation transitions of the ownership, control and trusts, education and training of the next generation in management of the family business. Reality shows preparation for integrating them into the family business. us that situations such as marriage, divorce, death and incapacity require more than a contractual treaty 5.3 The family office in Israel among the family members, and the legal instruments of matrimonial agreements, succession and estate In Israel there are two types of family office – planning, corporate instruments and trusts may the single-family office, which provides services to one provide solutions that are more comprehensive. family exclusively, and the multi-family office, which provides services to more than one family at a time.

53 Todd Ganos, “What Is A Family Office?”, Forbes (13 August 2013), https://www.forbes.com/sites/toddganos/2013/08/13/ what-is-a-family-office/#399a06eba13f. 54 Taryn Hartley, “Family Constitutions – What, When and Why”, Lexology (2 November 2015), https://www.lexology.com/ library/detail.aspx?g=e5d5c264-e453-4d03-b1a6-b93f958f9f17.

28 29 Contents Remains of the ancient port of Caesarea

28 29 Contents Features: Residence and Citizenship in Israel

features: residence and citizenship in israel

Dr. Alon Kaplan | Lyat Eyal

Israel, which is commemorating its 70th anniversary passport, takes between 6 and 18 months. of independence, is a young and geographically small There are also residence options for those who nation. It has a population of approximately 8.5 million do not wish to formally immigrate to Israel, including for people — 75% of which are Jewish, 21% Arabic and 4% individuals who are not Jewish. These include different other populations. The majority of the Israeli nation employment visas, which require administrative are immigrants, which commenced in Biblical times. procedures, as well as temporary residence status with After the destruction of the Second Temple no requirement for formal immigration necessary. around 586 AD, immigrants were those exiled by the Roman Empire, with around 1,490 people exiled from Spain and Portugal. Between the years of 1893 and israeli residence 1948, approximately 500,000 people immigrated to the land that later formed the State of Israel, and Under Israeli law, an individual is presumed to specifically between 1933 and 1939, these people came be an Israeli resident if they are present in Israel for at from Germany. least 183 days in a tax year, or at least 30 days in a tax Since the founding of the State of Israel in 1948, year and a total of at least 425 days during a relevant there have been a number of immigration ‘waves’ to tax year and the immediately preceding two tax years. the nation, mainly from European countries, the US, The day count is a rebuttable presumption for Canada the Middle East and South Africa. In 1948, the both the individual and the Tax Authority in accordance Jewish population was approximately 630,000 people with the center of life test, irrespective of the days and today reaches around 6 million. It is a globally present in Israel. A person may be considered an oriented society, economically focused on areas such Israeli resident if the person’s center of life is in Israel as high-tech industry, biotechnology and foreign trade. (irrespective of the day count). The test is a subjective one that takes into consideration factors such as the place of residence of the person’s immediate family the law of return members, his or her economic and social ties and including, without limitation, factors such as: location In 1948 the State of Israel was established as a of the person’s permanent home; location of the State for the Jewish people. The Law of Return of 1950 person’s actual home and that of his immediate family granted every Jew wishing to immigrate to Israel the members; location of the person’s business or place right to do so and to receive an immigration certificate of employment; location of the person’s economic to obtain Israeli citizenship (depending on certain interests; and location of the person’s activity in qualifying factors). Israeli citizenship may be obtained organizations, associations and institutions. without relinquishing foreign citizenship, unless such a requirement exists in the foreign country. new immigrants and The immigration certificate grants an individual the returning israeli residents legal status of a new immigrant (Oleh Chadash) and permits residence in Israel with no visa requirements, For Israel’s 60th anniversary of independence in while formal citizenship, including obtaining an Israeli 2008, legislation was passed amending the Income Tax

30 31 Contents Ordinance to returning Israeli residents and granting during the period of residing in Israel. greater tax benefits to new immigrants. The Tax Ordinance now defines three classes of immigrants: Under Israeli law, a corporation is an Israeli resident for tax purposes if it is incorporated in Israel a. New immigrants, i.e., those who become res- or if the management and control of the corporation idents of Israel for the first time incorporated abroad is conducted from Israel. Where a b. Returning residents, i.e., those who resided new immigrant or long term returning resident owning abroad for a period of at least six consecutive years and and managing a foreign corporation moves to reside in return to reside in Israel Israel, such residence in Israel by the owner does not c. Long-term returning residents, i.e., those who subject the foreign corporation to Israeli taxes solely resided abroad for a period of at least ten consecutive due to the residence of the owner for a period of 10 years and return to reside in Israel years. benefits to new immigrants real estate ownership and returning israeli residents Israel does not restrict the ownership of real property to Israeli residents, unlike certain countries The Tax Ordinance provides an exemption from such as Switzerland or Australia. Real estate may be tax and reporting obligations to new immigrants and owned by non-residents or by temporary residents long-term returning residents on all forms of income as well as new immigrants or returning residents. The whether active or passive, earned income and capital taxation of real estate transactions was revised in gains, or derived from sources outside Israel for a 2014 abolishing, as a general rule, tax exemptions for period of ten years. The exemption applies even if the individual non-residents. Capital gains from the sale assets are purchased after the individuals change their of real property in Israel owned by non-residents will residence to Israel during this period. be exempt from Israeli taxes if the sale price is up to Returning residents are entitled to tax benefits ILS 4.5 million (USD 1.1 million) and the owner provides relating to assets purchased during their residence evidence from the tax authority in their country of abroad after they were no longer considered residents residence that he or she does not own real property of Israel for tax purposes. These include passive income in that country. derived from said assets (exempt from taxes in Israel for a five-year period), and capital gains derived from the sale of said assets (exempt from taxes in Israel for conclusion a period of ten years as long as there is no right via the asset, directly or indirectly, to assets located in Israel). Israel encourages immigration and has taken A new immigrant or a long-term returning legislative action to stand behind its encouragement. resident may be entitled to a one-year accommodation Over the 70 years of statehood, the country has absorbed period in which they will not be considered residents waves of immigrants from around the world, including of Israel for the purpose of its tax laws. This enables from Western countries and societies as well as third individuals to get settled and decide whether they world countries. The advantageous legislation granting wish to change their jurisdiction of residence to Israel. tax benefits is relevant to high net worth individuals In order to enforce this benefit, certain procedures with significant assets abroad. There have been periods and formalities must be followed with various offices of protest over the past few years during governmental of the Israeli Government, including the Ministry of budget discussions to have the benefits abolished but Absorption. In the event that the individual has applied these have been suppressed to date. In the event that for the accommodation year and remains an Israeli the legislation will be revised or abolished, it will be resident thereafter, the one-year period will be part of likely to apply to individuals who immigrate after the their ten-year exemption period. In the event that the legislation is revised. individual returns to his or her original home country, during or upon the termination of the accommodation “The Global Residence and Citizenship REVIEW” period, they will not be considered an Israeli resident This article was first published in the magazine:

30 31 Contents Israel - Estate Planning Considerations for the New Immigrant

The International Family Offices Journal israel - estate planning considerations for the new immigrant

Dr. Alon Kaplan | Lyat Eyal

preamble new immigrants

Immigration is always complex. From language Notwithstanding, the Tax Ordinance [New Ver- barriers, real property issues on to education, medical sion] (the “Tax Ordinance”) provides tax benefits to affairs all the way through to where to shop for the new immigrants and Israelis returning to reside in Is- items you prefer, it is never simple. Add to the mix of rael1. The Tax Ordinance defines different categories of these immediate decisions the legal issues relating to immigration status as set forth below: estate planning and many people surrender at that point. The legal estate planning issues remain unre- • New immigrants, i.e., individuals moving to reside solved for years even sometimes forever. in Israel who have never been Israeli residents in As a new State celebrating its 70th anniversary, the past. • Israel has always been a country of immigration relying Returning residents, i.e., individuals who resided on immigrants to form the basis of its population. This in Israel and then emigrated and resided abroad article will focus on certain suggested planning for the for a period of at least six consecutive years and new immigrants prior to or upon their immigration to then return to reside in Israel. • the country. Long-term returning residents, i.e., individuals who resided in Israel and then emigrated and re- israeli residence sided abroad for a period of at least ten consecu- tive years and then return to reside in Israel. Israeli residence for tax purposes is a rebutta- ble presumption based on a day count of presence in The Tax Ordinance grants new immigrants and Israel. Generally, a presumption of residence in Israel long-term returning residents an exemption from tax is established for presence in Israel during at least 183 and reporting obligations for a period of ten years on days annually or presence in Israel for at least 30 days all forms of income, active or passive, as long as they in any given year and at least 425 days cumulatively in are derived from sources abroad. that tax year together with the immediately preceding Returning residents are entitled to tax benefits two years. relating to assets purchased during their residence Further, residence is based on a ‘center of life abroad once they were no longer residents of Israel for test’ which is a subjective test taking into consider- tax purposes (“Exempt Assets”). These include: ation many factors such as one’s permanent home, the jurisdiction of residence of immediate family mem- 1. A tax exemption for a period of five years bers, one’s business activities or place of employment from tax payments on passive income derived from as well as activities in organizations, worship locations Exempt Assets. and activities at various institutions. A tax exemption from capital gains taxes de- rived from the sale of Exempt Assets, providing there is no right via the asset, directly or indirectly, to assets

1 As this issue has been strongly debated with pressure from global economic forums to abolish said reporting and tax exemptions, the benefits mentioned herein are relevant at the time of writing this article.

32 33 Contents located in Israel. acting as trustee for the beneficial owner of the prop- erty (the ‘Bare Trustee’). The Tax Ordinance defines a corporation as an The Bare Trustee is the registered owner of the Israeli resident for tax purposes if it is incorporated in Is- real property at the Land Registry with a declaration of rael or if the management and control of the corporation trust at the Land Tax Authority in favor of the individu- incorporated abroad is conducted from Israel. Where a al beneficial owner. new immigrant or long term returning resident own- This real estate trust enables real property ing and managing a foreign corporation immigrates to transactions to be taxed as though the property is held Israel, such residence in Israel by the owner does not by the individual beneficial owner rather than by the subject the foreign corporation to management and registered owner as a company and may be utilized control in Israel and the foreign corporation will not be within foreign trust structures. taxed in Israel on overseas income solely due to the residence of its shareholder for a period of ten years. foreign wills Notwithstanding the tax benefits to immigra- tion, a new immigrant may be entitled to a one-year The Israeli Succession Law 1965 (the “Succes- accommodation period in which they will not be con- sion Law”) governs succession matters in Israel. Under sidered residents of Israel for the purpose of its tax the Succession Law, a will is valid based on the criteria laws. This enables individuals to consider whether below: they wish to reside in Israel permanently. In order to enforce the accommodation year, certain procedures • It is valid under Israeli law. and formalities must be followed with various offices • It is valid under the law of the country where it of the Israeli Government, including the Ministry of Ab- was executed. sorption. In the event that the individual has applied • It is valid under the law of the country of domicile for the accommodation year and remains an Israeli resident thereafter, the one-year period will be part or of residence of the testator, whether at the time of the individual’s ten-year exemption period. In the of the execution or at the time of death. • event that the individual returns to his original home It is valid under the law of the country of citizen- country, during or upon the termination of the accom- ship of the testator, whether at the time of the ex- modation period, the individual will not be considered ecution or at the time of death. an Israeli resident during the accommodation year. • It is valid under the law of the lex situs, if it be- queaths real property. real estate ownership The Succession Law provides for four types of wills: (i) a handwritten will which requires a document There are no restrictions in Israel on owner- written, in its entirety, dated and signed by the testator; ship of real property by residents or non-residents. (ii) a will in the presence of witnesses which requires a Non-residents and/or new immigrants may purchase written/typed document signed by the testator in the real properties upon their immigration to the country. presence of two witnesses; (iii) a deathbed will which Real property transactions involve a number of taxes, is valid only if made by a person facing imminent death such as purchase taxes, capital gains on land taxes and (a subjective view). The individual orally expresses his land betterment taxes. There are certain tax advantag- wishes in the presence of two competent adult wit- es for the purchase of residential properties by new nesses. The witnesses then draft the testator’s wishes immigrants, although careful consideration should and deposit the written document with the Registrar of be given in planning the purchase and the ownership Inheritance Affairs. The will is valid only for a period of structure of the property if it is to be owned by an enti- up to one month from the date thereof; (iv) a will in the ty other than the individual new immigrant. presence of an authority which requires an oral dec- laration by the testator before an authority who then drafts a written document evidencing the oral state- the real estate trust ment, reads it to the testator who declares it to be his last will confirmed by the authority. An ‘authority’ is A real estate trust may be established in order 2 defined in the Succession Law as one of the following: to hold real property in Israel. The real property is pur- a) a district court judge; b) a Registrar judge; c) a reli- chased by a company (an Israeli company is preferable gious court judge; d) an Israeli notary. for administrative purpose but not legally required),

2 Section 22a.

32 33 Contents Wills executed by new immigrants under the many jurisdictions. The establishment of inter-vivos laws of their country of origin are likely to be found trusts may prevent the requirement for inheritance or valid under the Succession Law. However, in many cir- probate legal proceedings as trusts, if established and cumstances, over time, said wills may not be relevant managed during a testator’s lifetime in accordance as they relate to assets that are no longer owned by with the legal requirements, hold assets that do not the testator. It may generally be recommended for new form part of a decedent’s estate, thereby alleviating immigrants to execute updated wills under Israeli law the requirement for a last will and testament for the to bequeath their worldwide assets. trust. It is common for new immigrants to immigrate having established foreign trusts for their estate plan- intestate succession ning in their country of origin. Planning should include a review of said trusts for Israeli estate planning and Legal heirs are defined by the Succession Law3 taxation purposes. Below is a general summary of the in circumstances of intestate succession: taxation of trusts based on the trust categories de- fined by the Tax Ordinance, generally based on the ju- • The decedent’s spouse; risdiction of residence of the settlor and the beneficia- • The decedent’s children and their issue; ries. The trustee’s jurisdiction of residence or business • The decedent’s parents and their issue; activities does not affect the taxation of the trust. In • The decedent’s grandparents and their issue; • addition, careful consideration should be given to im- The State (in the absence of other heirs). migrating with trusts as some trusts may be subject to The order of distribution is firstly to the spouse reporting and/or tax obligations in Israel despite the and children. Where a decedent is not survived by a benefits granted to new immigrants described herein. spouse or children, the legal heirs are the decedent’s • The Israeli residents trust; parents and their issue and if no such surviving rela- • The foreign resident trust; tives, then the decedent’s grandparents and their is- • The Israeli resident beneficiary trust; sue. The State is an heir only where there are no other • The foreign beneficiary trust; surviving family members. • The testamentary trust. probate in israel the israeli residents trust The Succession Law4 provides that an Israeli The Israeli residents trust is: court has jurisdiction over matters involving the inher- (i) A trust settled by a resident of Israel for the itance of an individual residing in Israel at the time of benefit of Israeli resident beneficiaries; or his death or a foreign resident who passed away own- (ii) A trust where all settlors are deceased and ing assets in Israel. As a result, the Israeli court has there is an Israeli resident beneficiary. jurisdiction over the worldwide estate of a new immi- This trust is subject to reporting obligations grant resident of Israel and Israeli law will govern the and tax payments on its worldwide income at the rates distribution of the decedent new immigrant’s estate5. applicable to individuals for the various types of in- Moreover, Israel does not recognize foreign probate come of the trust. This trust is also the default category court orders and proceedings in Israel must be com- for trusts that do not fit within the definition of other menced irrespective of any proceedings filed in other trust types. jurisdictions. trusts the foreign resident trust The foreign resident trust is settled by a Trusts are governed by the Trust Law 1979. Es- non-resident for the benefit of non-resident beneficia- tate planning utilizing trust structures is common in ries or registered Israeli charities. The trust must not

3 Section 10. 4 Section 136. 5 Succession Law, Section 137.

34 35 Contents have had any Israeli resident beneficiaries at any time tions as set forth above. since its settlement. This trust is subject to reporting and tax obli- the foreign beneficiary gations in Israel only to the extent that it holds Israeli trust assets or receives Israeli source income. A foreign beneficiary trust is a trust established the israeli resident by an Israeli resident for the benefit of a foreign res- beneficiary trust ident beneficiary. The trust is entitled to the tax ex- emptions listed below but is subject to reporting ob- The Israeli resident beneficiary trust is a trust: ligations upon its settlement as well as annually as (i) established by a non-resident of Israel; and (ii) at confirmation of the beneficiaries’ residence abroad. least one of the beneficiaries of the trust is a resident Such a trust must meet all of the following con- of Israel, excluding Israeli registered charities. ditions: a. It does not fall within the definition of an Is- Two additional criteria must be met for the raeli residents trust. trust to be classified as an Israeli resident beneficiary b. It is irrevocable. trust. Firstly, the settlor and the beneficiaries must be c. All of the beneficiaries are identified and are immediate family members (i.e., the settlor is a spouse, foreign residents. parent, grandparent, child or grandchild of the benefi- d. At least one settlor is an Israeli resident. ciary) (“Relatives Trust”). A broader family relationship A foreign beneficiary trust is regarded as a for- (i.e., siblings, nieces, nephews, aunts, uncles) will only eign resident individual and is taxed in the same man- permit classification as an Israeli resident beneficiary ner in which an individual foreign resident is taxed in trust upon the submission of evidence to the tax as- Israel. If the assets and the income derived therefrom sessment officer of the tax authority that such a trust are derived from sources abroad, there is no taxation was settled in good faith and that the beneficiary did in Israel. If the assets or the income derived therefrom not provide consideration for such settlement in his are derived from sources within Israel, they are subject favor. Secondly, that the settlor is alive. to Israeli taxation. Taxes may be applicable upon the If any one of these additional criteria is not settlement of the trust. met, the trust is not a Relatives Trust, it is to be classi- fied and taxed as an Israeli resident trust. The Israeli resident beneficiary trust that qual- the testamentary trust ifies as a Relatives Trust is subject to tax as follows: This trust is settled by a last will and testament of an Israeli resident. It is treated for tax purposes as 1. Distributions to Israeli resident beneficia- an Israeli residents trust, if it has at least one Israeli ries will be taxed at the rate of 30% of the distribution resident beneficiary or as a foreign beneficiary trust, if amount. In the event that the trustee is in a position to there are no Israeli resident beneficiaries. provide evidence that the distribution is solely of cap- ital and not of income, said distribution is not taxable. conclusion 2. The trustee may opt, under certain circum- stances, to subject the trust income allocated to an This article summarized only some issues for Israeli resident beneficiary to tax at the rate of 25% in estate planning considerations by new immigrants. In the tax year in which the income accrued. Upon annual addition, coordination with the new immigrant’s coun- tax payments on income by the trust, distributions to try of origin may be crucial in order to limit probate the beneficiary are not subject to additional taxes. This proceedings, costs and taxes. While, as a general rule, route, once chosen by the trustee, is irreversible. Israel does not impose estate or gift taxes, many coun- tries do. There are also rules in foreign jurisdictions The Israeli Resident Beneficiary Trust that fails relating to forced heirship or marital shares which may to qualify as Relatives Trust is categorized as an Israeli require review and cross-border planning. Residents Trust subject to reporting and tax obliga-

34 35 Contents Skyscrapers Tel-Aviv

36 37 Contents Succession in Israel

SUCCESSIONSUCCESSION IN ISRAEL IN ISRAEL MEYTAL LIBERMAN AND THE CONCEPTMEYTAL OFLIBERMAN a trust has ANDbeen well THE CONCEPTthe inheritance OF a trust law in has Israel, been while well the inheritance law in Israel, while DR ALON KAPLAN HIGHLIGHT DRestablished ALON KAPLAN in Israel throughout SUCCESSIONHIGHLIGHT its establishedspecifically INin Israel ISRAEL addressing throughout the its transfer specifically addressing the transfer history.MEYTAL LIBERMANIn the Ottoman AND THE period, CONCEPT theOF a trust hashistory. been wellof Inassets the inheritance Ottomanupon death law in period, Israel, under while the each of of assets upon death under each of PROVISIONS IN ISRAELI PROVISIONSestablished IN ISRAELI in Israel throughout its specifically addressing the transfer DR ALONMuslim KAPLAN trust, HIGHLIGHT known as waqf, was widelyMuslim these trust, laws. known as waqf, was widely these laws. PROVISIONSLAW INTHAT ISRAELI CAN history. MAKE In the Ottoman A period, the of assets upon death under each of LAW THAT CAN MAKE A used by both Jewish andMuslim Muslim trust, known people. as waqfused , was widely by both these Jewish laws. and Muslim people. LAW THAT CAN MAKE A used by both Jewish and Muslim people. TRUST INEFFECTIVE One ofTRUST the INEFFECTIVE well-knownTRUST INEFFECTIVEOne waqfs of the well-known was that waqfs ofOne was that ofINHERITANCE ofthe well-knownINHERITANCE LAW LAW waqfs IN ISRAEL IN wasISRAEL that of INHERITANCE LAW IN ISRAEL Hürrem Sultan, which was knownHürrem as the Sultan,All inheritance which proceedings was known in Israel areas the All inheritance proceedings in Israel are Hürrem Sultan, whichMiri was Mukafah known Waqf asHaski the Sultany , All inheritancegoverned by the Successionproceedings Law, which in Israel are Miri Mukafah Waqf Haskimeaning Sultany ‘the real estate, trustMiri of Haski Mukafahgoverned provides Waqf by in s2the thatHaski Succession the lawful Sultany heirs ofLaw, the , which governed by the Succession Law, which 1 KEY POINTS Sultany’. Waqfs still exist, and are deceased are the beneficiaries under their meaning ‘the real estategoverned trust by Shari’aof Haski law and meaning the Muslimprovides ‘thewill, real and, in in s2estate the that absence trustthe of a lawfulwill, of the Haski heirs heirs of theprovides in s2 that the lawful heirs of the WHAT ISSultany’. THE ISSUE? 1 Waqfs still exist,Shari’a courtsand inare Israel. TrustsSultany’. continueddeceased 1 Waqfsunder law, are still as thedetermined exist, beneficiaries andin accordance are under theirdeceased are the beneficiaries under their KEY POINTS Special careKEY should be POINTS given when to form a part of Israel’s economic and with the mechanism detailed in ss10–17. draftinggoverned a trust deed, and by to the Shari’a trust’s lawlegal and culture the under Muslim the Britishgoverned Mandatewill,, by and, Shari’aAnother in the cornerstone law absence and of the of Muslim a will, the heirswill, and, in the absence of a will, the heirs WHAT IS THE ISSUE? managementWHAT afterIS THEcreation. ISSUE? Succession as well under the English commonShari’a law, ascourts inheritance in Israel. law in Israel Trusts is the principle continued under law, as determined in accordance law and Shari’atrust law in Israel courts have certain in Israel. evident Trusts in the continuedCharitable Trusts underof law,freedom as of determined testation. This principle in accordance provisions that may turn a trust Special care should be givenOrdinance, when 1924–1925.2 Thisto tradition form was a partmanifests of Israel’s in s27, which economic provides in and with the mechanism detailed in ss10–17. Special care should be given when ineffectiveto formwhen the settlora part of the of trust Israel’s economic and with the mechanism detailed in ss10–17. drafting a trust deed, and to the trust’s wishesdrafting tolegal avoid inheritance aculture trust deed,procedure. under and the tolater the British drawn trust’s into Mandate the Israeli legal, system culture Anothersubsection under cornerstone (a) the that ‘anBritish undertaking ofMandate the to , Another cornerstone of the management after creation.through Succession different legal arrangements and make a will, to change it, to cancel it, or to management after creation. Succession WHAT DOESas well IT MEAN under FOR ME? the Englishcase law, common and was finally law, formally as well inheritance underrefrain the from English law doing in any Israel commonof the same is –the is law, principle as inheritance law in Israel is the principle law and trust law in Israel have certain Practitionerslaw and should trust understand law in the Israel risk haveimplemented certain under the Israeli Trust Law invalid’, and in subsection (b) that ‘a of the inheritanceevident procedure, in the which Charitable may in 1979. Trusts3 evidentof in freedom theprovision Charitable ofin a testation.will the negatesTrusts Thisor limits principle of freedom of testation. This principle provisions that may turn a trust invalidateprovisions a trust. that may turn a trust 4 2 Ordinance, 1924–1925.2 ThisThe Israeli tradition Succession LawwasOrdinance, was manifests the1924–1925 right in of the s27, testator. which This to change tradition provides the will was in manifests in s27, which provides in ineffective when the settlor of the trust WHATineffective CAN I TAKE AWAY?when the settlor enactedof the in trust 1965, and comprises the core or to cancel it – is invalid’. Anwishes understandinglater to drawn avoid of the possible inheritance into the Israeli procedure.inheritance legal law insystem Israel, togetherlater with drawnsubsection intoThe Succession the (a) Israelithat Law ‘an provides legal undertaking in system s8a to subsection (a) that ‘an undertaking to wishes to avoid inheritance procedure. conflicts between the trust law and the case law and other relevant legislation. that ‘an agreement regarding a person’s successionthrough law. different legal Thisarrangements article will focus onandthrough the make differentinheritance a will, to legalor a change waiver arrangements of his it, inheritance, to cancel and it, or maketo a will, to change it, to cancel it, or to WHAT DOES IT MEAN FOR ME? WHATcase DOES law, and IT MEAN was finally FORrelationship ME? formally between the trustcase law andlaw,refrain andmade wasfrom during finally doing the lifetime anyformally of that of person,the same is – is refrain from doing any of the same – is Practitioners should understand the risk Practitionersimplemented should under understand the Israeli the risk Trust Lawimplemented invalid’, under and in the subsection Israeli Trust (b) that Law ‘a invalid’, and in subsection (b) that ‘a of the inheritance procedure, which may of thein inheritance1979.3 procedure, which may in 1979.provision3 in a will the negates or limits provision in a will the negates or limits 58 invalidateMAY 2018 | WWW.STEP.ORG/JOURNAL a trust. invalidate a trust. The Israeli Succession Law 4 was Thethe Israeli right Succession of the testator Law to4 was change the willthe right of the testator to change the will WHAT CAN I TAKE AWAY? WHATenacted CAN inI TAKE 1965, AWAY? and comprises the coreenacted or into 1965,cancel and it – comprises is invalid’. the core or to cancel it – is invalid’. An understanding of the possible An understandinginheritance law of thein Israel, possible together with inheritanceThe law Succession in Israel, Law together provides with in s8a The Succession Law provides in s8a conflicts between the trust law and the conflictscase law between and other the trust relevant law and legislation. the case lawthat and ‘an other agreement relevant regarding legislation. a person’sthat ‘an agreement regarding a person’s succession law. successionThis law. article will focus on the Thisinheritance article will or focus a waiver on the of his inheritance,inheritance or a waiver of his inheritance, relationship between the trust law and relationshipmade during between the the lifetime trust lawof that and person, made is during the lifetime of that person, is

36 37 Contents 58 MAY 2018 | WWW.STEP.ORG/JOURNAL58 MAY 2018 | WWW.STEP.ORG/JOURNAL FOCUS ON ISRAEL SUCCESSION AND TRUSTS

‘If a person wishes to grant a gift, they must do so during their lifetime, or under a will’

void’. Subsection 8b states that ‘[a] gift notary. A testamentary trust becomes the appointer is no longer in a position made by a person, such that it shall be valid only on the issuance of a probate to properly understand the matter and granted to the recipient only following the order with respect thereof. attend to these affairs by themselves. death of the donor, shall have no validity, Certain matters require an express unless made in a will pursuant to the THE INVALIDATION OF A TRUST authorisation or approval of the court. provisions of this law’. UNDER THE SUCCESSION LAW The demise of the appointer will It therefore follows that, if a person Due to the limitations set by s8 of the terminate the power of the delegate, and wishes to grant a gift, they must do so Succession Law mentioned above, a consequently an inheritance will be during their lifetime, or under a will; any trust contract between the settlor and required with the appointer’s assets. FOCUS ONgift that is to become effective upon the trustee, under which control of the Because of this, the creation of an inter ISRAELdemise is void. Given the principle of trust’s assets passes to the trustee only vivos trust during the lifetime of the SUCCESSION AND TRUSTS freedom of testation, there is no on the death of the settlor, is ineffective. appointer would probably provide a more limitation on the gift itself – i.e. there The control must be granted during the effective solution to manage the assets of is no forced heirship under the lifetime of the settlor, or alternatively, the appointer during their lifetime and FOCUSSuccession ON Law. the trust must be a hekdesh (i.e. inter vivos after their demise. ISRAEL SUCCESSION IN ISRAEL SUCCESSION ANDIt TRUSTS should also be noted that, under s39, trust), with assets effectively transferred a will becomes effective only on the to the control of the trustee during the CONCLUSION MEYTAL LIBERMAN AND THE CONCEPT OF a trust has been well the inheritance law in Israel, while issuance of a probate order with respect lifetime of the settlor, or a testamentary The inter-relationship of the Succession DR ALON KAPLAN HIGHLIGHT established in Israel throughout its specifically addressing the transfer thereof. The probate process may take trust, which becomes effective on Law and the Trust Law is complex and PROVISIONS IN ISRAELI history. In the Ottoman period, the of assets upon death under each of ‘If afrom person several wishes months to upgrant to a year a gift, – during they mustthe issuance of a probate order with challenging. If a person wishes to create Muslim trust, known as waqf, was widely these laws. which time, limitations are usually respect thereof. a trust that would prevail after their LAW THAT CAN MAKE A used by both Jewish and Muslim people. do soimposed during on thetheir deceased’s lifetime, assets. or under a will’It therefore follows that, if a trust is demise, special care should be given to the TRUST INEFFECTIVE One of the well-known waqfs was that of INHERITANCE LAW IN ISRAEL created pursuant to a contract, the death form of the trust – i.e. a trust contract, an Hürrem Sultan, which was known as the All inheritance proceedings in Israel are ‘If THEa person CREATION wishes OF to A grant TRUST a gift, they mustof one of the parties to the contract will inter vivos trust or a testamentary trust – Miri Mukafah Waqf Haski Sultany, void’. Subsectiongoverned 8b bystates the that Succession ‘[a] gift Law,notary. which A testamentaryUNDER trust becomes THE TRUSTthe appointer LAW is no longer in a positionterminate the trust relationship, and as well as to its drafting and subsequent made by a person, such that it shall be valid only on the issuance of a probate to properly understand the matter and meaning ‘the real estate trust of Haski grantedprovides to the recipient in s2 only that following the lawful the heirsorder of with the respect dothereof.The so duringIsraeli Trust theirattend Law lifetime, todefines these affairs or a trustunder by themselves. in s1a will’ require a succession procedure in order management. Other factors should 1 KEY POINTS Sultany’. Waqfs still exist, and are death ofdeceased the donor, shall are havethe beneficiariesno validity, under their as the duty imposedFOCUSCertain onON matters a person require to hold an express or to transfer the rights of the deceased to also be considered, such as tax and governed by Shari’a law and the Muslim unless madewill, in and, a will in pursuant the absence to the of a will,THE INVALIDATIONthe heirs OFto A TRUSTotherwise dealISRAELauthorisation with assets or approvalunder their of the court.their heirs. family circumstances. WHAT IS THE ISSUE? Shari’a courts in Israel. Trusts continuedprovisions void’.under Subsectionof this law, law’. as 8b statesdetermined that ‘[a] gift in accordanceUNDERnotary. THE ASUCCESSION testamentary trustLAWSUCCESSION becomes theThe ANDappointer demise TRUSTS is of no the longer appointer in a position will It therefore follows that, if a person Due to the limitations setcontrol by s8 of thefor the benefitterminate of the another power of orthe for delegate, and It should also be noted that the choice Once an inter vivos trust is created, the Special care should be given when made by a person, such that it shall be valid only on the issuance of a probate to properly understand the matter and to form a part of Israel’s economic and wishesgranted withto grant tothe thea gift, mechanism recipient they must only do following detailed so the Successionin ss10–17.order Law with mentionedrespect thereof.some above, other a purpose.consequentlyattend to these an affairs inheritance by themselves. will be of the form of the trust, as mentioned irrevocable settlement of assets into the drafting a trust deed, and to the trust’s legal culture under the British Mandate,during death their Anotherof lifetime, the donor, or cornerstone shall under have a will; no validity, any of the trust contract between the settlorUnder and the TrustrequiredCertain Law matters with, a trust the require appointer’s may an be express assets. above, requires consideration of personal trust and under the control of the trustee management after creation. Succession as well under the English common law, asgift thatunlessinheritance is to made become in a willeffective law pursuant in Israelupon to the is thethe principleTHE trustee, INVALIDATION under which OF control A TRUST of the Becauseauthorisation of this, or the approval creation of the of ancourt. inter demiseprovisions is void. Given of this the law’. principle of trust’sUNDER assets THE passes SUCCESSION to thecreated trustee LAW byonly a contract,vivosThe trust deed demise during or of thetestament, the appointer lifetime ofwill the and family circumstances, as well as tax should be made and completed during the law and trust law in Israel have certain evident in the Charitable Trusts of freedom of testation. This principle provisions that may turn a trust freedomIt of therefore testation, follows there that, is no if a person on theDue death to the of limitations the settlor, asset is setby ineffective. s8 out of the below: appointerterminate would the power probably of the providedelegate, a and moreplanning considerations. lifetime of the settlor. Otherwise, the Ordinance, 1924–1925.2 This tradition waslimitation wishesmanifests on to the grant gift a in itselfgift, s27, they – i.e. which must there do provides so TheSuccession controlin must Law bementioned granted above,during a the effectiveconsequently solution an inheritance to manage will the beassets of ineffective when the settlor of the trust • A trust created by contract requires settlement may be contested by potential later drawn into the Israeli legal system is no forcedduringsubsection heirshiptheir lifetime, under (a) orthat the under ‘an a will; undertaking any lifetimetrust tocontractof the settlor, between or alternatively, thean settlor agreement and the requiredbetween appointer with the duringthe settlor appointer’s their and lifetime assets. and ENDURING POWER OF ATTORNEY heirs of the settlor after their demise, wishes to avoid inheritance procedure. Successiongift that Law is .to become effective upon thethe trust trustee, must underbe a hekdesh which control (i.e. inter of thevivos afterBecause their of demise. this, the creation of an inter through different legal arrangements and It shoulddemisemake alsois void.a bewill, Givennoted to thethat, change principle under it, s39, of to canceltrust),trust’s it,with assetsor assets to passes effectively to thethe trustee transferred trustee, only withvivos no trust specific during the procedure lifetime of the This article focuses on the transfer which may result in costly and WHAT DOES IT MEAN FOR ME? case law, and was finally formally a willfreedom becomesrefrain of effective testation, from doing onlythere on is any theno of the sameto theon thecontrol – deathis of of the the trustee settlor, necessaryduringis ineffective. the for FOCUS CONCLUSIONitsappointer creation. ON would probably provide a moreof assets on death, but reality shows cumbersome litigation in court. Practitioners should understand the risk issuancelimitation of a probate on the order gift itself with – respecti.e. there lifetimeThe control of the settlor,must be orgranted a testamentary during the Theeffective inter-relationship solution to manage of the theSuccession assets of implemented under the Israeli Trust Law is invalid’,no forced heirship and in under subsection the (b) thatlifetime ‘a of the settlor, or• alternatively, A trust created theISRAEL by appointer a deed during must their be in lifetime andthat legal capacity issues should also of the inheritance procedure, which may 3 thereof. The probate process may take trust, which becomes effective onSUCCESSION Law and AND the TrustTRUSTS Law is complex and in 1979. from Successionseveralprovision months Law .in up a to will a year the – during negates the orthe issuance limits trust must of a probatebe a hekdesh orderwriting (i.e. with inter andvivos signedchallenging.after their in the demise. If apresence person wishes of to createbe considered during the lifetime of a 1 Different Appeal (Jerusalem) 2/97Machmed and Ibrahim Abed invalidate a trust. 4 It should also be noted that, under s39, trust), with assets effectively transferred The Israeli Succession Law was which time,the rightlimitations of the are testator usually to changerespect the thereof. will an Israeli notary.a trust This that trustwould isprevail known after their person. To deal with such issues, new Rabu v Administrator General Jerusalem, par 42 (13 September a will becomes effective only on the to the control of the trustee during the ‘IfCONCLUSION a person wishes to grant a gift, they must imposed on the deceased’s assets. It therefore follows that, if a trust is demise, special care should be given to the WHAT CAN I TAKE AWAY? enacted in 1965, and comprises the core issuanceor to cancelof a probate it –order is invalid’. with respect lifetime of the settlor, or a astestamentary hekdesh (i.e.The an inter-relationship inter vivos trust). of the It Succession legislation was recently implemented: 2006), Nevo Legal Database (by subscription) (Isr) 2 Charitable An understanding of the possible inheritance law in Israel, together with thereof.The The Succession probate process Law may providestake createdtrust, in s8a pursuant which becomes to a contract, effective the on death formLaw andof the the trust Trust – Lawi.e. a is trust complex contract, and an Trusts Ordinance 1924, Official Gazette of the Government of THE CREATION OF A TRUST of one of the parties to the contractbecomes will operativeinterdo vivos so during trust during orthe a testamentary lifetime their trustAmendment lifetime, – No or 18 to under the Legal aCapacity will’ conflicts between the trust law and the case law and other relevant legislation. fromthat several ‘an agreementmonths up to a yearregarding – during a person’sthe issuance of a probate order with challenging. If a person wishes to create 5 Palestine, issue no 116 of 1 June 1924, at pp672–680; Charitable UNDERwhich THE time, TRUST limitations LAW are usually terminaterespect thereof.the trust relationship,of the and settlor onasa trustwell the asthat transfer to would its drafting prevail of the and after subsequent their and Guardianship Law, which regulates succession law. This article will focus on the The Israeliimposedinheritance Trust on the Law deceased’s defines or a waiver assets.a trust inof s1 his requireinheritance,It thereforea succession follows procedure that,assets if ain trust order of is the settlormanagement.demise, to special the Other carecontrol shouldfactors of be should given to the creation and use of an enduring Trusts (Amendment) Ordinance 1925, Official Gazette of relationship between the trust law and as the dutymade imposed during on a the person lifetime to hold orof thatto transfercreated person, pursuant the is rights to of a contract,the deceasedthe trustee.the death to alsoform be of considered, the trust – i.e. such a trust as tax contract, and anpower of attorney (EPA). The EPA allows the Government of Palestine, issue no 142 of 1 July 1925 at to otherwiseTHE CREATION deal with OF assets A TRUST under their theirof oneheirs. of the parties to the contract will familyinter vivos circumstances. trust or a testamentary trust – controlUNDERvoid’. for the THE Subsectionbenefit TRUST of LAWanother 8b statesor for that ‘[a]Itterminate should gift also the trustbe noted relationship,notary.• that A testamentarythe choiceAand testamentary as Oncetrust,well as an trust to also inter its drafting becomesreferredvivos trust and issubsequentto created, thea the appointercompetent is person no longer (the in appointer) a position to pp343–345 3 Trust Law, 5739-1979, 33 LSI 41 (1966–1967) (Isr) someThe othermade Israeli purpose. by Trust a person, Law defines such a trust that in s1it of shall therequire form be a of succession the trust, procedure asvalid mentionedunder only in order the on Trust theirrevocable management.issuance Law as settlement aof Othertestamentary a probate factors of assets should into to the appointproperly another understand person the (the matter delegate) and 4 Succession Law, 5725-1965, 19 LSI 215 (1964–1965) (Isr) Underasgranted the the duty Trust imposed to Law the, aon trustrecipient a person may tobe holdonly or following above,to transfer requires the the consideration rights oforder thehekdesh deceased of withpersonal , to respectrefers trustalso to thereof. be aand trustconsidered, under that the such controlis created as tax of andthe trustee attendto attend to these to their affairs personal by themselves. and/or 5 Legal Capacity and Guardianship Law (Amendment 18), 58 MAY 2018 | WWW.STEP.ORG/JOURNAL createdto otherwiseby a contract, deal deedwith assetsor testament, under their andtheir family heirs. circumstances, as well as tax shouldfamily becircumstances. made and completed during the as setcontrol outdeath below: for of the the benefit donor, of another shall or have for planningno validity,It should considerations. also be noted thatby way the choice of probate lifetimeOnce proceedings of an the inter settlor. vivos trustunderOtherwise, is created, theCertain themedical matters and/or require property an expressaffairs when 5776-2016, 2550 SH 798 (2016) (Isr) • A trustsomeunless created other madepurpose. by contract in a will requires pursuant toof the form of the trust,THE as INVALIDATION thementioned Succession settlementirrevocable Law‘If OF .a AAccordingly, TRUST personmay settlement be contested of assetsawishes by into potentialauthorisation the to grant or approval a gift, of the they court. must an agreementprovisionsUnder the between Trust of Law this the, a settlor trustlaw’. may and be ENDURINGabove, requires POWER consideration UNDEROF ATTORNEYtestamentary THEof personal SUCCESSION heirstrusttrust of and must the under settlor LAW comply the after control theirwith of thedemise, trustee The demise of the appointer will thecreated trustee, by with a contract, no specific deed orprocedure testament, Thisand article family focuses circumstances, on the transfer as well as tax whichshould may be made result and in completedcostly and during the MEYTAL LIBERMAN IS ASSOCIATE ADVOCATE, AND DR ALON necessaryas set outIt for therefore below: its creation. follows that, ifof a assetspersonplanning on death,considerations. butDue reality to the showsthe formal limitations requirementscumbersomelifetimedo set ofbyso the s8 litigation duringsettlor.under of the Otherwise, inthe court. their theterminate lifetime, the power or of theunder delegate, a andwill’ • A trust•wishes A trustcreated created to by grant a deedby contract musta gift, be requires theyin mustthat do legal so capacity issuesSuccession shouldSuccession also Law mentioned Lawsettlement for executing above, may be contested a a will. by potentialconsequently an inheritance willKAPLAN be TEP IS THE FOUNDER AND MANAGING PARTNER, AT ALON an agreement between the settlor and ENDURING POWER OF ATTORNEY heirs of the settlor after their demise, writing and signed in the presence of be considered during the lifetime of a 1 Different Appeal (Jerusalem) 2/97Machmed and Ibrahim Abed duringthe trustee, their with lifetime,no specific orprocedure under aThis will; article any focuses trust on the Thesecontract transfer include between whichsigning the may settlor theresult will in costlyand in the and required with the appointer’s assets.KAPLAN ADVOCATE AND NOTARY. ALON IS ALSO PRESIDENT OF an Israeli notary. This trust is known person. To deal with such issues, new Rabu v Administrator General Jerusalem, par 42 (13 September giftnecessary that for is itsto creation. become effective ofupon assets on death, butthe reality trustee,presence shows under of two whichcumbersome witnesses control litigation or of an the in Israeli court. Because of this, the creation of anSTEP inter ISRAEL as hekdesh (i.e. an inter vivos trust). It legislation was recently implemented: 2006), Nevo Legal Database (by subscription) (Isr) 2 Charitable • A trust created by a deed must be in that legal capacity issues should also becomesdemisevoid’. operative isSubsection void. during Given the 8blifetime the states principle thatAmendment ‘[a] of gift No 18 to thetrust’s Legalnotary. Capacityassets A passes testamentaryTrusts to Ordinance the trustee 1924 trust, Official becomes only Gazette of the Governmentvivosthe of trustappointer during is theno longer lifetime in ofa position the writing and signed in the presence of be considered during the lifetime of a 1 Different Appeal (Jerusalem) 2/97Machmed and Ibrahim Abed 5 Palestine, issue no 116 of 1 June 1924, at pp672–680; Charitable of thefreedoman settlormade Israeli on notary.by ofthe a testation, transferperson, This trust of suchthe is there known that is andno it person.shall Guardianship beTo deal withLawon, such which the validissues, death regulates onlynew of onthe the settlor,Rabu issuance v Administrator is ineffective. General of a Jerusalem probate, par 42 (13 Septemberappointerto properly would understand probably the provide matter a more and Trusts (Amendment) Ordinance 1925, Official Gazette of assetslimitationas ofgranted hekdesh the settlor (i.e. toon anto the theinter controlrecipient giftvivos trust).itself of Itonly – i.e.the following legislation therecreation and was the use recently ofThe an implemented: enduringcontrolorder with must respect be2006), granted Nevo thereof. Legal Databaseduring (by subscription) the (Isr) 2 Charitableeffectiveattend tosolution these affairs to manage by themselves. the assets of the trustee. power of attorney (EPA). The EPA allows the Government of Palestine, issue no 142 of 1 July 1925 at isbecomes deathno forced operative of the heirship donor,during the undershall lifetime have the Amendmentno validity, No 18 tolifetime the Legal Capacityof the settlor, Trusts orOrdinance alternatively, 1924, Official Gazette of the GovernmenttheCertain of appointer matters during require their lifetimean express and WWW.STEP.ORG/JOURNAL | MAY 2018 59 • A testamentaryof the settlor trust, on the also transfer referred of theto a competentand Guardianship person (theLaw ,appointer)5 which regulates to pp343–345Palestine, issue 3 Trustno 116 Law, of 1 June5739-1979 1924, ,at 33 pp672–680; LSI 41 (1966–1967) Charitable (Isr) underSuccessionassets theunless Trust of the madeLaw settlor Law as atoin. testamentary the a will control pursuant of appointthe to creation theanother and person usethe ofTHE (the an trust enduring delegate) INVALIDATION must be a 4hekdeshTrusts Succession (Amendment) OF Law, A (i.e. 5725-1965 TRUSTOrdinance inter, 19 1925 LSI ,vivos Official215 (1964–1965) Gazetteafter (Isr)of authorisation their demise. or approval of the court. hekdeshtheprovisions,It trustee.refers should to a trust also of thisthat be is notedlaw’. created that, to underattendpower ofto s39, attorneytheir personal (EPA).trust),UNDER and/orThe with EPA THE allows assets SUCCESSION effectively5the Legal Government Capacity of and Palestine GuardianshiptransferredLAW, issue no Law 142 of(Amendment 1 July 1925 at 18), The demise of the appointer will by way•a A will testamentaryof probate becomes proceedings trust, effective also referred under only to medicalona competentthe and/or person propertyto (the the affairs appointer) control when to of the5776-2016pp343–345 trustee, 2550 3 Trust SH during Law, 798 5739-1979(2016) the(Isr), 33 LSI 41 (1966–1967)CONCLUSION (Isr) the SuccessionunderIt the therefore LawTrust. Accordingly, Law as follows a testamentary a that, if appointa person another personDue (the to delegate) the limitations 4 Succession set Law, by 5725-1965 s8 ,of 19 LSI the 215 (1964–1965) (Isr) terminate the power of the delegate, and testamentaryissuancehekdeshwishes, referstrust ofto mustatogrant probate a trust comply a that gift, order withis created they with mustto respect attend do so to their personallifetimeSuccession and/or of the Law settlor, mentioned5 Legal or Capacity a testamentary and above, Guardianship a Law (Amendment 18),The consequently inter-relationship an inheritance of the Succession will be the formalthereof.byduring way requirements of probate The their probate proceedings lifetime, under theprocess under or under maymedical a takewill; and/or any propertytrust,trust affairs whichMEYTAL contract when LIBERMANbecomes between5776-2016 IS ASSOCIATE effective, 2550 the SH ADVOCATE,settlor 798 (2016)on (Isr) and AND DR ALONLaw required and the with Trust the Law appointer’s is complex assets. and Successionfromthegift Succession Lawseveral that for is executingLaw tomonths. Accordingly,become a will. up effective to a a year –upon during thethe issuance trustee,KAPLAN TEPof under aIS probateTHE FOUNDER which order ANDcontrol MANAGING with of the PARTNER, ATchallenging. ALONBecause of Ifthis, a person the creation wishes of to an create inter Thesetestamentary include signing trust the must will comply in the with KAPLAN ADVOCATE AND NOTARY. ALON IS ALSO PRESIDENT OF presencewhichthedemise formal of two time, requirements witnesses is void. limitations orGiven anunder Israeli the are principle usually of respecttrust’sSTEP thereof.MEYTAL assets ISRAEL LIBERMAN passes IS ASSOCIATE to the trustee ADVOCATE, only AND DR ALONa trustvivos thattrust would during prevail the lifetime after their of the imposedSuccessionfreedom Law on of thefor testation, executing deceased’s a will. there assets. is no onIt thethereforeKAPLAN death TEP offollows IS the THE FOUNDER settlor, that, AND if is a MANAGINGineffective. trust is PARTNER, ATdemise, ALONappointer special would care probably should be provide given toa more the These include signing the will in the KAPLAN ADVOCATE AND NOTARY. ALON IS ALSO PRESIDENT OF presencelimitation of two witnesseson the giftor an itselfIsraeli – i.e. there createdThe control pursuantSTEP ISRAEL must to be a contract, granted duringthe death the formeffective of the trustsolution – i.e. to a trustmanage contract, the assets an of 38 THEis no CREATION forced heirship OF A underTRUST the of lifetimeone of the of partiesthe settlor, toWWW.STEP.ORG/JOURNAL the or contractalternatively, will | MAY 2018interthe59 vivos appointer trust orduring a testamentary their lifetime trust and – Contents UNDERSuccession THE LawTRUST. LAW terminatethe trust the must trust be arelationship, hekdesh (i.e. and inter vivos as after well astheir to its demise. drafting and subsequent The IsraeliIt should Trust also Law be noteddefines that, a trust under in s39,s1 requiretrust), a with succession assets effectivelyprocedureWWW.STEP.ORG/JOURNAL intransferred order | MAY 2018 management.59 Other factors should asa the will duty becomes imposed effective on a person only onto holdthe or toto transfer the control the rights of the of trustee the deceased during tothe alsoCONCLUSION be considered, such as tax and toissuance otherwise of deal a probate with assets order withunder respect their theirlifetime heirs. of the settlor, or a testamentary familyThe inter-relationship circumstances. of the Succession controlthereof. for The the probatebenefit processof another may or takefor trust,It should which also becomes be noted effective that the onchoice LawOnce and an the inter Trust vivos Law trust is complexis created, and the somefrom other several purpose. months up to a year – during of thethe issuanceform of the of atrust, probate as mentioned order with irrevocablechallenging. settlement If a person of assetswishes into to create the whichUnder time, the Trust limitations Law, a aretrust usually may be above,respect requires thereof. consideration of personal trusta trust and that under would the controlprevail ofafter the their trustee createdimposed by aon contract, the deceased’s deed or assets. testament, and familyIt therefore circumstances, follows that, as wellif a trust as tax is shoulddemise, be madespecial and care completed should be during given theto the as set out below: planningcreated considerations. pursuant to a contract, the death lifetimeform of of the the trust settlor. – i.e. Otherwise, a trust contract, the an •THE A trust CREATION created by OF contract A TRUST requires of one of the parties to the contract will settlementinter vivos may trust be or contested a testamentary by potential trust – UNDERan agreement THE TRUST between LAW the settlor and ENDURINGterminate POWERthe trust OF relationship, ATTORNEY and heirsas well of the as settlorto its drafting after their and demise, subsequent Thethe Israelitrustee, Trust with Lawno specific defines procedurea trust in s1 Thisrequire article a succession focuses on procedurethe transfer in order whichmanagement. may result Other in costly factors and should asnecessary the duty forimposed its creation. on a person to hold or of toassets transfer on death, the rights but reality of the deceasedshows to cumbersomealso be considered, litigation such in court. as tax and •to A otherwisetrust created deal by with a deed assets must under be in their thattheir legal heirs. capacity issues should also family circumstances. controlwriting for and the signed benefit in the of presenceanother or of for be consideredIt should duringalso be thenoted lifetime that the of achoice 1 DifferentOnce Appeal an (Jerusalem) inter vivos 2/97Machmed trust is and created, Ibrahim Abed the somean Israeli other notary. purpose. This trust is known person.of the Toform deal of withthe trust, such asissues, mentioned new Rabuirrevocable v Administrator Generalsettlement Jerusalem of, par assets 42 (13 September into the asUnder hekdesh the (i.e. Trust an inter Law ,vivos a trust trust). may It be legislationabove, requires was recently consideration implemented: of personal 2006),trust Nevo and Legal under Database the (by subscription)control of(Isr) the 2 Charitable trustee createdbecomes by operative a contract, during deed theor testament, lifetime Amendmentand family No circumstances, 18 to the Legal as Capacity well as tax Trustsshould Ordinance be 1924 made, Official and completedGazette of the Government during of the asof set the out settlor below: on the transfer of the andplanning Guardianship considerations. Law,5 which regulates Palestinelifetime, issue no of 116 the of 1 Junesettlor. 1924, atOtherwise, pp672–680; Charitable the •assets A trust of the created settlor by to contract the control requires of the creation and use of an enduring Trustssettlement (Amendment) mayOrdinance be 1925contested, Official byGazette potential of thean trustee. agreement between the settlor and powerENDURING of attorney POWER (EPA). OF The ATTORNEY EPA allows theheirs Government of the of Palestine settlor, issue after no 142 their of 1 July demise, 1925 at • A testamentarythe trustee, with trust, no alsospecific referred procedure to a competentThis article person focuses (the on appointer) the transfer to pp343–345which 3may Trust resultLaw, 5739-1979 in costly, 33 LSI and 41 (1966–1967) (Isr) undernecessary the Trust for itsLaw creation. as a testamentary appointof assets another on death, person but (the reality delegate) shows 4 Successioncumbersome Law, 5725-1965 litigation, 19 LSI 215 in (1964–1965) court. (Isr) •hekdesh A trust, refers created to bya trust a deed that must is created be in tothat attend legal to capacitytheir personal issues and/or should also 5 Legal Capacity and Guardianship Law (Amendment 18), bywriting way of probateand signed proceedings in the presence under of medicalbe considered and/or property during the affairs lifetime when of a 5776-20161 Different, 2550 Appeal SH 798 (Jerusalem) (2016) (Isr) 2/97Machmed and Ibrahim Abed thean Succession Israeli notary. Law .This Accordingly, trust is known a person. To deal with such issues, new Rabu v Administrator General Jerusalem, par 42 (13 September testamentaryas hekdesh (i.e. trust an must inter complyvivos trust). with It legislation was recently implemented: 2006), Nevo Legal Database (by subscription) (Isr) 2 Charitable thebecomes formal requirementsoperative during under the the lifetime Amendment No 18 to the LegalMEYTAL Capacity LIBERMAN ISTrusts ASSOCIATE Ordinance 1924ADVOCATE,, Official ANDGazette DR of theALON Government of Successionof the settlor Law on for the executing transfer a ofwill. the and Guardianship Law,5 whichKAPLAN regulates TEP IS THE FOUNDERPalestine, issue AND no 116 MANAGING of 1 June 1924, PARTNER, at pp672–680; AT Charitable ALON Theseassets include of the signingsettlor to the the will control in the of the creation and use of an enduringKAPLAN ADVOCATE TrustsAND (Amendment)NOTARY. ALON Ordinance IS ALSO 1925, OfficialPRESIDENT Gazette OF of presencethe trustee. of two witnesses or an Israeli power of attorney (EPA). TheSTEP EPA ISRAEL allows the Government of Palestine, issue no 142 of 1 July 1925 at • A testamentary trust, also referred to a competent person (the appointer) to pp343–345 3 Trust Law, 5739-1979, 33 LSI 41 (1966–1967) (Isr) under the Trust Law as a testamentary appoint another person (the delegate) 4 Succession Law, 5725-1965, 19 LSI 215 (1964–1965) (Isr) hekdesh, refers to a trust that is created to attend to their personal and/or 5 Legal Capacity and Guardianship Law (Amendment 18), by way of probate proceedings under medical and/or property affairs when 5776-2016WWW.STEP.ORG/JOURNAL, 2550 SH 798 (2016) (Isr) | MAY 2018 59 the Succession Law. Accordingly, a testamentary trust must comply with the formal requirements under the MEYTAL LIBERMAN IS ASSOCIATE ADVOCATE, AND DR ALON Succession Law for executing a will. KAPLAN TEP IS THE FOUNDER AND MANAGING PARTNER, AT ALON These include signing the will in the KAPLAN ADVOCATE AND NOTARY. ALON IS ALSO PRESIDENT OF presence of two witnesses or an Israeli STEP ISRAEL

WWW.STEP.ORG/JOURNAL | MAY 2018 59 FOCUS ON ISRAEL SUCCESSION AND TRUSTS

FOCUS ON ISRAEL‘If a person wishes to grant a gift, they must SUCCESSION AND TRUSTS do so during their lifetime, or under a will’

void’. Subsection 8b states that ‘[a] gift notary. A testamentary trust becomes the appointer is no longer in a position made by a person, such that it shall be valid only on the issuance of a probate to properly understand the matter and granted to the recipient only following the order with respect thereof. attend to these affairs by themselves. death of the donor, shall have no validity, Certain matters require an express unless made in a will pursuant to the THE INVALIDATION OF A TRUST authorisation or approval of the court. provisions of this law’. UNDER THE SUCCESSION LAW The demise of the appointer will It therefore follows that, if a person Due to the limitations‘If aset person by s8 of the wishes terminate to grant the power a gift, of the delegate,they andmust wishes to grant a gift, they must do so Succession Law mentioned above, a consequently an inheritance will be FOCUS ON during their lifetime, or under a will; any trust contract betweendo theso settlorduring and ISRAELtheirrequired lifetime, with the or appointer’s under assets. a will’ gift that is to become effective upon the trustee, under which control SUCCESSIONof the ANDBecause TRUSTS of this, the creation of an inter demise is void. Given the principle of trust’s assets passes to the trustee only vivos trust during the lifetime of the freedom of testation, there is no on the death of the settlor, is ineffective. appointer would probably provide a more limitationvoid’. Subsection on the 8bgift states itself that– i.e. ‘[a] there gift Thenotary. control A musttestamentary be granted trust during becomes the effectivethe appointer solution is no to longer manage in a the position assets of ismade no forced by a person, heirship such under that the it shall be lifetimevalid onlyof the on settlor, the issuance or alternatively, of a probate theto properly appointer understand during their the lifetime matter andand Successiongranted to theLaw recipient. only following the theorder trust withmust respect be a hekdesh thereof. (i.e. inter vivos afterattend their to these demise. affairs by themselves. deathIt should of the donor,also be shall noted have that, no under validity, s39, trust), with assets effectively transferred Certain matters require an express unlessa will becomes made in effectivea will pursuant only on to the the toTHE the INVALIDATION control of the trustee OF A TRUST during the authorisationCONCLUSION or approval of the court. provisionsissuance of of a probatethis law’. order with respect lifetimeUNDER THEof the SUCCESSION settlor, or a testamentary LAW ‘If a personTheThe inter-relationship demise wishes of to the grant appointer of the a gift,Succession will they must thereof.It therefore The probate follows process that, if may a person take trust,Due to which the limitations becomes effective set by s8 ofon the terminateLaw and the the Trust power Law of isthe complex delegate, and and wishesfrom several to grant months a gift, up they to amust year do – during so theSuccession issuance Law of a mentioned probate order above, with a do soconsequentlychallenging. during their If an a personinheritancelifetime, wishes or will under to becreate a will’ duringwhich time, their limitationslifetime, or areunder usually a will; any respecttrust contract thereof. between the settlor and requireda trust that with would the appointer’sprevail after assets. their giftimposed that is on to the become deceased’s effective assets. upon theIt trustee, therefore under follows which that, control if a trust of the is Becausedemise, special of this, carethe creation should be of given an inter to the void’. Subsection 8b states that ‘[a] gift notary. A testamentary trust becomes the appointer is no longer in a position demise is void. Given the principle of made by createdtrust’sa person, assetssuch pursuant that passes it shall to be ato contract, the trusteevalid the only only death on the issuancevivosform of a probateoftrust the during trustto properly – the i.e. lifetimea understand trust contract, of the the matter an and THEfreedom CREATION of testation, OF A there TRUST is no granted toofon the one the recipient ofdeath the only partiesof followingthe settlor, to the the contractis ineffective.order with will respect thereof.appointerinter vivos wouldtrustattend or probably a to testamentary these affairs provide by themselves. trusta more – UNDERlimitation THE on TRUSTthe gift LAW itself – i.e. there death of theterminateThe donor, control shall the have must trust no validity,be relationship, granted during and the effectiveas well as tosolution itsCertain drafting to mattersmanage and require subsequent the anassets express of unless made in a will pursuant to the THE INVALIDATION OF A TRUST authorisation or approval of the court. Theis no Israeli forced Trust heirship Law under defines the a trust inprovisions s1 requirelifetime of this law’. a of succession the settlor, procedure or alternatively,UNDER in THE order SUCCESSION themanagement. LAW appointer duringOtherThe demise factors their of lifetime the should appointer and will asSuccession the duty Lawimposed. on a person to hold orIt thereforetothe transfer trust follows must that, the if berights a person a hekdesh of theDue (i.e.deceased to interthe limitations vivosto setafteralso by s8 ofbe their the considered, demise.terminate such the as power tax of and the delegate, and It should also be noted that, under s39,wishes totrust), grant a gift,with they assets must do effectively so Succession transferred Law mentioned above, a consequently an inheritance will be to otherwise deal with assets under theirduring theirtheir lifetime, heirs. or under a will; any trust contract between thefamily settlor andcircumstances. required with the appointer’s assets. controla will becomes for the benefiteffective of onlyanother on the or for gift that tois to theIt become should control effective also of thebeupon noted trustee thatthe during trustee, the choice the under which controlCONCLUSIONOnce of the an interBecause vivos of trust this, the is creation created, of an the inter someissuance other of apurpose. probate order with respectdemise isoflifetime void. the Given form of the the of principle the settlor, trust, of or as a testamentarymentionedtrust’s assets passes to theirrevocableThe trustee inter-relationship only settlementvivos trust during ofof theassets the Succession lifetime into ofthe the freedom of testation, there is no on the death of the settlor, is ineffective. appointer would probably provide a more thereof.Under The the probate Trust Law process, a trust may may take be limitationabove,trust, on the which gift requires itself becomes – i.e. consideration there effectiveThe controlof onpersonal must be grantedtrustLaw during and and the the under Trusteffective the Law control solution is complex ofto themanage trustee and the assets of createdfrom several by a contract, months up deed to a or year testament, – duringis no forcedandthe heirship issuance family under circumstances, of the a probate order lifetimeas well with of as the tax settlor, or alternatively,shouldchallenging. be made If thea and person appointer completed wishes during their duringto create lifetime the and aswhich set out time, below: limitations are usually Successionplanningrespect Law. thereof. considerations. the trust must be a hekdeshlifetimea trust(i.e. inter that vivosof the would aftersettlor. prevailtheir Otherwise,demise. after their the It should also be noted that, under s39, trust), with assets effectively transferred imposed• A trust on created the deceased’s by contract assets. requires a will becomesIt effectivetherefore only followson the that,to if the a trustcontrol isof the trusteesettlementdemise, during the special mayCONCLUSION carebe contested should be by given potential to the an agreement between the settlor andissuance ENDURINGcreated of a probate pursuant order POWER with respectto a OF contract, ATTORNEYlifetime the of thedeath settlor, or aheirsform testamentary of the trustsettlorThe – inter-relationship i.e.after a trust their contract, demise, of the Succession an THEthe CREATION trustee, with OF no A specificTRUST procedurethereof. TheThisof one probate article of theprocess focuses parties may take onto thethe contracttransfertrust, which will becomes effectivewhichinter onvivos may trust resultLaw or in and a testamentarycostly the Trust and Law is complex trust and– from several months up to a year – during the issuance of a probate order with challenging. If a person wishes to create UNDERnecessary THE forTRUST its creation. LAW which time,ofterminate assetslimitations on the are death, usually trust but relationship, realityrespect shows thereof. and cumbersomeas well as to its litigationa drafting trust that wouldin and court. prevailsubsequent after their The• A Israeli trust created Trust Law by a definesdeed must a trust be in in imposed s1 thatrequire on the legal deceased’s a successioncapacity assets. issues procedure shouldIt therefore in also order follows that,management. if a trust is Otherdemise, factorsspecial care should should be given to the created pursuant to a contract, Different the death Appeal (Jerusalem)form of the2/97 trustMachmed – i.e. anda trust Ibrahim contract, Abed an as thewriting duty and imposed signed on in a the person presence to hold ofTHE or CREATIONbeto transferconsidered OF A TRUST the during rights ofthe the lifetimeof deceased one of the of partiesa to to thealso1 contract be considered,will inter vivos such trust as or tax a testamentary and trust – to otherwisean Israeli notary.deal with This assets trust under is known theirUNDER THEperson.their TRUST heirs. To LAW deal with such issues,terminate new the trust relationship,familyRabu v Administrator and circumstances. Generalas well Jerusalemas to its drafting, par 42 (13 and September subsequent controlas hekdesh for the (i.e. benefit an inter of vivosanother trust). or for It The Israelilegislation TrustIt should Law defines was also recently a betrust noted in s1 implemented: thatrequire the a succession choice procedure2006),Once inNevo order anLegal inter Databasemanagement. vivos (by subscription) trust Other is factors created,(Isr) 2 Charitableshould the as the duty imposed on a person to hold or to transfer the rights of the deceased to also be considered, such as tax and somebecomes other purpose. operative during the lifetimeto otherwiseAmendmentof the deal form with assets of No the under18 trust, to their the asLegal mentionedtheir Capacity heirs. irrevocableTrusts Ordinance 1924 settlement,family Official circumstances. Gazette of assets of the Governmentinto the of ofUnder the settlor the Trust on theLaw transfer, a trust of may the be control forandabove, the Guardianship benefit requires of another consideration Lawor for ,5 whichIt of shouldregulates personal also be noted trustPalestine that the and, issuechoice underno 116 of 1 the JuneOnce control1924, an inter at pp672–680; vivos of the trust Charitabletrustee is created, the createdassets by of a the contract, settlor deed to the or control testament, of some othertheand purpose. creation family circumstances, and use of an enduring ofas the well form as of taxthe trust, asshouldTrusts mentioned (Amendment) be made Ordinanceirrevocable and completed 1925 settlement, Official during ofGazette assets of intothe the Under the Trust Law, a trust may be above, requires consideration of personal trust and under the control of the trustee as setthe out trustee. below: created bypowerplanning a contract, of attorney considerations.deed or testament, (EPA). Theand EPAfamily allows circumstances, lifetimethe as Government well as taxof ofthe Palestine shouldsettlor., issue be made Otherwise,no 142 and of 1 completedJuly 1925 the at during the • A trusttestamentary created by trust, contract also referred requires to as set outa below: competent person (the appointer)planning considerations. to settlementpp343–345 3 Trust may Law,lifetime be 5739-1979 contested of the, 33 settlor. LSI 41by (1966–1967)Otherwise, potential (Isr) the an agreement between the settlor and• A trustENDURING created by contract POWER requires OF ATTORNEY heirs4 Succession of the Law, settlor 5725-1965settlement after, 19 LSI may their215 be (1964–1965) contested demise, (Isr) by potential under the Trust Law as a testamentary an agreementappoint between another the settlor person and (theENDURING delegate) POWER OF ATTORNEY heirs of the settlor after their demise, thehekdesh trustee,, refers with to no a trust specific that procedureis createdthe trustee,toThis attend with article no to specific theirfocuses procedure personal on the and/ortransferThis article focuses on thewhich5 transfer Legal Capacity may result and Guardianshipwhich in may costly result Law (Amendmentand in costly and 18), necessaryby way of probate for its creation. proceedings under necessarymedicalof assets for its creation. and/or on death, property but reality affairsof assets shows onwhen death, but realitycumbersome5776-2016 shows, 2550 SH litigation 798cumbersome (2016) (Isr) in litigation court. in court. • A trust created by a deed must be in that legal capacity issues should also • Athe trust Succession created Law by a. deedAccordingly, must be ain writingthat and signedlegal incapacity the presence issues of shouldbe considered also during the lifetime of a 1 Different Appeal (Jerusalem) 2/97Machmed and Ibrahim Abed writingtestamentary and signed trust inmust the complypresence with of an Israelibe considerednotary. This trust during is known the lifetimeperson. To of deal a with such1 issues, Different new Appeal (Jerusalem)Rabu v Administrator 2/97Machmed General Jerusalem and Ibrahim, par 42 (13 Abed September anthe Israeli formal notary. requirements This trust under is known the as hekdeshperson. (i.e. an To inter deal vivos with trust). such It issues,legislationMEYTAL new was LIBERMAN recently implemented:Rabu IS ASSOCIATE v Administrator ADVOCATE,General2006), Nevo Jerusalem Legal DatabaseAND, par DR(by 42 subscription) ALON(13 September (Isr) 2 Charitable becomes operative during the lifetime Amendment No 18 to the Legal Capacity Trusts Ordinance 1924, Official Gazette of the Government of asSuccession hekdesh (i.e.Law an for inter executing vivos trust). a will. It of thelegislation settlor on the transfer was recently of the implemented:and GuardianshipKAPLAN TEP Law IS THE,5 which2006), FOUNDER regulates Nevo Legal AND DatabasePalestine MANAGING, (byissue subscription) no 116 of PARTNER, 1 June 1924, (Isr) at pp672–680;2 AT Charitable ALON Charitable becomesThese include operative signing during the willthe lifetimein the assetsAmendment of the settlor to theNo control 18 to ofthe Legalthe creationKAPLANCapacity and ADVOCATE use of anTrusts enduring AND Ordinance NOTARY. 1924 ALON,Trusts Official (Amendment) IS ALSO Gazette Ordinance PRESIDENTof the 1925 ,Government Official OF Gazette of of ofpresence the settlor of two on witnessesthe transfer or of an the Israeli the trustee.and Guardianship Law,5 whichpowerSTEP regulates of attorney ISRAEL (EPA). ThePalestine EPA, issueallows no 116 ofthe 1 GovernmentJune 1924, of Palestineat pp672–680;, issue no 142 Charitable of 1 July 1925 at • A testamentary trust, also referred to a competent person (the appointer) to pp343–345 3 Trust Law, 5739-1979, 33 LSI 41 (1966–1967) (Isr) assets of the settlor to the control of underthe the Trust creation Law as anda testamentary use of an enduringappoint another person (theTrusts delegate) (Amendment) Ordinance4 Succession 1925 Law, 5725-1965, Official, 19 LSI Gazette 215 (1964–1965) of (Isr) the trustee. hekdeshpower, refers ofto aattorney trust that is (EPA). created Theto attend EPA to allows their personal the and/or Government of Palestine5 Legal, Capacityissue no and 142 Guardianship of 1 July Law 1925 (Amendment at 18), • A testamentary trust, also referred to by waya of competent probate proceedings person under (the appointer)medical and/or to property affairspp343–345 when 3 Trust Law,5776-2016 5739-1979, 2550 SH, 33 798 LSI (2016) 41 (Isr) (1966–1967) (Isr) the Succession Law. Accordingly, a WWW.STEP.ORG/JOURNAL | MAY 2018 59 under the Trust Law as a testamentary testamentaryappoint trust another must comply person with (the delegate) 4 Succession Law, 5725-1965, 19 LSI 215 (1964–1965) (Isr) hekdesh, refers to a trust that is createdthe formalto attend requirements to their under personal the and/or 5 LegalMEYTAL Capacity LIBERMAN and Guardianship IS ASSOCIATE Law ADVOCATE, (Amendment AND 18),DR ALON Succession Law for executing a will. KAPLAN TEP IS THE FOUNDER AND MANAGING PARTNER, AT ALON by way of probate proceedings under Thesemedical include signing and/or the will property in the affairs when 5776-2016KAPLAN, 2550 ADVOCATE SH 798 AND (2016) NOTARY. (Isr) ALON IS ALSO PRESIDENT OF the Succession Law. Accordingly, a presence of two witnesses or an Israeli STEP ISRAEL 39 testamentary trust must comply with Contents the formal requirements under the MEYTAL LIBERMAN IS ASSOCIATE ADVOCATE, AND DR ALON Succession Law for executing a will. KAPLAN TEP IS THE FOUNDER AND MANAGINGWWW.STEP.ORG/JOURNAL PARTNER, AT | MAY ALON 2018 59 These include signing the will in the KAPLAN ADVOCATE AND NOTARY. ALON IS ALSO PRESIDENT OF presence of two witnesses or an Israeli STEP ISRAEL

WWW.STEP.ORG/JOURNAL | MAY 2018 59 The Tales of a Family Business in Israel

the tales of a family business in israel

Dr. Alon Kaplan

the family office in israel than a contractual treaty among the family members, and the legal instruments of matrimonial agreements, The number of billionaires in Israel this year is succession and estate planning, corporate instruments 106. This includes those with Israeli Identity cards who and trusts may provide solutions that are more have significant business activity in Israel. In dollar comprehensive. terms, the wealth of the 500 richest persons in Israeli Advisors of the family may seek to “fortify” and is estimated to be $ 172 billion. enforce the constitution by some legal documents. In In Israel there are two types of family office: modern business life most economic and commercial the single-family office, which provides services to one businesses are run through companies. Israel’s family exclusively, and the multi-family office, which company law is governed and regulated by the company provides services to more than one family at a time. law of 1999. The use of by-laws of the company The Israeli family businesses are usually enables the shareholders to protect their rights in the composed of the first, second and third generations. business and ensure the implementation of the family It is believed that 70% of the wealth is still held by the constitution through shareholder agreements and first generation. Only 20% is managed by the first and company by-laws where the contractual obligations second generation and 10% is managed by the third between the parties be protected and enforced using generation. The general trend is the development of the legal documents of the company which runs the the single-family office, which is usually established by family business. The by-laws may provide protection the second generation. and special rights attached to the shares in the In Israel’s modern economy, we find new rich company. families whose wealth was created in the high-tech The following cases serve as an illustration of industry. When the entrepreneur makes his first the use of corporate and legal documents to regulate “exit,” his life-style would continue, but to enable him the relationships among members of a family business to go on with his business activities, he would need who receive or inherit a share in the family business: the family’s trusted advisor to assist him to manage his affairs and take care of the family needs including transferring the business to other members of the w. family business family and future generations. A common practice by families looking to The family conglomerate included shares in regulate the internal family relationships is by using a large industrial production plant, a medium sized a family constitution. A family constitution is a bank and a substantial holding in a communication formal document which sets out the rights, values, enterprise. responsibilities and rules applying to stakeholders in The founder of the business decided to pre- the family business and provides plans and structures empt succession struggle and transferred his holdings to deal with situations which arise in the course of the in the business to his son (63%) and to his daughter family business. (37%). The basic idea was to appoint the son as the Reality shows us that situations such as leader of the business. The transfer of shares took marriage, divorce, death and incapacity require more place when the founder reached retirement age.

40 41 Contents After executing the transfer, the founder had second creation of a trust which would become the legal thoughts. owner of the business and compass all the provisions He realized that his son could use his majority the (settlor) founder would wish to have in order to shareholding in a negative manner which might affect ensure the transfer of the family business across the status of the shares and the rights of the daughter. the generations. The law of trusts enacted in Israel The founder prepared legal documents which would in 1979 enables the creation of an “inter vivos” trust become part of the by-laws of the family companies that would already operate during the lifetime of the which would protect the minority shareholding of the (settlor) founder and continue to exist after his demise daughter from the dilution of rights and ensure the without limitation of time. minority shareholder right to appoint directors to the The above cases illustrate innovative solutions board of directors of the companies and participate in of financial and legal advisers to create a viable family their management. constitution which would avoid conflicts among the The above documents were prepared and family members and keep the family cruising on calm signed by the founder during his lifetime and delivered waters. to the family members after his demise with certain legal procedures implemented to ensure the success of the scheme. conclusion

the “e” case The tales of family disputes could be a

The late Mr. G, the founder and shareholder of script for many films and TV programs. In addition, the E group, prepared his family’s transfer of assets using the instruments of a will and company law in we often read of family disputes litigated in a different manner: Mr. G. appointed his two sons to participate as directors of the companies during his court to resolve these matters. The patriarch of lifetime. The companies are listed in the Israel Stock Exchange. After the demise of Mr. G., it was revealed business families needs to get proper advice and to the public that Mr. G. had left a will. Under the provisions of the will the two sons received equal support from consultants specializing in estate shares in all the holdings of the companies of the estate. planning, trusts and taxation. Proper planning of It was reported that the two sons entered into a shareholder agreement which included certain the future of the management and control the family provisions for cooperation in the management of the companies. In case of death of a shareholder business will ensure peace and a friendly atmosphere the surviving shareholder was granted an option of buying the shares of the estate and other provisions in the family and in their business. which were to ensure the safe continuation of the management of the business. It is interesting to note that there was another heir, Mr. G’s daughter. It was reported that she did not get any of the shares of the business and will not be involved in its management and activities. Instead, she received certain financial and real estate assets of Mr. G. who chose to separate the daughter from the activities of the family business. An additional layer of safety would be the

40 41 Contents 42 43 Contents articles 2019

Skyscrapers Tel-Aviv

42 43 Contents Inheritance Law and Procedure in Israel

inheritance law and procedure in israel

Dr. Alon Kaplan | Meytal Liberman

introduction the economy is a source of tremendous wealth and has created a new generation of rich families. The Israel is a small country, about the same size as magazine Israel 21c reported that in the year 20176 Belgium in Europe or New Jersey in North America. It Israeli high-tech exits totalled in $7.44 billion. This is located on the eastern shore of the Mediterranean amount represents an increase of 9% over 2016, and Sea and has excellent access by air and sea to Europe, 9% of those deals were worth $400 million to $1 billion. Africa, Asia and North America.1 Since 2010, Israel is a member of the OECD.2 This demographic and economic environment pro- Israel is a country of immigration. Formal vides a fertile ground for US persons, whether US or statistics3 show that at the time of its establishment, Israel residents, to invest in assets in Israel. Israel’s population was only 872,700 people, out of which 716,700 (82%) Jews, and 156,000 (18%) Muslims, preamble: inheritance law Christians and Druze. formal statistics4 further show Israel’s phenomenal population growth, as Israel’s in israel population in the end of 2018 was 8,955,300, out of which 6,554,700 (73%) Jews, 1,874,800 (21%) Muslims Inheritance in Israel is governed by the and 525,800 (6%) others. All of whom enjoy equal legal Succession Law.7 According to section 2 of the rights in all areas of life. It is also interesting to note Succession Law, the estate of a deceased passes to his that since the establishment of the State of Israel and heirs in accordance with the law – intestate inheritance, until 2017, approximately 110,000 immigrants were unless the deceased has left a valid will, in which case born the USA.5 the estate is bequeathed in accordance thereof. Israel is known as a “start-up nation” when relating to high-tech and technology. This sector of

1 Alon Kaplan (General Editor), Trusts in Prime Jurisdictions, fourth edition (April 2016), chapter on Israel. 2 http://www.oecd.org/israel/israelsaccessiontotheoecd.htm. 3 Central Bureau of Statistics, Population, by Religion and Population ,Group available at https://www.cbs.gov.il/he/ publications/DocLib/2004/2.%20Shnaton%20Population/st02_01.pdf (last accessed: Jan. 22, 2019). 4 Central Bureau of Statistics, Population, by Population Group, available at https://www.cbs.gov.il/he/publications/ doclib/2019/yarhon1218/b1.pdf (last accessed: Jan. 22, 2019). 5 Central Bureau of Statistic, Immigrants, (1) By Period of Immigration, Country of Birth and Last Country of Residence, available at https://www.cbs.gov.il/he/publications/doclib/2018/4.%20 shnatonimmigration/st04_04.pdf (last accessed: Jan. 22, 2019). 6 ISRAEL21c Staff, Israeli high-tech exits in 2017 totaled $7.44 billion, Israel21c (Dec. 31, 2017), available at https://www. israel21c.org/israeli-high-tech-exits-in-2017-totaled-7-44-billion (last accessed: Jan. 22, 2019). 7 Succession Law, 5725-1965, 19 SH 215 (1964-65) (Isr.). 44 45 Contents intestate inheritance signed by the two witnesses and deposited with the Registrar of Inheritance. An oral will becomes In the absence of a valid will, the Succession invalid one month within one month, provided law provides a mechanism that determines the the circumstances which warranted its making order of inheritance, and the portion of each heir. has changed, and the testator is still alive. Accordingly, the first right of inheritance is divided equally between the spouse of the deceased and his Despite the formal requirements mentioned children. The spouse receives one-half of the estate above, the court is authorized to validate a will even if and the children divide the remaining half between it is defective or missing certain formal requirements, them in equal shares.8 provided the court is convinced that it reflects the true and free will of the testator. inheritance under a will freedom of testation Alternatively, the estate can be distributed a set out in the testator’s will. Under the Succession law, The principle of Freedom of Testation is one of a will can be made in one of four ways, as set forth the cornerstones of the Israeli inheritance law. Section below:9 27, whose title is “Liberty to bequeath”, provides that a. A handwritten will10 - such will shall be written an undertaking to make a will, to change it, or to cancel entirely in the testator’s own hand and shall be it, or not to make any thereof – is invalid. It further dated and signed by the testator. provides, that a provision of a will that negates or b. A will made in the presence of witnesses11 - such limits the right of the testator to change the will or will is written and dated, and signed by the cancel it – is invalid.14 testator before two witnesses after the testator The principle of Freedom of Testation is has declared before the witnesses that it is the also evident in Section 8 of the Succession Law, testator’s will. The witnesses must attest by their which provides that “an agreement in respect of signature upon the will that the testator declared the succession of a deceased and a renouncement and signed the will as stated. regarding such succession, executed prior to the c. A Will made before an authority12 - such will must demise of the deceased, are void.” The section further be made by the testator stating its provisions provides that that “a gift granted by a donor during orally before a Judge, a Court Registrar, the the donor’s lifetime, when such gift is to be effectively Registrar of Inheritance, or a Member of the provided to the donee subsequent to the donor’s Religious Court, or by a deposit of a written will demise, is also null and void, unless such gift was by the testator with any of these authorities. It is included within a valid will.” further provided that for this purpose, a notary is Justice Cheshin stressed the importance of the equivalent to a judge. freedom of testation in the Lishitzky15 case: d. An oral will13 - People who are on their deathbeds, If there is a foundation principle, if you will, a or who in all circumstances reasonably regard super-principle, in inheritance law, there is none but themselves as facing death, may declare a will the principle that instruct us that a person, any person, orally before two witnesses. The testator’s is at liberty to bequeath his estate, and the principle directions and the circumstances of the making that derives from it, whereby the living are obliged to of the will must be recorded in a memorandum keep the deceased’s wishes. The freedom of testation

8 Succession Law, §§ 11, 12. 9 Succession Law, §§ 18-23. 10 Succession Law, § 19. 11 Succession Law, § 20. 12 Succession Law, § 22. 13 Succession Law, § 23. 14 Section 36 of the Succession Law clarifies and provides that the testator may cancel a will by expressly stating so in a new will, or by destroying the will. 15 CA 4660/94 Attorney-Gen. v. Lishitzky55(1) PD 88, 115 [1999] (Isr.).

44 45 Contents and the obligation to keep the deceased’s wishes – two maintenance cannot properly satisfy his basic needs. sides of the same coin – the two, as one, derive from According to Shamgar, the wishes of the testator the human dignity, and the personal autonomy derived should be enforced only to a certain extent. The from the dignity. limit lies where a first degree relative of the testator The principle of Freedom of Testation also becomes an unreasonable burden on the society. The manifests in the fact that there is no forced heirship maintenance out of the estate manifests the notion in Israel, and the order and portions of inheritance that the existence of a family relationship justifies set forth in the Succession Law applies only in the imposing an obligation of maintenance, in specific absence of a valid will, and where a valid will is made instances, upon the estate. with respect to the entirety of a person’s estate, it shall apply on the entire estate accordingly. inheritance procedure in maintenance out of the israel estate Under the Succession Law, the rights of the heirs in the estate are created only upon the issuance An exemption to the principle of the freedom of of order with respect to the estate by the competent testation is the right to receive maintenance out of the authority. In circumstances where the deceased left estate.16 Section 56 of the Succession Law provides that a will, an application should be made for a probate where the deceased left a spouse, children or parents order, and only upon the issuance of the order the that are in need of maintenance, shall be entitled to will becomes valid and enforceable. It should also such maintenance, regardless whether the deceased be noted that only a probate order issued in Israel in has made a valid will. accordance with the Succession Law is regarded as Moreover, section 63 of the Succession Law valid, and probate orders issued by foreign authorities provides a “claw-back” rule and determines that in are invalid.18 However, in circumstances where the the event that the estate is insufficient to provide deceased left a will relating to only a part of his or her maintenance to all that are entitled to it, the court estate, or the deceased did not leave a will at all, an is authorized to view transfers of assets carried out application should be made for an inheritance order.19 without proper consideration during the two years Both an application for a probate order and period prior to the death of the deceased as part of an application for an Inheritance order are made to the estate, except for gifts and donations made in as the Registrar of Inheritance, and it is authorized to customary under the circumstances. declare the rights of the heirs accordingly.20 However, Section 57 defines the scope of the right for is the circumstances described in section 67A of the maintenance out of the estate, and inter alia provides Succession Law, the Registrar of Inheritance must that a child under 18 years of age of the deceased, who forward the application to the Family Court. Such is handicapped, or mentally ill, or cognitively disabled circumstances arise, for example, when the application is entitled to maintenance. is contested, when the will is defected, or when the Chief Justice Shamgar in the case of Levitt17 Administrator General represents in the application clarified that it is insufficient to belong to the class of minor. The Family Court is authorized accordingly to persons that are entitled to maintenance out of the issue the relevant order.21 estate, and that a “need of maintenance” should also Probate procedure in Israel requires that be established, and where such need is not properly the original will be submitted with the Registrar of established, the testator may bequeath his entire Inheritance, except to an oral will. In the absence of estate to another. Chief Justice Shamgar continued and an original will, such as when the original has already held that such need exists only when the applicant for been submitted in another jurisdiction, a separate

16 Succession Law, §§ 56-65. 17 CA 393/93 Doe v. the estate of Israel Levitt (Apr. 3, 1994), Nevo Legal Database (by subscription) (Isr.). 18 Succession Law, § 39. 19 Succession Law, § 66. 20 Succession Law, § 66. 21 Succession Law, § 67A(b).

46 47 Contents A. Jurisdiction of the Israeli court application should be made to the court to approve the submission of a copy.22 Section 135 and 136 of the Succession Law Section 54 of the Inheritance Regulations23 provide that the Israeli court is has jurisdiction over provides that a copy of any application, including the estate of any person (a) whose center of life was in an application for a probate or inheritance order, Israel, or (b) has left assets in Israel, on the day of his shall be submitted to the review of the Administrator or her death. Each of these two alternatives raises its General, who may, in its discretion, conduct additional own difficulties. inspection of the application and require further Determining one’s Center of Life may prove to information and documents. be a difficult task. In the case of Nafissi,24 two spouses Section 17 of the Inheritance Regulations married each other in Iran in 1944. The husband visited requires that a notice with respect to the application Israel in 1979, purchased an apartment, and then for the inheritance or probate order be published in returned to Iran. Later on, the spouses immigrated to one daily newspaper and in the formal publication of Israel in 1983 with their children, and in 1987 a dispute the State of Israel (Reshumot). The notice includes an arose between the spouse. Section 15 of the Financial invitation to contest the application. Relations between Spouses25 sets forth a default rule Section 14 of the Inheritance Regulations and provides that the applicable matrimonial regime provides that an application for a probate or inheritance is that of the spouses’ center of life at the time of their order shall be dismissed, unless notifications are sent marriage. The Supreme Court referred to section 135 of with respect thereof as follows: the Succession Law and affirmed that a person’s center a. In the instance of an application for an of life is where a person has the majority of ties to, inheritance order – notifications to the heirs whereas such ties are established on a factual basis, under law listed in the application. rather than a subjective one. In the case of Nafissi, the b. In the case of an application for a probate spouses had ties to more than one jurisdiction, thereby order – notifications to the beneficiaries under making the determination of where their center of life the will, together with a copy of the will itself. If was complex. Furthermore, Justice Goldberg quoted the beneficiaries under the will do not include Justice Barak, who said: children of the deceased or their children, Needless to mention, that it is often difficult parents of the deceased or their children, or to point out a specific point in time, where a person the deceased’s spouse, than such notifications ceases from permanently residing in a country, and should be delivered to the deceased’s children surly a space in time exists where one’s center of life and spouse at the time of his death, and if none is as if floating between its previous location and its of whom is alive – to the deceased’s parents, new location.26 and if none of whom is alive – to the deceased’s The other alternative - that the deceased has siblings. left assets in Israel – arises further difficulties. The As evident from the above, the inheritance Succession Law does not set a minimal threshold procedure in Israel is a complex and cumbersome such assets are required to meet, nor does it refer to procedure. It may also be uncomfortable for the types of assets. A common example of absurdity of deceased’s family members due to the requirement to this requirement is of a backpacker who visits Israel disclose the contents of the will. and dies as a result of a car accident. Prima facie, since the backpacker left an asset in Israel – the backpack, cross-border inheritance the Israeli court has jurisdiction over his estate. Furthermore, the location of certain types of assets The Succession Law deals with private may be difficult to determine, such as intellectual international issues relating to one’s estate in chapter property or bearer shares of a company. 7, sections 135-144. The complexity of described above may cause

22 Succession Law, § 68(b). 23 Inheritance Regulations, 1998, KT 5923 (Isr.). 24 CFH Nafissi v. Nafissi 50(3) PD 573 [1996] (Isr.). 25 Financial Relations between Spouses Law, 5733-1973, 712 SH 267 (1973) (Isr.). 26 Supra note 23, Nafissi v. Nafissi, at 598.

46 47 Contents an adverse effect and prevent the fulfillment of the importance of the “majority of ties” test with respect to deceased’s wishes. It is therefore recommended to Forum Non Conveniens claims.28 write a separate will for each relevant jurisdiction. conclusion B. The applicable Law

Section 137 of the Succession Law continues Inheritance law and procedure in Israel are very and provides that the law of the deceased’s center of complex, an may result in adverse effect if not planned life at the time of his or her death shall apply to his or and managed properly. Therefore, for estate planning her estate, unless an exception listed in Sections 138- purposes, it is recommended to make a separate will 140 is applicable.27 relating to every relevant jurisdiction, thereby enabling A person’s center of life is determined in the beneficiaries to initiate inheritance procedures in accordance with the person’s ties to a specific each jurisdiction separatory. jurisdiction, as detailed above with respect to the It should also be noted that the Israeli law question of jurisdiction. The determination of the provides another instrument for estate planning – a applicable law may have significant implications, such private trust under the Trust Law.29 Such trust can be as when the applicable law is of a jurisdiction which created during the lifetime of the settlor – an inter vivos has forced heirship rules. trust, or upon death - a testamentary trust. The inter Section 142 of the Succession Law deals with vivos trust deed is a secret document, contrary to a will, a situation of Renvoi, and provides that despite and the only copy the trust deed is deposited with the the aforesaid in the Succession Law, if the law of a Notary. The settlor may set the terms and conditions jurisdiction A applies, and this law reverts to the law of of the trust as he sees fit. Once the assets are settled jurisdiction B, than this reversion shall not apply and into the trust during the lifetime of the settlor, they are the law of jurisdiction A shall apply, unless the law of removed from his estate, and therefore the need for jurisdiction A reverts to the law of Israel, then the law an inheritance or probate order with respect thereof of Israel shall apply. becomes superfluous, provided the trust is irrevocable In circumstances where the Israeli court has and was set properly. jurisdiction of the matter, it can nonetheless refuse It is important to note that there are no estate to take jurisdiction where there is a more appropriate tax and gift tax in Israel, and if the trust is created forum available to the parties - Forum Non Conveniens. and managed properly, the transfer of assets from the The court shall accept such claim only if the ties of settlor to the trustee is not considered as a tax event.30 the parties and of the dispute between them to the Estate planning in Israel requires special foreign jurisdiction are significantly stronger than expertise, including with respect to taxation, and those to Israel. A Recent decision of the Supreme special care to the personal circumstances of a person, Court goes further and holds that the todays modern therefore its highly recommended to consult with life and technological developments have reduced the professionals for this purpose.

27 Sections 138-140 of the Succession Law list the exceptions to the center of life rule: Section 138 provides that assets inherited only according to the law of their location, shall be subject to that same law; Section 139 provides that the capacity of the testator to bequeath his assets will be governed by the law of his center of life at the time of preparation of his will; and Section 140 provides that (a) a will is valid according to its form if it is valid according to Israeli law, the law of the place where it was made, the law of the center of life or normal residence or citizenship of the testator at the time of making the will or at the time of his death, or, in the event that the will relates to fixed property, also according to the law of the location of the property. (b) Regarding the applicability of the foreign law in accordance with this section, the necessary capacity of the testator or the witnesses to the will, will be viewed as relating to form. 28 PCA 2736/98 Habboub Bros. Co v. Nike International Ltd 54(1) PD 614 [2000] (Isr.). 29 Trust Law, 5739-1979, 33 SH 41 (1966-1967) (Isr.). 30 Income Tax Ordinance ]New Version6 ,5721-1961 ,[ DMI 120, §§ 75C-75R (1961) (Isr.).

48 49 Contents Israel: The Trust Law and the Hekdesh Deed

israel: the trust law and the hekdesh deed

Dr. Alon Kaplan | Lyat Eyal | Meytal Liberman

abstract Israeli Foundation

This article will review the provisions of the The settlement of assets for the benefit of a Israeli Trust Law, 1979 (the “Trust Law”) as they refer beneficiary or for some other purpose into a Hekdesh, to the trust settled by Hekdesh deed, a legal structure also known as an endowment, requires a written with certain similarities to foundations in some foreign document, executed by way of a deed, signed before jurisdictions. The Israeli trust is not a separate legal an Israeli notary,4 in which the settlor describes his entity thereby requiring an underlying company in intent to settle a trust together with the terms, purpose various circumstances. The Hekdesh together with the and assets thereof.5 underlying company are referred to in this article as In practice, the Hekdesh is settled by a deed for the “Israeli Foundation”. inter vivos settlements, or as a testamentary trust within a last will and testament.6 The Hekdesh deed includes Introduction the terms of the trust, such as the settlor, trustee, and beneficiary. The inter vivos trust is commenced upon The unique legal structure of the “Israeli the transfer of possession in the trust assets to the Foundation” stems from the Trust Law1 coupled with trustee,7 who is permitted to accept additional trust professional experience and practice resulting from assets at any time from the settlor and/or from third a number of legal issues, including the requirement parties.8 The testamentary trust is commenced upon for a legal entity to hold trust assets. In addition, the the issuance of a probate court order and the transfer Trust Law’s clash with the Succession Law 19652 (the of the estate assets to the trustee.9 “Succession Law”), which provides that inter vivos agreements relating to one’s inheritance are invalid, The Underlying Company the the legal structure of and that bequests must be included in a last will and the “Israeli Foundation” testament,3 requires the execution of the Hekdesh deed to be before an Israeli notary. This article will cover the provisions of the Trust Law governing the The Hekdesh is not recognized as a legal entity,10 Hekdesh deed. therefore, common practice of trustees is to hold the assets of the Hekdesh via an underlying company The establishment and commencement of the

1 Trust Law, 5739-1979, 33 LSI 41 (1966-1967) (Isr.). 2 Succession Law, 5725-1965, 19 LSI 215 (1964-65) (Isr.). 3 Ibid, §8. 4 The Hekdesh deed is one of a number of documents permitted under Section 17(a) of the Trust Law. 5 Trust Law, § 17(a). 6 Ibid. 7 Trust Law, § 17(b). 8 Trust Law, § 18(a). 9 Ibid, § 17(a). 10 PCA 46/94 Zacks-Abramov v. Land Registry Officer 50(2) PD 202 [1996] (Isr.).

48 49 Contents incorporated in accordance with the provisions of the annually on the activities of the trust.14 The trustee may Income Tax Ordinance (the “Ordinance”),11 thereby not be a minor, legally incapacitated, in bankruptcy creating a designated legal entity to hold the Hekdesh or a corporate entity under receivership. In addition, assets on behalf of the trustee. Such legal structure is a beneficiary may not be appointed as trustee unless refered in this article as the “Israeli Foundation”. specifically permitted in the Hekdesh deed.15 A trustee The Ordinance provides for the incorporation of may resign at any time upon providing written notice an underlying company defined as a company that to the parties authorized to appoint successor trustees holds trust assets for the trustee, whether directly or and may be removed by the court for failure to fulfill indirectly in accordance with the terms set forth below: the duties of trustee or for other reasons in the (1) It is incorporated solely for the purpose of trustee’s discretion.16 The trustee is not entitled to holding the trust assets. remuneration for the services of trustee unless such (2) Notice of the incorporation of the underlying services are within the realm of the trustee’s business company is to be provided to the tax authority within activities. Nonetheless, a court may award a trustee 90 days of the underlying company’s incorporation a fee for services in the court’s discretion, based on where it is an underlying company of the following the realm of activities. Notwithstanding, a trustee may trusts: (i) an Israeli resident trust; (ii) an Israeli resident be entitled to the reimbursement of expenses in the beneficiary trust; (iii) A testamentary trust of which an performance of the trustee’s duties.17 Israeli resident is a beneficiary; (iv) any trust in which Trust Assets the trust assets are in Israel. (3) The trustee holds all of the underlying The trustee must hold the trust assets separate company’s shares, directly or indirectly; the term and apart from other assets in a manner easily “indirect holding” is only a holding through another identifying the trust assets.18 Holding the trust assets company which is one that meets the provisions of via and underlying company as mentioned above paragraphs (1) and (2) and all of the shares are held assists the trustee to fulfil this requirement. The trust by the trustee. assets that are not required for the daily activities of the trust, must be invested by the trustee with the The Trustee purpose of the preservation thereof and increasing their value.19 Only debts resulting from the trust assets The trustee is responsible to act for the benefit or from the trust’s activities may be paid from the trust of the beneficiary or for another purpose.12 The trustee assets.20 of a Hekdesh is appointed within the Hekdesh deed, and if no trustee is appointed at any time during the term of the trust, an appointment may be made by Beneficiary Rights the court.13 The trustee must manage the bookkeeping of the trust and report to the beneficiaries, at least A beneficiary’s rights under the Hekdesh deed

11 Income Tax Ordinance (New Version), 5721-1961 (Isr.). 12 Trust Law, § 1. 13 Trust Law, § 21. 14 Trust Law, § 7. Section 11 of the Trust Law provides that Section 7 is subject to the terms of the trust, therefore, the trustee’s obligation to report to the beneficiaries can be altered or cancled in the trust deed. Such exemption does not, however, exept the trustee from filing tax repors with the Israeli Tax Authory as required under law. 15 Trust Law, §21. 16 Trust Law, §22. 17 Trust Law, §8. 18 Trust Law, §3(c). 19 Trust Law, §6. Section 11 of the Trust Law provides that Section 6 is subject to the terms of the trust, thereofore the settlor may determine otherwise, thereby exempting the trustee from liability should any losses occur to the trust assest. Such exmption may be required, for example, if the trustee holds a family business in trust. 20 Trust Law, § 3(b).

50 51 Contents may not be assigned, hypothecated or subjected Moreover, the Ordinance defines a trust as “an to a lien unless permitted by the Hekdesh deed. arrangement, according to which a trustee holds the Notwithstanding the preceding paragraph, a court trust’s assets in favour of a beneficiary, which was may permits liens or other forms of hypothecation of established in Israel or outside Israel, whether it is the trust assets in order to cover alimony payments defined under the law applicable to it as a trust or and/or taxes owned by the beneficiary or under whether defined otherwise.” The Ordinance further special circumstances payment of other debts of provides that a trustee is “a person that assets or the beneficiary from the trust assets in the court’s income of assets were attributed to him, or that he discretion.21 holds assets in trust... For this purpose, attribution to an underlying company shall be regarded as an Revisions and termination of the “Israeli attribution to the trustee, and a legal entity listed in the First Schedule A shall be regarded as trustee.”26 The Foundation” legal entities listed in said First Schedule A are the following: a foundation under the laws of Liechtenstein, The terms of a Hekdesh deed may not be Panama, the Bahamas, and the Netherlands Antilles; amended by the settlor nor may he remove trust an Establishment under the laws of Liechtenstein; and assets or terminate the trust without specifically a Reg. Trust under the laws of Liechtenstein.27 reserving these powers to the settlor in the Hekdesh deed. Alternatively, such amendments may be made conclusion by the settlor if all of the beneficiaries confirm said amendments, or upon receipt of court approval.22 Israel recognizes foreign trust structures. Under certain circumstances, the court may Nonetheless, as the trust practice has evolved over the authorize the trustee to use the trust assets for the past few years, there is an increase is the settlement of fulfillment of the vital needs of a beneficiary, or those Israeli trusts coupled with Israeli underlying companies dependent on the beneficiary, in a manner that is to hold assets in Israel and internationally. While the contrary to the Hekdesh deed.23 The court may also Trust Law has been valid since 1979, precedents are not amend or terminate Hekdesh deed provisions if it is as common as in other jurisdictions due to the infancy satisfied that circumstances warrant said revisions of the practice. which are in accordance with the settlor’s intentions.24

Recognition of foreign trust structures in Israel

Common practice in Israel shows that various trust structures operate in Israel. These structures include not only common law trusts, but also foundations, establishments and settlements under the laws of jurisdictions such as Liechtenstein and Panama. Such legal entities can be found, for example, in the records of the Registrar of Companies as foreign corporations.25

21 Trust Law, § 20. 22 Trust Law, § 18(b). 23 Trust Law, §19(b). 24 Trust Law, §23. 25 Review of the records of the Registrar of Companies of 7 January 2019 shows, for example, a company named “Favorit Establishment”, which was incorporated on 19 November 1987 in Liechtenstein. 26 Income Tax Ordinance, §75C. 27 Income Tax Ordinance, First Schedule A.

50 51 Contents 6/6/2019 Power surge | STEP

Power surge

Dr Alon Kaplan and Meytal Liberman, May 2019

Dr Alon Kaplan TEP is Advocate and Notary at Alon Kaplan Law Firm, and Meytal Liberman TEP is Advocate at Herzog, Fox & Neeman Law Office, Tel Aviv.

Power Surge

Dr Alon Kaplan and Meytal Liberman introduce Israel’s new continuous power of attorney for vulnerable clients STEPJOURNAL Key points What is the issue? Israel’s Legal Capacity and Guardianship Law was amended in 2016 to introduce the continuous power of attorney (CPA) into Israeli law. powerWhat does it mean surge for me? The CPA can be used in situations where a person has impaired or reduced capacity and wishes to plan for the future. Dr Alon Kaplan and Meytal Liberman introduce Israel’s new continuous power of attorneyWhat can I takfore awvulnerableay? A CPA should clients be considered when conducting estate planning for a client who is resident or holds assets in Israel.

KEY POINTS

WHAT IS THE ISSUE? In recent years, the paternalistic approach to people with disabilities in Israel has been replaced with a new, more inclusive approach. This seeks to recognise the existence of Israel’s Legal various types and degrees of disability, and the need to respect the individual’s wishes Capacity and to the furthest extent possible. The new approach is also intended to allow the Guardianship Law individual to be involved in decisions. It has been brought into Israeli law by way of the was amended in 1 2016 to introduce 2016 amendment (the Amendment) to the Legal Capacity and Guardianship Law (the the continuous Law),2 creating new legal instruments to be utilised by people with disabilities, namely power of attorney the continuous power of attorney (CPA).3 (CPA) into Israeli law. The CPA WHAT DOES IT MEAN Section 14(a) of Israel’s Agency Law4 provides that agency terminates, inter alia, on FOR ME? the loss of capacity of the agent or the principal. Therefore, a person who wishes to The CPA can be leave instructions for another to execute, when that person’s legal capacity is impaired, used in situations cannot do so by a regular power of attorney. where a person has impaired or The proper instrument to achieve that is the CPA. This tool allows an appointer to reduced capacity authorise another (an agent) to act on their behalf in accordance with predetermined and wishes to plan instructions in circumstances when the appointer’s legal capacity is impaired.5 for the future.

WHAT CAN I TAKE It should be noted that the CPA can be viewed as a parallel mechanism to the AWAY? guardian, as the purpose of both is to create a function – the agent/guardian – to assist the appointer/client who encounters certain difficulties in their day-to-day life. A CPA should However, each mechanism achieves this goal differently. be considered when conducting estate planning Eligibility requirements for a client who is 6/6/2019 Power surge | STEP resident or holds The appointer and the agent must be eligible under the Law to appoint and be assets in Israel. eappoinxecution.ted rTespectivhe agenelyt must. The also appoin complyter must with bese vaer legallyal requir compeementents tin adult order a tto the be time of appointed. These include, inter alia, that the agent must: https://www.step.org/journal/step-journal-may-2019-full-issue/power-surge 1/3 52 also be a legally competent adult; 53 Contents not be the attorney executing the CPA; not be an agent in more than three CPAs;6 not provide medical care or housing to the appointer for a fee; and if appointed with respect to the appointer’s proprietary affairs, not be bankrupt.

Scope of the CPA According to the Law, the CPA may be given with respect to the appointer’s personal, medical or proprietary affairs. The general rule is that the agent is authorised to exercise any power conferred on them in accordance with the CPA as if it were exercised by the appointer. However, there are exemptions to this rule:

actions that the agent cannot be authorised to carry out: those that, by their nature, should be carried out personally, such as adoption and a conversion of religion; actions that require the express authorisation of the appointer: such as donations, gifts, loans and any other financial transaction in the value of ILS100,000–500,000, and giving consent to a psychiatric treatment or hospitalisation; and actions that require the authorisation of the court: those that may have significant implications on the appointer, such as financial transactions of a value higher than ILS500,000, sale or long-term lease of real property and withdrawal of funds from a pension plan.

Procedure and activation The CPA is executed in an online form published by the Office of the Administrator General (AG)7 and structured in accordance with the Law and regulations thereof.8 The form can be filled in and executed only by a qualified attorney who is licensed for this purpose by the Israeli Ministry of Justice and the Israel Bar Association. Once the CPA is executed, it must be deposited with the AG, which then adds its confirmation to the CPA.

The CPA becomes effective when the appointer ‘ceases to understand matters’. This event is determined in accordance with the conditions stipulated in the CPA by the appointer. The appointer is free to determine these conditions as they see fit, provided that the CPA is not activated on the decision of the agent solely.

By default, the CPA is activated on the issuance of a medical expert’s opinion stating that the medical circumstances of the appointer require activation of the CPA. The agent must then provide a declaration to the AG stating that the conditions for activation have been fulfilled; the AG will then issue a confirmation that the CPA has been activated.

Despite the general rule that the CPA is activated when the appointer ‘ceases to understand matters’, the CPA can be activated with respect to the appointer’s proprietary affairs only (and not with respect to the appointer’s personal and medical affairs) on a predetermined date, regardless of the appointer’s being unable to understand matters. Usually, the date is set for shortly after the execution of the CPA, while the appointer is still legally competent. In such a case, the relationship between the appointer and the agent in the time between the execution of the CPA and its activation by the AG is considered as a regular agency under the Agency Law.

It is important to note that the activation of the CPA does not derogate from the appointer’s right to cancel it, and the Law states expressly that the coming into force of a CPA, by itself, does not negate a person’s legal capacity. Nonetheless, the appointer may expressly state in the CPA that it will remain in force should they ask to cancel it in the future while legally incapacitated. In this case, the CPA will remain in force, though the appointer and the agent may apply to the court to cancel it.

Appointment of a guardian

https://www.step.org/journal/step-journal-may-2019-full-issue/power-surge 2/3 6/6/2019 Power surge | STEP execution. The agent must also comply with several requirements in order to be appointed. These include, inter alia, that the agent must:

also be a legally competent adult; not be the attorney executing the CPA; not be an agent in more than three CPAs;6 not provide medical care or housing to the appointer for a fee; and if appointed with respect to the appointer’s proprietary affairs, not be bankrupt.

Scope of the CPA According to the Law, the CPA may be given with respect to the appointer’s personal, medical or proprietary affairs. The general rule is that the agent is authorised to exercise any power conferred on them in accordance with the CPA as if it were exercised by the appointer. However, there are exemptions to this rule:

actions that the agent cannot be authorised to carry out: those that, by their nature, should be carried out personally, such as adoption and a conversion of religion; actions that require the express authorisation of the appointer: such as donations, gifts, loans and any other financial transaction in the value of ILS100,000–500,000, and giving consent to a psychiatric treatment or hospitalisation; and actions that require the authorisation of the court: those that may have significant implications on the appointer, such as financial transactions of a value higher than ILS500,000, sale or long-term lease of real property and withdrawal of funds from a pension plan.

Procedure and activation The CPA is executed in an online form published by the Office of the Administrator General (AG)7 and structured in accordance with the Law and regulations thereof.8 The form can be filled in and executed only by a qualified attorney who is licensed for this purpose by the Israeli Ministry of Justice and the Israel Bar Association. Once the CPA is executed, it must be deposited with the AG, which then adds its confirmation to the CPA.

The CPA becomes effective when the appointer ‘ceases to understand matters’. This event is determined in accordance with the conditions stipulated in the CPA by the appointer. The appointer is free to determine these conditions as they see fit, provided that the CPA is not activated on the decision of the agent solely.

By default, the CPA is activated on the issuance of a medical expert’s opinion stating that the medical circumstances of the appointer require activation of the CPA. The agent must then provide a declaration to the AG stating that the conditions for activation have been fulfilled; the AG will then issue a confirmation that the CPA has been activated.

52 Despite the general rule that the CPA is activated when the appointer ‘ceases to 53 Contents understand matters’, the CPA can be activated with respect to the appointer’s proprietary affairs only (and not with respect to the appointer’s personal and medical affairs) on a predetermined date, regardless of the appointer’s being unable to understand matters. Usually, the date is set for shortly after the execution of the CPA, while the appointer is still legally competent. In such a case, the relationship between the appointer and the agent in the time between the execution of the CPA and its activation by the AG is considered as a regular agency under the Agency Law.

It is important to note that the activation of the CPA does not derogate from the appointer’s right to cancel it, and the Law states expressly that the coming into force of a CPA, by itself, does not negate a person’s legal capacity. Nonetheless, the appointer may expressly state in the CPA that it will remain in force should they ask to cancel it in the future while legally incapacitated. In this case, the CPA will remain in force, though the appointer and the agent may apply to the court to cancel it.

Appointment of a guardian

https://www.step.org/journal/step-journal-may-2019-full-issue/power-surge 2/3 6/6/2019 Power surge | STEP execution. The agent must also comply with several requirements in order to be appointed. These include, inter alia, that the agent must:

also be a legally competent adult; not be the attorney executing the CPA; not be an agent in more than three CPAs;6 not provide medical care or housing to the appointer for a fee; and if appointed with respect to the appointer’s proprietary affairs, not be bankrupt.

Scope of the CPA According to the Law, the CPA may be given with respect to the appointer’s personal, medical or proprietary affairs. The general rule is that the agent is authorised to exercise any power conferred on them in accordance with the CPA as if it were exercised by the appointer. However, there are exemptions to this rule:

actions that the agent cannot be authorised to carry out: those that, by their nature, should be carried out personally, such as adoption and a conversion of religion; actions that require the express authorisation of the appointer: such as donations, gifts, loans and any other financial transaction in the value of ILS100,000–500,000, and giving consent to a psychiatric treatment or hospitalisation; and actions that require the authorisation of the court: those that may have significant implications on the appointer, such as financial transactions of a value higher than ILS500,000, sale or long-term lease of real property and withdrawal of funds from a pension plan.

Procedure and activation The CPA is executed in an online form published by the Office of the Administrator General (AG)7 and structured in accordance with the Law and regulations thereof.8 The form can be filled in and executed only by a qualified attorney who is licensed for this purpose by the Israeli Ministry of Justice and the Israel Bar Association. Once the CPA is executed, it must be deposited with the AG, which then adds its confirmation to the CPA.

The CPA becomes effective when the appointer ‘ceases to understand matters’. This event is determined in accordance with the conditions stipulated in the CPA by the appointer. The appointer is free to determine these conditions as they see fit, provided that the CPA is not activated on the decision of the agent solely.

By default, the CPA is activated on the issuance of a medical expert’s opinion stating that the medical circumstances of the appointer require activation of the CPA. The agent must then provide a declaration to the AG stating that the conditions for activation have been fulfilled; the AG will then issue a confirmation that the CPA has been activated.

Despite the general rule that the CPA is activated when the appointer ‘ceases to understand matters’, the CPA can be activated with respect to the appointer’s proprietary affairs only (and not with respect to the appointer’s personal and medical affairs) on a predetermined date, regardless of the appointer’s being unable to understand matters. Usually, the date is set for shortly after the execution of the CPA, while the appointer is still legally competent. In such a case, the relationship between the appointer and the agent in the time between the execution of the CPA and its activation by the AG is considered as a regular agency under the Agency Law.

It is important to note that the activation of the CPA does not derogate from the appointer’s right to cancel it, and the Law states expressly that the coming into force of a CPA, by itself, does not negate a person’s legal capacity. Nonetheless, the appointer may expressly state in the CPA that it will remain in force should they ask to cancel it in the future while legally incapacitated. In this case, the CPA will remain in force, though the appointer and the agent may apply to the court to cancel it.

Appointment of a guardian 6/6/2019 Power surge | STEP Under the Law, the appointment of a guardian is seen as a last resort, since it limits a https://wwwperson’s.step.org/journal/step-journal-may-2019-full-issue/power-surge right to self-determination, freedom and other personal liberties. Therefore, 2/3 s.33A of the Law guides the court on what factors should be considered when an application to appoint a guardian is made. It provides that the court shall not appoint a guardian to an adult unless all the following requirements have been met:

Without the appointment, the person’s rights, interests or needs may be harmed. A CPA relating to the matters in respect of which the appointment is requested has not been deposited with the AG. After an examination of the alternatives, in the current circumstances, the court has concluded that the purpose of the appointment and the wellbeing of the person cannot be obtained by other means that limit the person’s rights, freedom and independence to a lesser degree.

The section also provides that, in circumstances where a person is unable to attend to their own affairs, but is able to make decisions with respect thereof, the court will not appoint a guardian, unless such appointment is restricted to the extent necessary. In the 2019 case of AA et al v the Attorney General – the Ministry of Labor, Social Affairs and Social Services,9 the court enforced the section and denied a son’s application to appoint a guardian to his father because the father had previously signed a CPA.

Conclusion The Amendment has radically changed Israel’s approach towards people with disabilities, and its new instruments, namely the CPA, provide individuals with a means of fulfilling their wishes when they are no longer able to manage their affairs.

54 55 It is highly recommended that any practitioner or family office that provides services to Contents individuals who are resident in Israel or hold assets in Israel consider using these tools in order to provide the client with a comprehensive estate planning service.

1. Legal Capacity and Guardianship Law (Amendment no. 18), 5776-2016, 2550 SH 798 (2016) (Isr)

2. Legal Capacity and Guardianship Law, 5722-1962, 16 SH 106 (1961-1962) (Isr)

3. Similar to an ‘enduring’ or ‘durable’ or ‘lasting’ power of attorney

4. Agency Law, 5725-1965, 19 SH 231 (1964-1965) (Isr)

5. The Law, Second 1 Chapter: Continuous Power of Attorney

6. Unless they are a relative of the appointer.

7. A draft version of the form is available at bit.ly/2FefMDb (Hebrew). The online formal form is available only to qualified and licensed attorneys.

8. At s.32M, and Legal Capacity and Guardianship Regulations (Continuous Power of Attorney, Preliminary Instructions to a Guardian, and a Document for the Expression of Will), 2017, KT 7801, 968, s.2 (Isr.)

9. 21463-01-19 Fam Ct (7 February 2019) (Isr)

The views expressed in the STEP Journal and Trust Quarterly Review are not necessarily those of STEP. Read more.

ADD NEW COMMENT

https://www.step.org/journal/step-journal-may-2019-full-issue/power-surge 3/3 6/6/2019 Power surge | STEP Under the Law, the appointment of a guardian is seen as a last resort, since it limits a person’s right to self-determination, freedom and other personal liberties. Therefore, s.33A of the Law guides the court on what factors should be considered when an application to appoint a guardian is made. It provides that the court shall not appoint a guardian to an adult unless all the following requirements have been met:

Without the appointment, the person’s rights, interests or needs may be harmed. A CPA relating to the matters in respect of which the appointment is requested has not been deposited with the AG. After an examination of the alternatives, in the current circumstances, the court has concluded that the purpose of the appointment and the wellbeing of the person cannot be obtained by other means that limit the person’s rights, freedom and independence to a lesser degree.

The section also provides that, in circumstances where a person is unable to attend to their own affairs, but is able to make decisions with respect thereof, the court will not appoint a guardian, unless such appointment is restricted to the extent necessary. In the 2019 case of AA et al v the Attorney General – the Ministry of Labor, Social Affairs and Social Services,9 the court enforced the section and denied a son’s application to appoint a guardian to his father because the father had previously signed a CPA.

Conclusion The Amendment has radically changed Israel’s approach towards people with disabilities, and its new instruments, namely the CPA, provide individuals with a means of fulfilling their wishes when they are no longer able to manage their affairs.

It is highly recommended that any practitioner or family office that provides services to individuals who are resident in Israel or hold assets in Israel consider using these tools in order to provide the client with a comprehensive estate planning service.

1. Legal Capacity and Guardianship Law (Amendment no. 18), 5776-2016, 2550 SH 798 (2016) (Isr) 1. Legal Capacity and Guardianship Law (Amendment no. 18), 5776-2016, 2550 SH 798 (2016) 2. Legal Capacity and Guardianship Law, 5722-1962, 16 SH 106 (1961-1962) (Isr) (Isr) 32.. LegalSimi lCapacityar to an ‘en anddurin Guardianshipg’ or ‘durable’ or ‘Law,lasting 5722-1962,’ power of att o16rn SHey 106 (1961-1962) (Isr)

43.. SimilarAgenc yto La anw, 5‘enduring’725-1965, 1 or9 S ‘durable’H 231 (196 or4- 1‘lasting’965) (Isr) power of attorney 4. Agency Law, 5725-1965, 19 SH 231 (1964-1965) (Isr) 5. The Law, Second 1 Chapter: Continuous Power of Attorney 5. The Law, Second 1 Chapter: Continuous Power of Attorney 66.. UnlessUnles sthey they areare a a r erelativelative of tofhe the app oappointer.inter. 77.. A draftA draf versiont version ooff t thehe f oformrm is aisva availableilable at bit .atly/2 bit.ly/2FefMDbFefMDb (Hebrew (Hebrew).). The online Theform onlineal form i sformal availab lforme only is availableto qualifi eonlyd and to lic qualiensed fiaedttor andneys .licensed attorneys.

88.. At As.32M,t s.32M and, and LegalLegal C Capacityapacity an dand Gua Guardianshiprdianship Regulat Regulationsions (Continuo u(Continuouss Power of Att oPowerrney, Pr ofelim Attorney,inary PreliminaryInstructions Instructionsto a Guardian, atond a a Guardian,Document f oandr the a E Documentxpression of W forill) ,the 201 Expression7, KT 7801, 9 of68 ,Will), s.2 (Is r2017,.) KT 7801, 968, s.2 (Isr.) 9. 21463-01-19 Fam Ct (7 February 2019) (Isr) 9. 21463-01-19 Fam Ct (7 February 2019) (Isr)

The views expressed in the STEP Journal and Trust Quarterly Review are not necessarily those of STEP. Read more.

ADD NEW COMMENT

https://www.step.org/journal/step-journal-may-2019-full-issue/power-surge 3/3 54 55 Contents TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN

The Israeli Trust THE ISRAELI the israeli trust TRUSTS IN ISRAEL DR ALON KAPLAN ANDTRUST MEYTAL LIBERMAN THEThe use ISRAELIof the hekdesh as an efficient estate-planning instrument TRUSTBY DR ALON KAPLAN AND MEYTAL LIBERMAN

The use of the hekdesh as an efficient estate-planning instrument

BY DR ALON KAPLAN AND MEYTAL LIBERMAN

he legal system in Israel is known as a ABSTRACT mixed legal system, since it incorporates • Israel’s trust law applies to any trust elements from both common law and civil relationship; however, the main route to create law. Its civil-law influences derive from a private trust is by creating a hekdesh, also Tthe Ottoman Empire era, while the UK government known as an endowment. The hekdesh is a introduced English principles of common law and document signed unilaterally byhe the legal settlor system in Israel isequity known during as a the British Mandate (1923–1948); these ABSTRACT and can be executed either beforemixed a notary legal system, sincewere it incorporates then gradually replaced by new independent • Israel’s trust law appliesor to asany a trust last will and testament. elements from both commonKnesset law and (Parliament) civil legislation and decisions of relationship; however, the main route to create law. Its civil-law influencesthe deriveSupreme from Court of Israel (the Supreme Court) a private trust is by creating a hekdesh, also Tthe Ottoman Empire era, while the UK government 1 known as an endowment.• Since The hekdesh a trust isunder a Israeliintroduced law, including English principles of commonon the establishment law and of the Israeli state. document signed unilaterallya hekdesh by the settlor, is not consideredequity a during legal theentity, British Mandate (1923–1948);Trusts in theseIsrael are provided for under the Trust and can be executed eithercommon before a practicenotary is to usewere an thenunderlying gradually replaced by newLaw, independent 5739–1979 (the Law),2 s.1 of which defines a or as a last will and testament.company to hold the trustKnesset assets. (Parliament) The use of legislation a andtrust decisions as ‘the of duty imposed on a trustee to hold or the Supreme Court of Israel (the Supreme Court) hekdesh combined with an underlying company to otherwise1 deal with assets under its control for • Since a trust under Israelioffers law, includingan efficient instrumenton the establishment for estate planning, of the Israeli state. a hekdesh, is not considered a legal entity, Trusts in Israel are provided forthe under benefit the Trust of another, or for some other purpose’. common practice is to usecontrary an underlying to a trust createdLaw, by 5739–1979 a contract (the Law),2 s.1 of whichUnder defines s.2 of thea Law, a trust can be created either company to hold the trustbetween assets. The the use settlor of a and thetrust trustee. as ‘the duty imposed on a trusteein accordance to hold or with the law, by a contract with the hekdesh combined with an underlying company to otherwise deal with assets undertrustee its control or by for deed of hekdesh (endowment). In this offers an efficient instrument• This article for estate will planning, review thethe trustbenefit under of another, Israeli or for somearticle, other purpose’. we outline the principal types of trust, with contrary to a trust createdlaw, by witha contract an emphasis onUnder the hekdesh s.2 of the Law,and aits trust can beparticular created either attention paid to the hekdesh. between the settlor and the trustee. in accordance with the law, by a contract with the use. It will also investigatetrustee the recognition or by deed of hekdeshof (endowment). In this foreign trusts under Israeli law. 1 The Library of Congress, ‘Introduction to Israel’s Legal System’, • This article will review the trust under Israeli article, we outline the principal typesbit.ly/2HMYJJZ of trust, with law, with an emphasis on the hekdesh and its particular attention paid to the hekdesh2 33 LSI. 41 (1966-1967) (Isr) use. It will also investigate the recognition of foreign56 trusts under Israeli law. 1 The Library of Congress, ‘Introduction to Israel’s Legal System’, 57 Contentsbit.ly/2HMYJJZ JUNE 2019 2 33 LSI 41 (1966-1967) (Isr) 11 WWW.STEP.ORG/TQR

JUNE 2019 11 WWW.STEP.ORG/TQR TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN

TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN

‘Section 42 of the Law an executor, who, under s.82, is subject to the THE ISRAELI instructions of the court, and must assemble the TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN provides that the provisions assets of the estate, manage the estate, discharge the debts of the estate and distribute the balance TRUSTS IN ISRAEL DR ALONof the KAPLAN Law shall AND apply MEYTAL where LIBERMAN of the estate among the heirs, in accordance TRUST with a succession order or a probate order, and no other Israeli law contains do anything else necessary for the execution special provisionsan executor, on who, the under s.82, isof subject the succession to the order or of the probate order. ‘Section 42 of the Law instructions of the court, and mustFurther, assemble under s.86, the the executor must keep The use of the hekdesh as an efficient estate-planning instrument matter in question’ accounts and file reports to the Administrator provides that the provisions assets of the estate, manage theGeneral estate, (AG) discharge regularly. the debts of the estate and distribute the balance BY DR ALON KAPLAN ANDof MEYTAL the LIBERMAN Law shall apply where of the estate among the heirs, inADMINISTRATIVE accordance STATUTORY BODIES ACTING THE ISRAELI A TRUST CREATED UNDER LAW IN THE CAPTIVITY OF A TRUSTEE A trust that is createdwith ina successionaccordance with order the law or a probateThese are order, bodies and of the state that effectively act in no other Israeli law containsis a relationship do that anything complies with else the necessary definition forthe the capacity execution of a trustee on behalf of the state in special provisions on the of s.1 that its termsof theand conditionssuccession are orderdetermined or of thematters probate of need, order. such as those listed below: in legislation. SectionFurther, 42 of underthe Law s.86,provides the executor• The must AG as keep the Public Trustee: s.36 of the TRUST that the provisions of the Law shall apply where Law provides that the Minister of Justice matter in question’ no other IsraeliTRUSTS accountslaw contains IN ISRAEL and special file DR provisions ALONreports KAPLAN to the shallANDAdministrator appoint MEYTAL a Public LIBERMAN Trustee, who may be on the matter inGeneral question. It(AG) therefore regularly. follows appointed by the court as a trustee of trusts. that, in the circumstances of a trust relationship Accordingly, the AG was appointed to act in he legal system in Israel is known as a an executor, who, under s.82, is subject to the subject‘Section to a specific 42 of law, the the LawLaw can be viewed as the capacity of Public Trustee in 1985.5 In the ABSTRACT mixed legal system, since it incorporates instructions of the court, and must assemble the a complementaryADMINISTRATIVE mechanism only. STATUTORY BODIEScase of the ACTING Public Trustee v Agmon,6 Justice The use• Israel’s of trust the law hekdeshapplies to any trust as an efficientelements estate-planning from both common law andinstrument civil provides that the provisions assets of the estate, manage the estate, discharge A TRUST CREATED UNDER LAW IN THE CAPTIVITY OF A TRUSTEEBarak held that the court holds the authority relationship; however, the main route to create law. Its civil-law influences derive from the debts of the estate and distribute the balance A trust that is created in accordance with theTRUSTEESof thelaw Law APPOINTEDThese shall BY are apply A JUDICIALbodies where of AUTHORITY the stateof that theto estate superviseeffectively among the the Public actheirs, in Trustee’s in accordance activity, and a private trust is by creating a hekdesh, also Tthe Ottoman Empire era, while the UK government 3 Scholar Shlomo Kerem sets out the four main with toa succession give instructions order or when a probate necessary order, and to uphold known as an endowment.BY TheDR hekdeshALON KAPLAN is a ANDintroducedis MEYTAL a relationship English LIBERMAN principles that complies of common with law theand definition the capacity of a trustee on behalf of the state in characteristicsno other Israeli of a trustee law appointed contains by a judicial do anythingthe purposes else necessary of the trust, for the including execution instruction document signed unilaterally by the settlor equity during the British Mandate (1923–1948); these of s.1 that its terms and conditions are determinedauthority as follows:matters of need, such as thoseof the listedregarding succession below: the order appropriate or of the probatetime to order.release the and can be executed either before a notary were then gradually replaced by new independent special provisions on the in legislation.TRUSTS Section IN ISRAEL 42 of theDR ALONLaw provides KAPLAN• The AND scope MEYTAL of the• The trustee’s LIBERMAN AG powersas the to Public act is Trustee:Further,Public s.36 under of Trustee the s.86, thefrom executor office. must keep or as a last will and testament. Knesset (Parliament) legislation and decisions of matterdetermined in by question’ the legislation. The trustee accounts• The AGand as file the reports administrator to the Administrator of abandoned thethat Supreme the provisions Court of Israel of the(the SupremeLaw shall Court) apply where Law provides that the Minister of Justice receives control over the property by way Generalassets: (AG) according regularly. to s.2(b) of the Administrator • Since a trust under Israeli law, including on the establishment of the Israeli state.1 an executor, who, under s.82, is subject to the no other Israeli law contains special provisionsof law, and they doshall not needappoint any other a Public legal Trustee,General who may Law,7 be the AG is responsible for the a hekdesh, is not considered a legal entity, ‘SectionTrusts in Israel 42 are of provided the Law for under the Trust instructions of the court, and must assemble the on the matter in question. It therefore followsmeans in order toappointed execute their by duties, the court such as aADMINISTRATIVE trusteeadministration of trusts. STATUTORY of abandoned BODIES assets. ACTING Section 1 common practice is to use an underlying Law, 5739–1979 (the Law),2 s.1 of which defines a assets of the estate, manage the estate, discharge provides that the provisions A asTRUST a licence, CREATED ownership UNDER or LAW any other right in IN THEdefines CAPTIVITY an abandoned OF A TRUSTEE asset as an asset without company to hold the trust assets. The use of a trustthat, as in ‘the the duty circumstances imposed on a trustee of a to trust hold orrelationship theA trust debts that of isthe created estateAccordingly, in and accordance distribute thewith the AGthe balance law was appointedThese are bodies to act of the in state that effectively act in the property. a known owner,5 or without a person entitled hekdesh combined with an underlying company oftosubject otherwise the toLaw deala specific withshall assets law,apply under the its whereLaw control can for be viewedofis athe relationship estate as among thatthe thecomplies capacity heirs, with in accordance theof Publicdefinition Trustee the capacity in 1985. of a trustee In the on behalf of the state in • A special law sets out the modus of the appointing to or capable of administering the asset, which offers an efficient instrument for estate planning, the benefit of another, or for some other purpose’. withof s.1 athat succession its terms order and conditions or a probate are order, determined and matters of need,6 such as those listed below: a complementary mechanism only. body and the powers,case duties of the and Public obligations Trustee v Agmonhas a connection, Justice to Israel: the asset is either contrary to a trust created by a contract noUnder other s.2 of the Israeli Law, a trust law can becontains created either doin legislation.anything else Section necessary 42 of the for Law the providesexecution • The AG as the Public Trustee: s.36 of the conferred to the Baraktrustee. held that the court holdssituated the authority in Israel or belongs to an Israeli between the settlor and the trustee. in accordance with the law, by a contract with the ofthat the the succession provisions order of the or Law of the shall probate apply where order. Law provides that the Minister of Justice special heprovisions legal system on in Israelthe is known •as The a trustee’s demise terminates the powers of resident, citizen or corporation. ABSTRACT trusteeTRUSTEES or by deed APPOINTED of hekdesh (endowment). BY A JUDICIAL In this AUTHORITYFurther,no other Israeliunder laws.86,to contains the supervise executor special must theprovisions keepPublic Trustee’sshall appoint activity, a Public and Trustee, who may be mixed legal system, since it incorporatesthe acting trustee. • This article will review the trust under Israeli article, we outline the principal3 types of trust, with accountson the matter and infile question. reports Itto therefore the Administrator follows appointed by the court as a trustee of trusts. matterScholar Shlomo in question’ Kerem sets out the four main• The appointing authorityto give instructions may replace the when necessaryTRUSTEES to APPOINTED uphold WITH THE CONSENT • Israel’s trustlaw, law with applies an emphasis to any on thetrust hekdesh and its particular attentionelements paid from to the both hekdesh common. law andGeneralthat, incivil the (AG) circumstances regularly. of a trust relationship Accordingly, the AG was appointed to act in characteristics of a trustee appointed by a judicialtrustee without needthe purposes of transferring of theany righttrust, includingOF A GOVERNMENTAL instruction REGULATORY5 BODY relationship;use. however, It will also the investigate main route the recognition to create of law. Its civil-law influences derivesubject from to a specific law, the Law can be viewed as the capacity of Public Trustee in 1985. In the of ownership. Kerem points out the mutual characteristics6 of foreign trusts under Israeli law. 1authority The Library of Congress, as follows: ‘Introduction to Israel’s Legal System’, ADMINISTRATIVEa complementary mechanism regardingSTATUTORY only. BODIESthe appropriate ACTING timecase ofto the release Public Trustee the v Agmon, Justice a private trust is by creating a hekdesh, also Tthebit.ly/2HMYJJZ Ottoman Empire era, while the UK government 8 A good example of such a trustee is an estate Baraksuch heldconsensual that the trustees: court holds the authority A2• 33 TRUSTThe LSI 41 (1966-1967) scope CREATED (Isr) of the UNDER trustee’s LAW powers to act isIN THE CAPTIVITYPublic OF A TRUSTEE Trustee from office. known as an endowment. The hekdesh is a introduced English principles of common lawexecutorTRUSTEES and appointed APPOINTED in accordanceBY A JUDICIAL with AUTHORITY the to• superviseLegislation the is Public limited Trustee’s to the minimum activity, and required A trust thatTRUSTS is created inIN accordance ISRAEL DRwith ALON the law KAPLAN These AND are bodies MEYTAL of the LIBERMAN state that effectively act in determined by the legislation. The trusteeSuccessionScholar Shlomo Law, Kerem• 5725-1965 The3 setsAG (theout as the Successionthe four administrator main to of giveto abandonedensure instructions the proper when operation necessary of to the uphold trustee. document signed unilaterally by the settlor isequity a relationship during that the complies British with Mandate the definition (1923–1948); the capacity these of a trustee on behalf of the state in JUNE 2019 11 receives control over theWWW.STEP.ORG/TQR property by wayLaw).characteristics 4 Under ss.77 of aassets: trusteeand 78, appointedthe according court bymay a judicialto appoint s.2(b) ofthe the purposes Administrator of the trust, including instruction and can be executed either before a notary ofwere s.1 that then its terms gradually and conditions replaced are bydetermined new independent matters of need, such as those listed below: 5 Government Notices 3250, 22/09/1985 authorityan executor, as follows: who, under s.82, is subject7 to the regarding6 PCA 9420/04 the Pub. appropriate Tr. v Agmon 59(1) time PD 627 to (2005) release (Isr.) the in legislation.of law, and Section they 42 do of notthe Law need provides any other legal•3 ShlomoThe AG Kerem, as Trust the Law Public,General 5739-1979, Trustee: 144 (4thLaw ed., s.36 2004), theof the AG is responsible7 Administrator for General the Law , 5738-1978, 883 SH 61 (1978) (Isr.) or as a last will and testament. Knesset‘Section (Parliament) 42 of the legislation Law and decisions•instructions The of scope of of the the trustee’s court, and powers must to assemble act is the Public Trustee from office. that the provisions of the Law shall apply where 4 LawSuccession provides Law, 5725-1965 that, 19 the SH 215, Minister §§ 77-96 (1964-65) of Justice (Isr.) 8 See note 3 means in order to execute their duties, suchassetsdetermined of the estate,by theadministration legislation.manage the The estate, trustee of discharge abandoned • The assets. AG as the Section administrator 1 of abandoned notheprovides other Supreme Israeli thatlaw Court contains the of Israel specialprovisions (theprovisions Supreme Court)shall appoint a Public Trustee, who may be as a licence, ownership or any other right1 the receivesin debts controlof the estate overdefines the and property distribute an abandoned by waythe balance asset assets: as an according asset towithout s.2(b) of the Administrator • Since a trust under Israeli law, including on the the matter establishment in question. It of therefore the Israeli follows state. JUNEappointed 2019 by the court as a trustee of trusts. 12 7 WWW.STEP.ORG/TQR of the Law shall apply where ofof the law, estate and they among do not the need heirs, any in otheraccordance legal General Law, the AG is responsible for the that,the in property.the circumstances of a trust relationship Accordingly, thea AG known was appointed owner, to or act without in a person entitled a hekdesh, is not considered a legal entity, Trusts in Israel are provided for under thewithmeans Trust a succession in order to order execute or atheir probate duties, order, such and administration of abandoned assets. Section 1 subject• A special to a specific law setslaw, theout Law the can modus be viewed of theas appointingthe capacity of Publicto or Trustee capable in 1985.of administering5 In the the asset, which common practice is to use an underlying Law,no other 5739–1979 Israeli (the lawLaw), contains2 s.1 of which definesdoas anything a licence, a else ownership necessary or any for other the execution right in defines an abandoned asset as an asset without a complementary mechanism only. casethe property. of the Public Trustee v Agmon,6 Justice a known owner, or without a person entitled body and the powers, duties and obligationsof the succession orderhas a or connection of the probate to order. Israel: the asset is either company to hold the trust assets. The use of a trustspecial as ‘the provisions duty imposed on on the a trustee to hold• BarakA special or held law that sets the out court the modus holds of the the authority appointing to or capable of administering the asset, which conferred to the trustee. Further, under s.86,situated the executor in Israel must keep or belongs to an Israeli TRUSTEES APPOINTED BY A JUDICIAL AUTHORITY tobody supervise and the thepowers, Public duties Trustee’s and obligations activity, and has a connection to Israel: the asset is either hekdesh combined with an underlying company to otherwise deal with assets under its controlaccounts for and file reports to the Administrator Scholarmatter• The Shlomotrustee’s in Keremquestion’ demise3 sets out terminates the four main the powerstoconferred give of instructions to the trustee.resident, when necessary citizen to or uphold corporation. situated in Israel or belongs to an Israeli offers an efficient instrument for estate planning, the benefit of another, or for some other purpose’.General (AG) regularly. characteristicsthe acting of trustee. a trustee appointed by a judicial • theThe purposes trustee’s demise of the trust, terminates including the powers instruction of resident, citizen or corporation. contrary to a trust created by a contract Under s.2 of the Law, a trust can be created either authority• The appointing as follows: authority may replace the regardingthe acting trustee.the appropriateTRUSTEES time APPOINTED to release the WITH THE CONSENT between the settlor and the trustee. in accordance with the law, by a contract with•ADMINISTRATIVE The the appointing authority STATUTORY may replace BODIES the ACTING TRUSTEES APPOINTED WITH THE CONSENT •A The TRUST scope CREATED of the trustee’s UNDER powers LAW to act is INPublic THE CAPTIVITY TrusteeOF from OF A office. GOVERNMENTALA TRUSTEE REGULATORY BODY determinedtrustee without by the legislation. need of The transferring trustee any• right Thetrustee AG without as the administrator need of transferring of abandoned any right OF A GOVERNMENTAL REGULATORY BODY trusteeA trust that or is by created deed in of accordance hekdesh with(endowment). the law These In this are bodies of the state that effectively act in receivesof ownership. control over the property by way assets:of ownership. accordingKerem to s.2(b) points of the outAdministrator the mutual Kerem characteristics points out the mutual of characteristics of • This article will review the trust under Israeli article,is a relationship we outline that complies the principal with the definition types of trust,theA good capacity with example of a trusteeof such a on trustee behalf is of an the estate state in such consensual trustees:8 of law, and they do not need any other legal General Law,7 the AG is responsible for the 8 of As.1 good that its example terms and of conditions such a aretrustee determined is an estateexecutormatters ofappointed need,such such in accordance asconsensual those listed with below: thetrustees: • Legislation is limited to the minimum required law, with an emphasis on the hekdesh and its particularmeans in order attention to execute paid their to duties, the hekdeshsuch . administration of abandoned assets. Section 1 inexecutor legislation. appointed Section 42 of in the accordance Law provides with theSuccession• The AG as Law, the 5725-1965• Public Legislation Trustee: (the Succession s.36 is limited of the to the tominimum ensure the proper required operation of the trustee. as a licence, ownership or any other right in defines4 an abandoned asset as an asset without use. It will also investigate the recognition of that the provisions of the Law shall apply where Law).Law Underprovides ss.77 that and the 78, Minister the court of may Justice appoint 1Succession theThe Libraryproperty. of Congress, Law, 5725-1965 ‘Introduction to (the Israel’s Succession Legal System’, a known owner, orto without ensure a personthe proper entitled operation 5 Government of theNotices trustee. 3250, 22/09/1985 foreign trusts under Israeli law. no other4 Israeli law contains special provisions shall appoint a Public Trustee, who may be 6 PCA 9420/04 Pub. Tr. v Agmon 59(1) PD 627 (2005) (Isr.) •bit.ly/2HMYJJZLaw). A special Under law sets ss.77 out the and modus 78, ofthe the court appointing may appoint3 Shlomoto or Kerem,capable Trust Lawof ,administering 5739-1979, 144 (4th ed., the2004) asset, which 7 Administrator General Law, 5738-1978, 883 SH 61 (1978) (Isr.) 2on 33 the LSI matter41 (1966-1967) in question. (Isr) It therefore follows 4 Successionappointed Law, 5725-1965 by the5 ,Government 19 court SH 215, §§ as 77-96 a Notices trustee (1964-65) (Isr.)3250, of trusts. 22/09/1985 8 See note 3 body and the powers, duties and obligations has a connection to Israel: the asset is either that, in the circumstances of a trust relationship Accordingly, the6 PCA AG 9420/04was appointed Pub. Tr. v toAgmon act in 59(1) PD 627 (2005) (Isr.) 3 conferred Shlomo Kerem, to the Trust trustee. Law, 5739-1979, 144 (4th ed., 2004) situated in Israel7 Administrator or belongs Generalto an Israeli Law, 5738-1978, 883 SH 61 (1978) (Isr.) subject to a specific law, the Law can be viewed as the capacity of Public Trustee in 1985.5 In the •4 The Succession trustee’s Law, demise 5725-1965 terminates, 19 SH 215, §§ the 77-96 powers (1964-65) of (Isr.) JUNEresident, 2019 citizen8 Seeor corporation. note 3 12 WWW.STEP.ORG/TQR a complementary mechanism only. case of the Public Trustee v Agmon,6 Justice JUNE 2019 11 the acting trustee. WWW.STEP.ORG/TQR 56 Barak held that the court holds the authority 57 • The appointing authority may replace the TRUSTEES APPOINTED WITH THE CONSENT TRUSTEES APPOINTED BY A JUDICIAL AUTHORITYContentsto supervise the Public Trustee’s activity, and JUNEtrustee 2019 without need of transferring any right OF A GOVERNMENTAL12 REGULATORY BODY WWW.STEP.ORG/TQR Scholar Shlomo Kerem3 sets out the four main to give instructions when necessary to uphold of ownership. Kerem points out the mutual characteristics of characteristics of a trustee appointed by a judicial the purposes of the trust, including instruction A good example of such a trustee is an estate such consensual trustees:8 authority as follows: regarding the appropriate time to release the executor appointed in accordance with the • Legislation is limited to the minimum required • The scope of the trustee’s powers to act is Public Trustee from office. Succession Law, 5725-1965 (the Succession to ensure the proper operation of the trustee. determined by the legislation. The trustee • The AG as the administrator of abandoned Law).4 Under ss.77 and 78, the court may appoint receives control over the property by way 5 Governmentassets: according Notices 3250, 22/09/1985to s.2(b) of the Administrator 6 PCA 9420/04 Pub. Tr7. v Agmon 59(1) PD 627 (2005) (Isr.) 3 Shlomoof law, Kerem, and Trust they Law , do 5739-1979, not need 144 (4th any ed., 2004) other legal 7 AdministratorGeneral LawGeneral, theLaw, 5738-1978,AG is responsible 883 SH 61 (1978) (Isr.) for the 4 Successionmeans Law,in order 5725-1965 to, 19 executeSH 215, §§ 77-96 their (1964-65) duties, (Isr.) such 8 Seeadministration note 3 of abandoned assets. Section 1 as a licence, ownership or any other right in defines an abandoned asset as an asset without JUNEthe 2019 property. 12 a known owner, or without a personWWW.STEP.ORG/TQR entitled • A special law sets out the modus of the appointing to or capable of administering the asset, which body and the powers, duties and obligations has a connection to Israel: the asset is either conferred to the trustee. situated in Israel or belongs to an Israeli • The trustee’s demise terminates the powers of resident, citizen or corporation. the acting trustee. • The appointing authority may replace the TRUSTEES APPOINTED WITH THE CONSENT trustee without need of transferring any right OF A GOVERNMENTAL REGULATORY BODY of ownership. Kerem points out the mutual characteristics of A good example of such a trustee is an estate such consensual trustees:8 executor appointed in accordance with the • Legislation is limited to the minimum required Succession Law, 5725-1965 (the Succession to ensure the proper operation of the trustee. Law).4 Under ss.77 and 78, the court may appoint 5 Government Notices 3250, 22/09/1985 6 PCA 9420/04 Pub. Tr. v Agmon 59(1) PD 627 (2005) (Isr.) 3 Shlomo Kerem, Trust Law, 5739-1979, 144 (4th ed., 2004) 7 Administrator General Law, 5738-1978, 883 SH 61 (1978) (Isr.) 4 Succession Law, 5725-1965, 19 SH 215, §§ 77-96 (1964-65) (Isr.) 8 See note 3

JUNE 2019 12 WWW.STEP.ORG/TQR TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN

an executor, who, under s.82, is subject to the ‘Section 42 of the Law instructionsTRUSTS of the court, IN ISRAELand must assembleDR ALON the KAPLAN AND MEYTAL LIBERMAN provides that the provisions assets of the estate, manage the estate, discharge the debts of the estate and distribute the balance of the Law shall apply where of the estate among the heirs, in accordance with‘Section a succession order 23 orof a probatethe Contracts order, and Law provides that a contract no other Israeli law contains do anything else necessary for the execution TRUSTS IN ISRAEL DR ALON KAPLANmay AND MEYTAL be made LIBERMAN orally, in writing or in some other form, unless special provisions on the of the succession order or of the probate order. anFurther,a executor, form under who, is under s.86, a s.82, condition the is subjectexecutor to the must of keep validity by virtue of law or agreement ‘Section 42 of the Law instructionsaccounts andof the file court, reports and must to assemble the Administrator the matter in question’ TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN provides that the provisions assetsGeneral of the (AG) estate, regularly. manage the estate, dischargebetween the parties’ the debts of the estate and distribute the balance of the Law shall apply where of the estate among the heirs, in accordance ADMINISTRATIVE STATUTORY BODIES ACTING no other Israeli law contains with a succession order or a probate order, and ‘Section 23 of the Contracts Law provides that a contract A TRUST CREATED UNDER LAW doIN anything THE CAPTIVITY else necessaryTRUSTS OF for IN A theISRAEL TRUSTEE execution DR ALON KAPLANmay AND MEYTAL be made LIBERMAN orally, in writing or in some other form, unless A trust thatspecial is created provisions in accordance on with the the law ofThese the succession are bodies order of or theof the state probate that order. effectively act in is a relationship that complies with the definition Further,the capacity under s.86, of a the trustee executor on must behalf keep of the statea inform is a condition of validity by virtue of law or agreement matter in question’ accounts and ‘Sectionfile reports 23to the of Administratorthe Contracts Law provides that a contract of s.1 that its terms and conditions are determined matters of need, such as those listed below: General• Subject (AG)may to regularly. the be said made minimum orally, legislation,in writing or in some forthother in form, s.1, it unlessthereforebetween follows the that, parties’ to determine in legislation. Section 42 of the Law provides • The AG as the Public Trustee: s.36 of the the partiesa form are is free a condition to agree between of validity them by virtue ofwhether law or aagreement contract can be regarded as a trust that the provisions of the Law shall apply where ADMINISTRATIVELaw provides STATUTORY that the BODIESMinister ACTING of Justice A TRUST CREATED UNDER LAW IN onTHE the CAPTIVITY powers OF of A the TRUSTEE trustee, and its rights contract, the nature of the relationship between no other Israeli law contains special provisions shall appoint a Public Trustee,between who may the be parties’ A trust that is created in accordance with the law Theseand are obligations. bodies of the state that effectively act in the parties should be examined. on the matteris a in relationship question. that It complies therefore with follows the definition theappointed capacity of a bytrustee the oncourt behalf as of a the trustee state in of trusts. of s.1 that its terms and conditions are determined matters• The partiesof need, such must as those confer listed on below: the trustee power and Goren J affirmed this in the case ofArnon v that, in the circumstances of a trust relationship Accordingly, the AG was appointed to act in 12 in legislation. Section 42 of the Law provides • Theauthorities AG as the Public by transferring Trustee: s.36 of the the proprietary5 • Subject rights to thePieutrekovsky said minimum legislation,, stating: forth in s.1, it therefore follows that, to determine subject to a thatspecific the provisions law, the of theLaw Law can shall be apply viewed where as Lawthe provides capacity that of the Public Minister Trustee of Justice in 1985. In thethe parties are free to agree between them whether a contract can be regarded as a trust in the assets to the trustee, or by granting6 the a complementary mechanism only. case of• Subject the Public to the said Trustee minimum vlegislation, Agmon , Justiceforth in s.1, it therefore follows that, to determine no other Israeli law contains special provisions shalltrustee appoint control a Public and Trustee, power who over may be the assets. on the powers of‘A the transaction trustee, and shallits rights be regardedcontract, as a trust the nature of the relationship between on the matter in question. It therefore follows appointedBarak heldthe by parties the that court are the free as toacourt trustee agree between holds of trusts. them the authoritywhetherand obligations. a contract can be regarded as a trust the parties should be examined. A debentureon the powers trustee, of the trustee, whose and modusits rights operandicontract, the nature oftransaction the relationship subject between to the provisions of the that, in the circumstances of a trust relationship Accordingly,and obligations.the AG was appointed to act in the• The parties parties should must be examined. confer on the trustee power and Goren J affirmed this in the case ofArnon v TRUSTEES APPOINTED BY A JUDICIAL AUTHORITY to supervise the Public Trustee’s5 9 activity, and 12 subject to a specific3 law, the Law can be viewed as isthe governed capacity• The of parties by Public the must TrusteeSecurities confer on in the 1985. trusteeLaw In, powerthe and and a trustee Gorenauthorities J affirmed by transferring Trustthis in the Law case the ifofArnon the proprietary v conditions rights of thePieutrekovsky definition, stating: Scholar Shlomo Kerem sets out the four main to give instructions when necessary6 to uphold 12 a complementary mechanism only. ofcase employee of theauthorities Public stock Trustee by transferring option v Agmon incentive the, proprietary Justice programmes, rights Pieutrekovskyin the assets, stating: to stipulatedthe trustee, or in by the granting Law havethe been materially characteristics of a trustee appointed by a judicial Barakthe purposes heldin thatthe assets the of court to the the trustee, holdstrust, the or including by authority granting the instruction trustee control and power over the assets. ‘A transaction shall be regarded as a trust TRUSTEES APPOINTED BY A JUDICIAL AUTHORITY whose modustrustee control operandi and power is overgoverned the assets. by the ‘AA transaction debenture shall trustee, befulfilled. regarded whose as a Themodus trust applicability operandi of thetransaction definition subject of to the provisions of the authority as follows: toregarding supervise the the Public appropriate Trustee’s activity, time toand release thetransaction subject to the provisions of the 3 A debenture trustee, whose modus operandi 9 Income Tax Rules (Tax Relief9 in the Allocation of a trust on a transaction is not subjectTrust Law to if the the conditions of the definition • The scopeScholar of the Shlomo trustee’s Kerem powers sets out to the act four is main toPublic give instructionsis Trusteegoverned by whenthefrom Securities necessary office. Law, toand uphold a trustee isTrust governed Law if the by conditions the Securities of the definition Law, and a trustee characteristics of a trustee appointed by a judicial Sharesthe purposes toof employee Employees), of the stock trust, option including10 incentiveserve instruction as programmes, good examples ofstipulated employee in the stock Lawmere haveoption been wishes incentive materially of programmes, the parties, and stipulateddespite inusing the Law have been materially determined by the legislation. The trustee • The AG as the administrator of abandonedfulfilled. The applicability of the definition of authority as follows: ofregarding such whosetrustees. the modusappropriate operandi time is governed to release by the the whose modus operandithe phrase is governed “trust by” the in the transactionfulfilled. between The applicability of the definition of receives control• The scope over of the trustee’s property powers by wayto act is Publicassets: TrusteeIncome according Tax from Rules office. to(Tax s.2(b) Relief in of the the Allocation Administrator of Incomea trust on Tax a transaction Rules (Tax is not Relief subject in to the the Allocation of a trust on a transaction is not subject to the Shares to Employees),10 serve as good examples mere wishes of the parties, and despite using determined by the legislation. The trustee • The AG as the administrator7 of abandoned Shares to Employees),them,10 serve the transactionas good examples shall not bemere a trustwishes of the parties, and despite using of law, and they do not need any other legal Generalof such Law trustees., the AG is responsible for thethe phrase “trust” in the transaction between receives control over the property by way Aassets: TRUST according CREATED to s.2(b) UNDER of the Administrator A CONTRACT ofthem, such the trustees. transactiontransaction shall not be a trust and subject to the provisionsthe phrase “trust of ” in the transaction between means in order to execute their duties, such administration7 of abandoned assets. Section 1 of law, and they do not need any other legal AGeneral trust ALawcreated TRUST, the CREATED AG by is a responsible contract UNDER A CONTRACT foris one the governedtransaction by and subjectthe to law the provisions if its contents of do not gothem, in line the with transaction shall not be a trust as a licence,means ownership in order toor execute any other their duties,right insuch administrationdefinesA trust an created ofabandoned abandoned by a contract assets.11asset is one Sectiongovernedas an 1byasset withoutAthe TRUST law if its CREATED contents do UNDER not go in lineA CONTRACT with transaction13 and subject to the provisions of 11 the definition13 of the trust in the Law.’ as a licence, ownership or any other right in thedefines Israeli thean Israeliabandoned contracts contracts asset laws as and an and accordinglyasset accordingly without Athe trust definition created of the by trusta contract in the Law.’ is one governed by the law if its contents do not go in line with the property. a knownrequires owner, an agreement or without between the a settlorperson and theentitled the property. requiresa known owner, an agreement or without a between person entitled the settlor theand Israeli the contracts laws11 and accordingly the definition of the trust in the Law.’13 • A special law sets out the modus of the appointing to or capabletrustee. Under of thisadministering framework, a trust thecontract asset, can whichAs mentioned above, s.23 of the Contracts Law • A special law sets out the modus of the appointing trustee.to or capablebe Under viewed of administering as this being framework,established the for asset, the abenefit which trust of contracta providesrequires can that an a agreementcontactAs may mentioned be between entered orally,the above, settlor i.e. and s.23 the of the Contracts Law body and the powers, duties and obligations has a connection to Israel: the asset is either body and the powers, duties and obligations behas viewed a connectionthird as party being to in Israel:accordance established the with asset s.34 is ofeitherfor the theContracts benefit withouttrustee. of a writtena Under document. providesthis framework, Therefore, that a a atrust trustcontact contract may can be enteredAs mentioned orally, above, i.e. s.23 of the Contracts Law conferred toconferred the trustee. to the trustee. situatedsituated(General in Israel in IsraelPart) or belongsLaw, or 1973 belongs to (the an Contracts Israeli to an Law), Israeli relationshipbe viewed may as being be created established by the mere for behaviour the benefit of a provides that a contact may be entered orally, i.e. • The trustee’s demise terminates the powers of thirdresident, partythereby citizen in granting oraccordance corporation. the beneficiary with a right s.34 to enforceof the Contractsofthird the parties. party Thisin accordancewithout is commonly a with known written s.34 as an of document.the Contracts Therefore,without a written a trust document. Therefore, a trust • The trustee’s demise terminates the powers of resident,the trust citizen contract. or corporation. ‘implied trust’. Shamgar J addressed this issue in the acting trustee. (General Part) Law, 1973 (the Contracts Law),(General Part) Law,relationship14 1973 (the Contracts may be Law), created by relationshipthe mere behaviourmay be created by the mere behaviour the acting trustee. Section 23 of the Contracts Law provides that a the case of Wallas v Gat, stating the following: • The appointing authority may replace the TRUSTEEStherebycontract grantingAPPOINTED may be the madeWITH beneficiary orally, THE in CONSENT writing ora in right some to therebyenforce granting of thethe beneficiary parties. Thisa right is to commonly enforce of knownthe parties. as This an is commonly known as an • The appointingtrustee authority without need may of transferring replace the any right OFTRUSTEES A GOVERNMENTALother APPOINTEDform, unless REGULATORY a form isWITH a condition THEBODY of validity CONSENT the‘The trust Implied contract. Trust was created in the Common ‘implied trust’. Shamgar J addressed this issue in of ownership. Keremthe trust pointsby virtuecontract. out ofthe law mutual or agreement characteristics between the ofparties. LawSection to deal 23 with of circumstances ‘impliedthe Contracts trust’.where Law the providesShamgar that J a addressed the case this of Wallas issue v Gat in ,14 stating the following: trustee without need of transferring any right OF A GOVERNMENTAL REGULATORY BODY 14 A good example of such a trustee is an estate suchSection consensualSince 23 the oftrustees: Law the does Contracts 8not require the Law fulfilment provides of contractthatbehavior a of may the partiesbethe made caseand orally, their of actions Wallasin writing imply v orGat in some, stating the following: that they intended to create a trust, but for some of ownership. Kerem anypoints form conditions, out the and mutual it applies characteristics to any trust of ‘The Implied Trust was created in the Common executor appointed in accordance with the •contract Legislationrelationship may is limited be that made to complies the orally,minimum with8 the in definition required writing set or inotherreason, some form, this intention unless was a form not explicitly is a condition expressed of validity A good exampleSuccession of Law,such 5725-1965 a trustee (the is Succession an estate suchto ensure consensual the proper trustees: operation of the trustee. by… Itvirtue is implied of lawfrom or their agreement relationship between and the parties. Law to deal with circumstances where the other form,9 Securities unless Law, 5728-1968 ,a 541 form SH 234 (1968) is (Isr.) a condition of validity ‘The Implied Trust was created in the Common executor appointedLaw).4 Under in ss.77accordance and 78, the with court themay appoint • Legislation10 Income Tax is Rules limited (Tax Relief in the toAllocation the of Shares minimum to Employees), requiredSince the Law does not require the fulfilment of behavior of the parties and their actions imply 5 Government 5763-2003,Notices 3250, KT 6222, 22/09/1985 448 (Isr.) 12 File No. 548/06 District CourtLaw (Tel Aviv), toArnon deal v Pieutrekovsky with (30 June circumstances where the 6by PCA virtue 9420/0411 Pub.Contracts of Tr . lawv (GeneralAgmon or Part)59(1) agreement Law, PD 5733-1973627 (2005), 27 SH (Isr.) 117 (1972-1973)between (Isr.) and the 2013),parties.any Nevo form Legal Database conditions, (by subscription) and (Isr.) it applies to any trust that they intended to create a trust, but for some Succession Law, 5725-1965 (the Succession to ensureContracts the(Remedies proper for Breach of Contract) operation Law, 5731-1970, 25of SH the11 (1970-1971) trustee. 13 See note 3 3 Shlomo Kerem, Trust Law, 5739-1979, 144 (4th ed., 2004) 7 Administrator(Isr.), General and relevant Law, case5738-1978, law relating 883 theretoSH 61 (1978) (Isr.) 14 CA 3829/91 Wallas v Gat 48(1) PD 801, 810 [1994] (Isr.) 4 4 Succession Law, 5725-1965, 19 SH 215, §§ 77-96 (1964-65) (Isr.) 8Since See note 3the Law does not require the fulfilmentrelationship of that behaviorcomplies with of the definition parties andset theirreason, actions this implyintention was not explicitly expressed Law). Under ss.77 and 78, the court may appoint … It is implied from their relationship and any5 Government form conditions, Notices 3250, 22/09/1985 and it applies to any trust9 Securities Law, 5728-1968that, 541 SH they 234 (1968) intended (Isr.) to create a trust, but for some 6 PCA 9420/04JUNE 2019 Pub. Tr. v Agmon 59(1) PD 627 (2005) (Isr.) 13 10 Income Tax Rules (Tax Relief in the AllocationWWW.STEP.ORG/TQR of Shares to Employees), 3 Shlomo Kerem, JUNETrust Law2019, 5739-1979, 144 (4th ed., 2004) 12 relationship7 Administrator General that Law complies, 5738-1978,WWW.STEP.ORG/TQR 883with SH 61the (1978) definition (Isr.) 5763-2003, set KT 6222, 448 (Isr.)reason, this intention was not explicitly12 File No. 548/06 expressed District Court (Tel Aviv), Arnon v Pieutrekovsky (30 June 4 Succession Law, 5725-1965, 19 SH 215, §§ 77-96 (1964-65) (Isr.) 8 See note 3 11 Contracts (General Part) Law, 5733-1973, 27 SH 117 (1972-1973) (Isr.) and 2013), Nevo Legal Database (by subscription) (Isr.) Contracts (Remedies for Breach… It of is Contract) implied Law, 5731-1970 from, 25 theirSH 11 (1970-1971) relationship 13 See note 3and 9 Securities Law, 5728-1968, 541 SH 234 (1968) (Isr.) (Isr.), and relevant case law relating thereto 14 CA 3829/91 Wallas v Gat 48(1) PD 801, 810 [1994] (Isr.) 10 Income Tax Rules (Tax Relief in the Allocation of Shares to Employees), 5763-2003, KT 6222, 448 (Isr.) 12 File No. 548/06 District Court (Tel Aviv), Arnon v Pieutrekovsky (30 June JUNE 2019 12 11 Contracts (General Part) Law, 5733-1973, 27 SH 117 WWW.STEP.ORG/TQR(1972-1973) (Isr.)JUNE and 2019 2013), Nevo Legal Database (by subscription) 13(Isr.) WWW.STEP.ORG/TQR Contracts (Remedies for Breach of Contract) Law, 5731-1970, 25 SH 11 (1970-1971) 13 See note 3 (Isr.), and relevant case law relating thereto 14 CA 3829/91 Wallas v Gat 48(1) PD 801, 810 [1994] (Isr.)

58 59 JUNE 2019 Contents 13 WWW.STEP.ORG/TQR TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN

TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN ‘Section 23 of the Contracts Law‘While provides the transfer that a ofcontract assets COMMENCEMENT OF A HEKDESH may be made orally, in writing or in some other form, unless Section 17(b) of the Law provides that the ‘Section 23 of the Contracts Lawto aprovides trustee that during a contract the hekdesh shall become effective on the transfer a form ismay a conditionbe made orally, of invalidity writing orby in virtue some other of law form, or unless agreement of control of the hekdesh property to the trustee. lifetime of the settlor does not Accordingly, an inter vivos trust commences a form is a conditionbetween of validity the by parties’ virtue of law or agreement TRUSTSon the IN transfer ISRAEL of DR the ALON trust KAPLAN assets to AND the MEYTAL LIBERMAN between theusually parties’ give rise to any special control of the trustee, and a testamentary difficulties, this may not ‘Whilebe thetrust transfer commences of assets on the issuanceCOMMENCEMENT of a probate OF A HEKDESH order with respect to the will, whichSection effectively17(b) of the Law provides that the hekdesh shall become effective on the transfer to a trusteetransfers during the theassets to the control of the trustee. the case whenTRUSTS IN ISRAELa testamentary DR ALON KAPLAN AND MEYTAL LIBERMAN of control of the hekdesh property to the trustee. lifetime ofWhile the settlor the transfer does of not assets toAccordingly, a trustee an during inter vivos trust commences trust is concerned’ the lifetime of the settlor does noton the usually transfer give of the trust assets to the • Subject to the said minimum legislation, forth in s.1, it ‘Sectiontherefore follows 23 of that, the to Contractsdetermine Lawusually provides give that rise a contractto any special control of the trustee, and a testamentary • Subject to the said minimum legislation, forth in s.1, it therefore follows that, to determine TRUSTSrise IN ISRAELto any DRspecial ALON KAPLANdifficulties, AND MEYTAL this LIBERMAN may not be the parties are free to agree between them whether a contract can be regarded as a trust difficulties, this may not be trust commences on the issuance of a probate the parties areon the free powers to agree of the trustee, between and themits rights contract,whether the maya naturecontract be of made the can relationship beorally, regarded betweenin writing as a trust or in some theother case form, when unless a testamentary trustorder with is concerned. respect to the will, which effectively and obligations. the parties should be examined. COMMENCEMENT OF A HEKDESH 17 on the powers of the trustee, and its rights contract,a theform nature is a condition of the relationship of validity between ‘Whilebythe virtue case the of transferwhenSection law or a54 ofagreement testamentary assetsof the Succession Section 17(b) Regulations, oftransfers the Law provides the 1998assets that theto the control of the trustee. • The parties must confer on the trustee power and Goren J affirmed this in the case ofArnon v hekdesh shall becomeWhile effective the transfer on the transfer of assets to a trustee during and obligations. the parties 12should be examined.between theto parties’ a trustee providesduring the that a copy of an application for a authorities by transferring the proprietary rights Pieutrekovsky, stating: trust is concerned’ of control of thethe hekdesh lifetime property of the to settlorthe trustee. does not usually give • The partiesin must the assets confer to the on trustee, the trustee or by granting power the and behavior,Goren J affirmed that although this thein theasset case is registeredofArnon lifetime v of theprobate settlor order does shall not be Accordingly,submitted an inter to vivosthe trust review commences 12 rise to any special difficulties, this may not be authorities trusteeby transferring control and powerthe proprietary over the assets. rights Pieutrekovsky‘Aunder transaction the nameshall, bestating: of regarded one of as them, a trust the beneficial 18 on the transfer of the trust assets to the usually giveof rise the to AG, any whichspecial may, control at its of thediscretion, thetrustee, case and when a testamentaryconduct a testamentary trust is concerned. A debenture trustee, whose modus operandi transaction subject to the provisions of the 17 in the assets to the trustee, or by granting the ownership belongs to the other.’ additional inspection oftrust the commences applicationSection on the 54 issuance of and the of Succession a probate Regulations, 1998 is governed by the Securities Law,9 and a trustee Trust Law if the conditions of the definition difficulties, this may not be trustee control and power over the assets. ‘A transaction shall be regarded as a trust request further informationorder with and respectprovides documents. to the thatwill, whicha copy effectively of an application for a of employee stock option incentive programmes, stipulated• Subject in the to Law the havesaid minimum been materially legislation, forththebehavior, incase s.1, it therefore whenthat although followsa testamentary thethat, asset to determine is registered transfers the assetsprobate to the order control shall of the be trustee. submitted to the review A debenture trustee, whose modus operandi transaction subject to the provisions of the While the transfer of assets18 to a trustee during whose modus operandi is governed by the Afulfilled. TRUST theThe CREATED parties applicability are free BY toof agreethe DEED betweendefinition them of whethertrustunder ais contractthe concerned’ nameFurther can of be one regarded of to them, asthat a trust the inspection, beneficial theof AG the may AG, alsowhich may, at its discretion, conduct 9 a trust onon a transactionthe powers of isthe not trustee, subject and toits therights contract, the nature of the relationship between the lifetime of the settlor does not usually give is governed byIncome the TaxSecurities Rules (Tax Law Relief, and in the a Allocationtrustee of OFTrust HEKDESH Law if the (ENDOWMENT) conditions of the definition ownership belongsintervene to the other.’ in the probaterise procedureto any specialadditional difficulties, and inspection this may ofnot the be application and 10 and obligations. the parties should be examined. Shares to Employees), serve as good examples mere wishes of the parties, and despite using the case whenrequest a testamentary further trust information is concerned. and documents. of employee stock option incentive programmes, Sectionstipulated• 17The of parties in the the must Law Law confer deals have on the withbeen trustee the materially power creation and Goren of J affirmedeffectively this in the case ofArnon alter v the terms and conditions of the the phrase “trust” in the transaction between Section 54 of the Succession Regulations, 199817 of such trustees. authorities by transferring the proprietary rights PieutrekovskyA TRUST CREATED,12 stating: BY DEED Further to that inspection, the AG may also whose modus operandi is governed by the fulfilled. The applicability of the definition of provides that a copy of an application for a a them,hekdesh thein transaction, the and assets provides to shall the trustee, not in be ors.17(a) a by trust granting that the a hekdeshOF HEKDESH testamentary(ENDOWMENT) trust set forth byintervene the testator. in the probate procedure and behavior, that although the asset is registered probate order shall be submitted to the review Income TaxA Rules TRUST (Tax CREATED Relief UNDER in the A CONTRACTAllocation of transactiona trust TRUSTStrusteeon and a transactioncontrolsubject IN and toISRAEL powerthe provisionsis over not DR the subject ALONassets. of KAPLAN to the‘A transaction AND MEYTAL shall be regarded LIBERMAN as a trust is created when a property is dedicated in favourSectionunder the 17 name of the of one Law of them,deals the with beneficial the creation of of the AG,18 whicheffectively may, at its alterdiscretion, the terms conduct and conditions of the A trust created10 by a contract is one governed by the law if Aits debenture contents trustee, do not whose go in modus line with operandi transaction subject to the provisions of the Shares to Employees), serve as good examples mere wishes of the parties, and9 despite usingaownership hekdesh belongs, and Aprovides to DECLARATION the other.’ in s.17(a) that aOF hekdesh Aadditional HEKDESH inspectiontestamentary BY of theTHE application trust COURT set and forth by the testator. 11 of a beneis governedficiary by or the for Securities some Law other, 13 and a purposetrustee byTrust a Law if the conditions of the definition the Israeli contracts laws and accordingly the definition of the trust in the Law.’ request further information and documents. of such trustees. the phraseof employee “trust stock” optionin the incentive transaction programmes, between COMMENCEMENTisstipulated created in when the Law a propertyhave OF been A HEKDESH materially is dedicated in favour requires an agreement between the settlor and the written document, in which the hekdesh’s creatorA TRUST CREATED Section BY DEED 17(c) further providesFurther to that that,A inspection,DECLARATION when the any AG may OF also A HEKDESH BY THE COURT ‘Whilewhose the modus transfer operandi is governedof assets by the Sectionoffulfilled. a bene 17(b) Theficiary applicability of the or forLaw someof providesthe definitionother that purpose of the by a trustee. Under this framework, a trust contract can expressesAsthem, mentioned the their transaction above, intention s.23 of shallthe to Contracts notcreate be Lawthea trust hekdesh OF HEKDESH and (ENDOWMENT)property is de facto a hekdeshintervene in, butthe probate no instrument procedure and Income Tax Rules (Tax Relief in the Allocation of hekdeshSectionwrittena trust 17on shall ofdocument, a thetransaction becomeLaw deals inis effectivewithnot which subject the creationthe toon hekdesh the the of transfer’s creatoreffectively alterSection the terms 17(c) and further conditions provides of the that, when any A TRUST CREATEDbe viewed asUNDER being established A CONTRACT for the benefit of a toprovidestransaction a trustee thatShares a contactto and Employees), during subject may 10be serve enteredthe to as the good orally, provisionsexamples i.e. ofmere wishes of the parties, and despite using determines its objectives, property and conditions,ofaexpresses hekdesh control, and of their provides theof hekdeshintention hekdesh in s.17(a) property tothat createexists a hekdesh to the the with hekdesh trustee. testamentaryrespect and thereof,property trust set forth is the de by facto thecourt testator. a hekdesh , but no instrument third party in accordance with s.34 of the Contracts without aof written such trustees. document. Therefore, a trust isthe created phrase when “trust a property” in the transaction is dedicated between in favour A trust created by a contract is one governed by lifetimeandthe when law if suchof its thecontents written settlor do document not does go in nottakes line with oneAccordingly,determines of the itsanmay objectives,inter vivosdeclare trustproperty the commences andexistence conditions, of a hekdeshof hekdesh andexists may with respect thereof, the court (General Part) Law, 1973 (the Contracts Law), relationship may be created by the mere behaviour ofthem, a bene theficiary transaction or for some shall other not be purpose a trust by a A DECLARATION OF A HEKDESH BY THE COURT the Israeli contracts laws11 and accordingly the definitionA TRUST CREATED of the UNDER trust A CONTRACTin the Law.’13 onandtransaction the when transfer andsuch subject of written the to trust the document provisions assets to oftakes the one of the may declare the existence of a hekdesh and may thereby granting the beneficiary a right to enforce offollowing the parties. forms: This is commonly known as an writtenfollowing document, forms:determine in which the hekdesh its’s objectives, creator Section property, 17(c) furtherdetermine conditions provides its that, objectives, when and any property, conditions and usuallyA trust give created rise by a contractto any is one special governed by controlexpressesthe law ofif their its the contents intention trustee, do to not and create go a in thetestamentary line hekdesh with and property is de facto a hekdesh, but no instrument requires an theagreement trust contract. between the settlor and the ‘implied• A written trust’. documentShamgar J addressed signed11 this by theissue hekdesh in the’s definition of datethe trust of in thecommencement. Law.’13 the Israeli contracts laws and accordingly trustdetermines• A written commences its objectives, document on theproperty signed issuance and by conditions, the of ahekdesh probate of’s hekdesh existsdate with of respectcommencement. thereof, the court Section 23 of the Contracts Law provides that a difficulties,the case ofrequires Wallas an v agreement Gat this,14 stating between may the the following:not settlor be and the 19 19 trustee. Under this framework, a trust contract can creatorAs mentioned before above,a notary. s.23 A oftrust the created Contracts inorderand this Lawcreator when with such before respect written aIn notary.todocument the the will, case A takes trust which ofone created Weinsteinof effectively the in maythis declare v Fox the, In existence the the casetestator of a of hekdesh Weinstein and may v Fox, the testator contract may be made orally, in writing or in some trustee. Under this framework, a trust contract can followingAsmanner mentioned forms: is commonlyabove, s.23 of knownthe Contracts as an Law inter vivosdetermine its bequeathedobjectives, property, his entire conditions estate and to his children, who be viewed as being established for the benefit of a theprovidesmanner casebe viewedthat is when commonly aas contact being a established testamentary mayknown for be the asentered benefit an inter of aorally, vivostransfersprovides• A written i.e. that thedocument a contact assetsbequeathed signed may to the be by entered thecontrol hekdesh his orally, of ’sentire the i.e. trustee. dateestate of commencement. to his children, who other form, unless a form is a condition of validity ‘The Implied Trust was created in the Common trust under Israeli law. were resident in the US, on the provision that third party in accordance with s.34 of the Contracts withoutWhilecreator a before thewritten transfer a notary. document. ofA trust assets Therefore, created to a ina trustee trust this duringIn the case of Weinstein v Fox,19 the testator third party inby virtueaccordance of law or withagreement s.34 between of the Contractsthe parties. withoutLawtrust to deal under a writtenwith Israeli circumstances document. law. where Therefore, the a trust were resident in the US, on the provision that trust is(General concerned’ Part) Law, 1973 (the Contracts Law), therelationship•manner A lifetime written is commonly may of will bethe createdfrom settlor known the by as does thehekdesh an mere inter not behaviourvivos’s usually creator, give bequeathed histhey entire immigrate estate to his to children, Israel, who and that all the assets (General Part)Since Law, the Law 1973 does (the not Contracts require the fulfilment Law), of relationshipbehavior of the may parties be and created their actions by the imply mere behaviour 15 • A writtenthereby will granting from the beneficiary the hekdesh a right ’sto creator,enforce riseof trust thecreated to parties. under any inspecial Israeli This accordancethey is law. commonly difficulties, immigrate with known the this as Succession an to may Israel, notwere Law,be andresident that ofin the all US, estate theon the andassets provision the income that derived therefrom thereby grantingany form the conditions, beneficiary and it appliesa right to to any enforce trust ofthat the they parties.the intended trust contract. This to create is commonly a trust, but for known some as ‘implied•an Awhich written trust’.15 provides will Shamgar from the that Jhekdesh addressed a written’s creator, this will issue can in be madethey immigrate remain to Israel, in and Israel. that all Under the assets these circumstances, createdSection in accordance 23 of the Contracts with Law theprovides Succession that a thethecreated Law, casecase of inwhen Wallas accordance a vof testamentary Gat the ,with14 stating estate the Succession the trustfollowing: and Law,is the concerned. 15 incomeof the estate derived and the income therefrom derived therefrom relationship that complies with the definition set reason, this intention was not explicitly expressed before two witnesses, the court or a notary, 17 the executor of the estate, Advocate Fox, applied the trust contract. ‘impliedcontract trust’. may Shamgar be made orally, J inaddressed writing or in some this issueSectionwhich in provides 54 of the that Succession a written will Regulations, can be made 1998remain in Israel. Under these circumstances, …which It is implied provides from their that relationship a written and will can be made remain in Israel. Under16 these circumstances, 9 Securities Law, 5728-1968, 541 SH 234 (1968) (Isr.) other form, unless a form is14 a condition of validity provides‘Thebeforeor inImplied two the that witnesses, handwritingTrust a copy was the created of court an of application in theor the a notary,testator. Common for A a trustthe executor ofto the the estate, court Advocate to release Fox, appliedhim from his position Section 2310 of Income the Tax Contracts Rules (Tax Relief in Lawthe Allocation provides of Shares to thatEmployees), a thebefore case twoof Wallas witnesses, v Gat ,the stating court theor a following: notary,orcreated in the handwriting in thisthe manner of executor the testator. is commonly16 ofA trust the known estate,to the courtAdvocate toof release executor Fox,him from of applied the his estate,position but simultaneously 5763-2003, KT 6222, 448 (Isr.) 12 behavior, File No. 548/06by that virtue District although ofCourt law (Tel or Aviv),theagreement assetArnon v Pieutrekovsky isbetween registered the (30 parties. June probateLaw to deal order with shall circumstances be submitted where the to the review 11 Contracts (General Part) Law, 5733-1973, 27 SH 117 (1972-1973) (Isr.) and 2013), Nevo Legal Database (by subscription) (Isr.) 16 created in this manner is commonly known of executor of the estate, but simultaneously contract may be made orally, in writing or in some or in theSince handwriting the Law does not require of the the testator.fulfilment of A trustbehavioras a testamentary of18 the partiesto the and trust courttheir under actions to Israeli implyrelease law. him fromappoint his position him as trustee with respect to the assets Contracts (Remedies for Breach of Contract) Law, 5731-1970, 25 SH 11 (1970-1971) 13 under See note the 3 name of one of them, the beneficial ofas the a testamentary AG, which trust may, under at itsIsraeli discretion, law. conductappoint him as trustee with respect to the assets (Isr.), and relevant case law relating thereto 14 CA 3829/91any Wallas form v Gat conditions, 48(1) PD 801, and810 [1994] it applies (Isr.) to any trust •that A paymentthey intended instruction to create a intrust, accordance but for some with under his control for the period until the children other form, unless a form is a condition of validity ownershipcreated‘The Implied belongsin this Trust to manner the was other.’ created is commonly in the Commonknownadditional• A payment inspectioninstructionof executor in ofaccordance the application of with the estate, and under but his controlsimultaneously for the period until the children relationship that complies with the definition set reason,s.147 thisof the intention Succession was not explicitlyLaw, which expressed provides of the deceased immigrate to Israel. Ultimately, by virtue of law or agreement between the parties. Law to deal with circumstances where therequest …s.147 It is of implied thefurther Succession from information their Law, relationship which and provides and documents. of the deceased immigrate to Israel. Ultimately, as a testamentary9 Securities Law, 5728-1968, 541 trust SH 234 (1968) under (Isr.) Israeli law. that paymentsappoint made to himbeneficiaries as trustee under with an respectthe Supreme to the Court assets approved his appointment as JUNE 2019 13 A TRUST 10CREATED Income Tax Rules BY (Tax ReliefDEED in the AllocationWWW.STEP.ORG/TQR of Shares to Employees), Furtherthat payments to that made inspection, to beneficiaries the AGunder may an also the Supreme Court approved his appointment as behavior5763-2003, of KT the6222, 448 parties (Isr.) and their actions imply12 File No. 548/06 District Court (Tel Aviv), Arnon v Pieutrekovsky (30 June Since the Law does not require the fulfilment of • A payment11 Contracts (Generalinstruction Part) Law, 5733-1973 in, 27 SH accordance 117 (1972-1973) (Isr.) and with2013),insurance insurance Nevo Legal Databasepolicy policy (byunderare subscription) not are included nothis (Isr.) included control in one’s estate. in for one’s the trusteeestate. period and declaredtrustee until the and the existence declared children of a hekdesh the existence of a hekdesh OF HEKDESHContracts (ENDOWMENT) (Remedies for Breach of Contract) Law, 5731-1970, 25 SH 11 (1970-1971) intervene13 Accordingly,See note 3 in the the setting probate out of procedure beneficiaries and in under s.17(c). that they(Isr.), and intended relevant case law relating to thereto create a trust, but for14 CAsomeAccordingly, 3829/91 Wallas v Gat 48(1)the PD setting 801, 810 [1994] out (Isr.) of beneficiaries in under s.17(c). any form conditions, and it applies to any trust Sections.147 17 of of the the LawSuccession deals with Law, the creation which of provides effectivelyan insurance alter policyof the is the regarded terms deceased asand a hekdesh conditions immigrate. of the to Israel. Ultimately, reason, this intention was not explicitly expressedan insurance policy is regarded as a hekdesh17 KT. 5923 (Isr.) relationship that complies with the definition set a hekdeshthat payments, and provides made in s.17(a) to beneficiariesthat a hekdesh undertestamentary an trustthe setSupreme forth by the Court testator. approved18 A governmental his department17 KT appointment 5923 within (Isr.) the Ministry of Justice, as which inter alia JUNE 2019 13 15 9 LSI 215 (1964–1965) (Isr.) WWW.STEP.ORG/TQR supervises inheritance guardianship and charity procedures in Israel. is created when a property is dedicated in favour 16 Succession Law 19 CA 5717/95 Weinstein18 vA Fox governmental 54(5) PD 792 [2000] department (Isr.) within the Ministry of Justice, which inter alia insurance… It is implied policy from are their not relationship included in andone’s 15estate. 9 LSI 215 (1964–1965) trustee (Isr.) and declared the existencesupervises of inheritance a hekdesh guardianship and charity procedures in Israel. 9 Securities Law, 5728-1968, 541 SH 234 (1968) (Isr.) A DECLARATION OF A HEKDESH BY THE COURT 10 Income Tax Rules (Tax Relief in the Allocation of Shares to Employees), of a beneficiary or for some other purpose by a 16 Succession Law 19 CA 5717/95 Weinstein v Fox 54(5) PD 792 [2000] (Isr.) 5763-2003, KT 6222, 448 (Isr.) written12 Accordingly,File No. document, 548/06 District thein which Court setting (Telthe Aviv), hekdesh out Arnon of’s beneficiaries creatorv Pieutrekovsky Section JUNE(30 June2019in 17(c) furtherunder provides s.17(c). that, when any14 WWW.STEP.ORG/TQR 11 Contracts (General Part) Law, 5733-1973, 27 SH 117 (1972-1973) (Isr.) and expresses2013),an Nevo insurance theirLegal Databaseintention policy (by to subscription) createis regarded the (Isr.)hekdesh as aand hekdesh propertyJUNE. 2019 is de facto a hekdesh, but no instrument 14 WWW.STEP.ORG/TQR Contracts (Remedies for Breach of Contract) Law, 5731-1970, 25 SH 11 (1970-1971) 13 See note 3 (Isr.), and relevant case law relating thereto determines14 CA 3829/91 its Wallas objectives, v Gat 48(1) property PD 801, 810and [1994] conditions, (Isr.) of hekdesh exists17 with KT 5923 respect (Isr.) thereof, the court and when such written document takes one of the may declare the18 existence A governmental of a hekdesh department and within may the Ministry of Justice, which inter alia 15 9 LSI 215 (1964–1965) (Isr.) supervises inheritance guardianship and charity procedures in Israel. following16 Succession forms: Law determine its objectives,19 CA 5717/95 property, Weinstein conditions v Fox 54(5) PD and 792 [2000] (Isr.) JUNE 2019 13 • A written document signed by the hekdeshWWW.STEP.ORG/TQR’s date of commencement. 58 creator before a notary. A trust created in this In the case of Weinstein v Fox,19 the testator 59 JUNEmanner 2019 is commonly known as an inter vivos Contentsbequeathed his14 entire estate to his children, who WWW.STEP.ORG/TQR trust under Israeli law. were resident in the US, on the provision that • A written will from the hekdesh’s creator, they immigrate to Israel, and that all the assets created in accordance with the Succession Law,15 of the estate and the income derived therefrom which provides that a written will can be made remain in Israel. Under these circumstances, before two witnesses, the court or a notary, the executor of the estate, Advocate Fox, applied or in the handwriting of the testator.16 A trust to the court to release him from his position created in this manner is commonly known of executor of the estate, but simultaneously as a testamentary trust under Israeli law. appoint him as trustee with respect to the assets • A payment instruction in accordance with under his control for the period until the children s.147 of the Succession Law, which provides of the deceased immigrate to Israel. Ultimately, that payments made to beneficiaries under an the Supreme Court approved his appointment as insurance policy are not included in one’s estate. trustee and declared the existence of a hekdesh Accordingly, the setting out of beneficiaries in under s.17(c). an insurance policy is regarded as a hekdesh. 17 KT 5923 (Isr.) 18 A governmental department within the Ministry of Justice, which inter alia 15 9 LSI 215 (1964–1965) (Isr.) supervises inheritance guardianship and charity procedures in Israel. 16 Succession Law 19 CA 5717/95 Weinstein v Fox 54(5) PD 792 [2000] (Isr.)

JUNE 2019 14 WWW.STEP.ORG/TQR TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN

COMMENCEMENT OF A HEKDESH ‘While the transfer of assets Section 17(b) of the Law provides that the to a trustee during the hekdesh shall become effective on the transfer of control of the hekdesh property to the trustee. lifetime of the settlor does not Accordingly, an inter vivos trust commences on the transfer of the trust assets to the usually give rise to any special control of the trustee, and a testamentary difficulties, this may not be trust commences on the issuance of a probate order with respect to the will, which effectively the case when a testamentary transfers the assets to the control of the trustee. While the transfer of assets to a trustee during trust is concerned’ the lifetime of the settlor does not usually give rise to any special difficulties, this may not be the case when a testamentary trust is concerned. Section 54 of the Succession Regulations, 199817 provides that a copy of an application for a behavior, that although the asset is registered probate order shall be submitted to the review under the name of one of them, the beneficial of the AG,18 which may, at its discretion, conduct ownership belongs to the other.’ additional inspection of the application and request further information and documents. TRUSTS IN ISRAEL DR ALON KAPLANA TRUST AND CREATED MEYTAL BY DEED LIBERMAN Further to that inspection, the AG may also OF HEKDESH (ENDOWMENT) intervene in the probate procedure and Section 17 of the Law deals with the creation of effectively alter the terms and conditions of the COMMENCEMENTa hekdesh, and provides in OF s.17(a) A HEKDESH that a hekdesh testamentary trust set forth by the testator. ‘While the transfer of assets Sectionis created 17(b) when ofa property the Law is dedicated provides in favourthat the of a beneficiary or for some other purpose by a A DECLARATION OF A HEKDESH BY THE COURT to a trustee during the hekdeshwritten document, shall become in which effective the hekdesh ’son creator the transfer Section 17(c) further provides that, when any ofexpresses control their of the intention hekdesh to create property the hekdesh to the and trustee.property is de facto a hekdesh, but no instrument lifetime of the settlor does not Accordingly,determines its objectives,an inter propertyvivos trust and conditions, commences of hekdesh exists with respect thereof, the court and when such written document takes one of the may declare the existence of a hekdesh and may onfollowing the transfer forms: of the trust assets to the determine its objectives, property, conditions and usually give rise to any special control• A written of thedocument trustee, signed and by the a testamentary hekdesh’s date of commencement. difficulties, this may not be trustcreator commences before a notary. on Athe trust issuance created in of this a probateIn the case of Weinstein v Fox,19 the testator ordermanner with is commonlyrespect toknown the aswill, an inter which vivos effectively bequeathed his entire estate to his children, who trust under Israeli law. were resident in the US, on the provision that the case when a testamentary transfers• A written the will assetsfrom the to hekdesh the control’s creator, of the trustee.they immigrate to Israel, and that all the assets TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTALTRUSTS LIBERMAN IN ISRAEL DR ALON KAPLAN AND MEYTALTRUSTS LIBERMAN IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN Whilecreated the in accordance transfer with of assets the Succession to a trustee Law,15 duringof the estate and the income derived therefrom trust is concerned’ thewhich lifetime provides of thatthe asettlor written willdoes can not be madeusually giveremain in Israel. Under these circumstances, COMMENCEMENTbefore two‘Section witnesses, OF A 23 the HEKDESH ofcourt the or aContracts notary, Lawthe provides executor of thethat estate, a contract Advocate Fox, applied ‘While the transfer of assets rise to any special difficulties,16 this may not be Sectionor in 17(b) themay handwriting of the be Law made provides of the orally, testator. that the in A writing trust orto in the some court to other release form, him from unless his position to a trustee during the hekdeshthecreated case shall whenin becomethis manner a testamentary effective is commonly on the transfer trust known is concerned.of ‘Aexecutor trust of thepursuant estate, but simultaneously to contract, where one of its objectives is the ofSection controlas a testamentary aof 54 formthe of hekdesh the is trust Successiona propertycondition under Israeli to Regulations,the of law.trustee. validity 1998byfurtheranceappoint virtue17 him of as lawtrustee ofor with aagreement public respect to purpose, the assets would be considered as a public lifetime of the settlor does not Accordingly,provides• A payment that an instruction inter a copy vivos intrustof accordance an commences applicationbetween with for the a underparties’ his control for the period until the children on thes.147 transfer of the Succession of the trust Law, assets which to the provides ofhekdesh the deceased, and immigrate therefore to Israel. Ultimately, subject to registration with the registrar’ behavior, thatusually although give the rise asset to is anyregistered special controlprobatethat of payments the order trustee, madeshall and to be abeneficiaries testamentary submitted under to thean reviewthe Supreme Court approved his appointment as under the difficulties,name of one of them, this the may beneficial not be trustof theinsurance commences AG,18 policy which on arethe may, notissuance included at itsof a indiscretion, probate one’s estate. conducttrustee and declared the existence of a hekdesh ownership belongs to the other.’ orderadditionalAccordingly, with respect inspection the to setting the will, out of which ofthe beneficiaries applicationeffectively in andunder s.17(c). the case when a testamentary transfersan insurance the assets policy to the is regarded control of as the a hekdesh trustee.. request further information and documents.17 KT 5923 (Isr.) While the• Subject transfer to the of said assets minimum to a trustee legislation, during forth18 A in governmental s.1, it therefore department follows within that, the Ministryto determine of Justice, which inter alia A TRUST CREATEDtrust is BY concerned’ DEED theFurther15 lifetime9 LSI 215 (1964–1965)the to of parties thethat (Isr.) settlor are inspection, free does to agree not between usually the AGthem give may alsowhetherTHEsupervises CHARITABLE a contract inheritance can guardianship be TRUST: regarded and THE charity as a PUBLIC trustprocedures HEKDESHin Israel. that holds trust assets for the trustee, whether 16 Succession Law 19 CA 5717/95 Weinstein v Fox 54(5) PD 792 [2000] (Isr.) OF HEKDESH (ENDOWMENT) riseintervene to anyon special the in powers the difficulties, probate of the trustee, procedurethis and itsmay rights not be and contract,As regards the nature charitable of the relationship trusts, s.26 between of the Law directly or indirectly, in accordance with the the case whenand obligations. a testamentary trust is concerned. theprovides parties should that: be examined. terms set forth below: JUNE 2019• The parties must confer on the trustee power and 14Goren J affirmed this in the case ofArnon WWW.STEP.ORG/TQR v Section 17 of the Law deals with the creation of effectively alter the terms and conditions17 of ‘Athe trustee of a trust, the objective or one of the • That the underlying company is incorporated Section 54 of the Succession Regulations, 1998 12 authorities by transferring the proprietary rights Pieutrekovskyobjectives, stating: of which, is the furtherance of a public a hekdesh, and provides in s.17(a) that a hekdesh providestestamentary thatin the a copyassets trust of to anthe set applicationtrustee, forth or by bygrantingfor thea the testator. solely for the purpose of holding the trust assets. is created whenbehavior, a property that although is dedicated the asset is inregistered favour probate ordertrustee shall control be submitted and power over to thethe assets.review ‘A transactionpurpose (hereinafter: shall be regarded public as a trusthekdesh) shall, • That notice of the incorporation of the underlying under the name of one of them, the beneficial of the AG,18A which debenture may, trustee, at its whose discretion, modus operandi conduct transactionwithin three subject months to the provisions from the of date the on which he company be provided to the tax authority of a beneficiary or for some other purpose by a A DECLARATION OF A HEKDESH9 BY THE COURT ownership belongs to the other.’ additionalis inspectiongoverned by the of Securitiesthe application Law, and and a trustee Trustbecomes Law if the a conditionstrustee, inform of the definition the Registrar of the within 90 days of the underlying company’s written document, in which the hekdesh’s creator Sectionof 17(c)employee further stock option provides incentive programmes, that, when anystipulatedexistence in the of Law the have hekdesh been materially and of the particulars incorporation where it is an underlying company request further information and documents. fulfilled. The applicability of the definition of whose modus operandi is governed by the enumerated hereunder, unless notification expresses theirA TRUST intention CREATED to BY create DEED the hekdesh and Furtherproperty toIncome that is de inspection,Tax facto Rules (Tax a hekdeshthe Relief AG in may the, Allocationbut also no ofinstrument a trust on a transaction is not subject to the of the following trusts: determines OFits HEKDESHobjectives, (ENDOWMENT) property and conditions, interveneof hekdeshShares in the exists to probate Employees), with procedure10 serverespect as goodand thereof, examples the courtmerethereof wishes has of the been parties, made and previously,despite using and he shall • an Israeli resident trust; Section 17 of the Law deals with the creation of effectivelyof suchalter trustees. the terms and conditions of the theinform phrase “trustthe Registrar” in the transaction of any changebetween in those • an Israeli resident beneficiary trust; and when such written document takes one of the may declare the existence of a hekdesh andthem, may the transaction shall not be a trust a hekdesh, and provides in s.17(a) that a hekdesh testamentary trust set forth by the testator. particulars within three months of the date • a testamentary trust of which an Israeli following forms: determineA TRUST its CREATED objectives, UNDER Aproperty, CONTRACT conditionstransactionthereof. and and Notification subject to the of provisions the existence of of a public resident is a beneficiary; or is created when a property is dedicated in favour A trust created by a contract is one governed by the law if its contents do not go in line with • A written ofdocument a beneficiary signed or for some by the other hekdesh purpose’s by a Adate DECLARATION ofthe commencement. Israeli contractsOF A HEKDESH laws11 and accordinglyBY THE COURT thehekdesh definition shall of the be trust accompanied in the Law.’13 by a copy of the • any trust in which the trust assets are in Israel. creator beforewritten a notary.document, A in trust which created the hekdesh in’s this creator SectionIn the 17(c)requires case further an of agreement Weinstein provides between that, v whentheFox settlor, 19any the and thetestator instrument of hekdesh.’ • That the trustee holds all of the underlying expresses their intention to create the hekdesh and property trustee.is de facto Under a hekdeshthis framework,, but no a trust instrument contract can As mentioned above, s.23 of the Contracts Law company’s shares, directly or indirectly; the manner is commonly known as an inter vivos bequeathedbe viewed his as being entire established estate for theto benefit his children, of a provides who that a contact may be entered orally, i.e. determines its objectives, property and conditions, of hekdesh exists with respect thereof, the court As evident from the wording of this section, term ‘indirect holding’ is only a holding through were residentthird party in accordance the US, with on s.34 the of theprovision Contracts thatwithoutsuch a writtenpublic document.hekdesh is Therefore, not required a trust to meet another company, which is one that meets the trust underand Israeli when such law. written document takes one of the may declare(General the existencePart) Law, 1973 of a (the hekdesh Contracts and Law), may relationship may be created by the mere behaviour • A written followingwill from forms: the hekdesh’s creator, determinethey immigratethereby its objectives, granting to the Israel, property, beneficiary and conditions a rightthat to allenforce and the assetsof the parties. conditions This is of commonly s.17 of the known Law. as Hence, an a trust provisions of paras.(1) and (2) of the Ordinance, • A written document signed by the hekdesh’s 15 date of commencement.the trust contract. ‘impliedpursuant trust’. to Shamgar contract, J addressed where one this issueof its in objectives as mentioned above, and all of the shares are held created in accordance with the Succession Law, of the estate and the income derived therefrom 14 creator before a notary. A trust created in this In the caseSection of Weinstein 23 of the Contracts v Fox,19 Lawthe providestestator that a theis case the of furtherance Wallas v Gat, of stating a public the following: purpose, would be by the trustee. which providesmanner that is commonly a written known will ascan an beinter made vivos bequeathedremaincontract in his Israel. entire may be estateUndermade orally, to thesehis in children,writing circumstances, or in who some considered as a public hekdesh, and therefore other form, unless a form is a condition of validity ‘Thesubject Implied to Trustregistration was created with in the the Common registrar. TRUSTS AND ESTATE PLANNING before two witnesses,trust under Israeli the courtlaw. or a notary, werethe executorresidentby virtue in theofof law theUS, or agreementon estate, the provision between Advocate thethat parties. Fox, appliedLaw to deal with circumstances where the or in the handwriting• A written will of from the the testator. hekdesh’s16 creator, A trust theyto the immigrate courtSince the to Law Israel, release does notand require him that allthefrom the fulfilment assets his position of behavior of the parties and their actions imply A trust, properly set up, can serve as a good 15 USE OF COMPANIES mechanism to transfer assets to the next created in thiscreated manner in accordance is commonly with the Succession known Law, ofof the executor estateany formand of conditions,the the income estate, and derived it applies but therefrom simultaneouslyto any trust that they intended to create a trust, but for some which provides that a written will can be made remain inrelationship Israel. Under that complies these circumstances, with the definition set reason,The trust, this intention including was notthe explicitly hekdesh expressed, is not generation. To understand the advantages of a … It is implied from their relationship and 20 as a testamentary trust under Israeli law. appoint9 Securities him Law, as 5728-1968 trustee, 541 SH 234 (1968)with (Isr.) respect to the assetsrecognised as a legal entity in Israel, and, trust for estate-planning purposes in Israel, the before two witnesses, the court or a notary, the executor10 Income of Taxthe Rules estate, (Tax Relief inAdvocate the Allocation of Fox, Shares toapplied Employees), 16 5763-2003, KT 6222, 448 (Isr.) 12 Filetherefore, No. 548/06 District a common Court (Tel Aviv), practiceArnon v Pieutrekovsky of trustees (30 June is difficulties and complexity of the inheritance • A payment orinstruction in the handwriting in accordance of the testator. with A trust tounder the court his11 Contracts to control release (General Part) him for Law, 5733-1973 from the, 27periodhis SH 117 position (1972-1973) until (Isr.) and the children2013), Nevo Legal Database (by subscription) (Isr.) Contracts (Remedies for Breach of Contract) Law, 5731-1970, 25 SH 11 (1970-1971) 13 Seeto note hold 3 the assets of a trust via an underlying procedure in Israel should first be demonstrated. s.147 of the createdSuccession in this Law,manner which is commonly provides known ofof executor the deceased(Isr.), ofand therelevant estate, case immigrate law relating but thereto simultaneously to Israel. Ultimately,14 CA 3829/91 Wallas v Gat 48(1) PD 801, 810 [1994] (Isr.) as a testamentary trust under Israeli law. appoint him as trustee with respect to the assets company incorporated in accordance with the Under the Succession Law, the rights of the heirs that payments made to beneficiaries under an the Supreme Court approved his appointmentprovisions as of the Income Tax Ordinance (New in the estate are created only on the issuance of • A payment instruction in accordance with under hisJUNE control 2019 for the period until the children 13 WWW.STEP.ORG/TQR 21 insurance policys.147 of arethe Succession not included Law, which in one’s provides estate. oftrustee the deceased and immigratedeclared to the Israel. existence Ultimately, of a hekdeshVersion), 5721-1961 (the Ordinance), thereby order with respect to the estate by the competent Accordingly,that the payments setting made out to of beneficiaries beneficiaries under in an theunder Supreme s.17(c). Court approved his appointment as creating a designated legal entity to hold the authority. In circumstances where the deceased insurance policy are not included in one’s estate. trustee and declared the existence of a hekdesh hekdesh assets on behalf of the trustee. left a will, an application should be made for a an insurance policy is regarded as a hekdesh. According to the Ordinance, such an probate order, and only on the issuance of the Accordingly, the setting out of beneficiaries in under17 KT 5923 s.17(c). (Isr.) an insurance policy is regarded as a hekdesh. 18 A governmental department within the Ministry of Justice, whichunderlying inter alia company is defined as a company order does the will become valid and enforceable. 15 9 LSI 215 (1964–1965) (Isr.) 17supervises KT 5923 (Isr.) inheritance guardianship and charity procedures in Israel. It should also be noted that only a probate order 16 Succession Law 1819 A CA governmental 5717/95 Weinsteindepartment withinv Fox the 54(5) Ministry PD of 792 Justice, [2000] which (Isr.) inter alia 20 PCA 46/94 Zacks-Abramov v Land Registry Officer 50(2) PD 202 [1996] (Isr.) 15 9 LSI 215 (1964–1965) (Isr.) supervises inheritance guardianship and charity procedures in Israel. 21 Income Tax Ordinance (New Version), 5721-1961, 6 DMI 120 (1961) (Isr.) issued in Israel in accordance with the Succession 16 Succession Law 19 CA 5717/95 Weinstein v Fox 54(5) PD 792 [2000] (Isr.) 60 61 JUNE 2019 14 WWW.STEP.ORG/TQRJUNE 2019 15 WWW.STEP.ORG/TQR JUNE 2019 14 WWW.STEP.ORG/TQRContents TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN

TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN ‘A trust pursuant to contract, where one of its objectives is the furtherance‘A trust pursuant of a public to contract, purpose, where would one be consideredof its objectives as a ispublic the furtherancehekdesh, and oftherefore a public subject purpose, to wouldregistration be considered with the asregistrar’ a public

hekdeshTRUSTS, and therefore IN ISRAEL subject DR ALON to registration KAPLAN ANDwith MEYTALthe registrar’ LIBERMAN

THE CHARITABLE TRUST: THE PUBLIC HEKDESH that holds trust assets for the trustee, whether As regards charitable trusts, s.26 of the Law directly or indirectly, in accordance with the providesTHE CHARITABLE that: TRUSTS TRUST: THE IN PUBLIC ISRAEL HEKDESH DR ALONtermsthat holds set KAPLAN forth trust below: assets AND for the MEYTAL trustee, whether LIBERMAN As‘A‘A regardstrustee trust of charitable a trust, pursuant the trusts, objective s.26 ofor the one to Law of the contract, •directly That the or underlyingwhere indirectly, company in accordanceone is incorporatedof with its the objectives is the providesobjectives that: of which, is the furtherance of a public termssolely set for forththe purpose below: of holding the trust assets. furtheranceLawpurpose‘A trustee is regarded (hereinafter: of a trust, as the publicvalid, ofobjective hekdesh) aand publicor probate oneshall, of the orders purpose,•• That issuedThat notice the underlying of woulda the will incorporation orcompany the be deceased’s is of incorporatedconsidered the underlying family members, as a aspublic set bywithinobjectives foreign three of authoritiesmonths which, from is the the arefurtherance date invalid. on which of 22a public he companysolely for be the providedforth purpose below: to of the holding tax authority the trust assets. hekdeshbecomespurpose a(hereinafter: trustee,, and inform public thetherefore hekdesh)Registrar shall,of the subject•within That notice 90 to days of registrationofthe the incorporation underlying company’s of the underlyingwith the registrar’ existenceHowever,within three of the inmonths hekdeshcircumstances from and the of date the on particularswhere which hethe incorporationcompany be provided• where In the it tois case anthe underlying tax of authority an inheritance company application: a deceasedenumeratedbecomes aleft trustee,hereunder, a will inform relatingunless the notificationRegistrar to only of thea part of ofwithin the following 90 days noticetrusts:of the underlying on the submission company’s of an application for an theirthereofexistence estate, has of been the or hekdeshmadethe deceased previously, and of the and did particulars he not shall leave a •incorporation an Israeli resident whereinheritance trust; it is an underlying order shall company be delivered to all heirs willinformenumerated at all,the Registrar an hereunder, application of any unless change should notification in those be made for• of an the Israeli following residentlisted trusts: beneficiary in the application, trust; and shall include the particularsthereof has within been three made months previously,23 of the and date he shall •• a an testamentary Israeli resident trust trust; of which an Israeli anthereof.inform inheritance theNotification Registrar order. ofof theany existencechange in ofthose a public •resident an Israeli is aresident beneficiary;portion beneficiary of or each trust; of them in the estate. THEhekdeshBothparticulars CHARITABLE an shallTRUSTS application within be accompanied three IN TRUST: months ISRAEL for bya THEof probate a thecopyDR PUBLICdate ALON of theorder KAPLAN HEKDESH and•• anany a AND testamentary trust MEYTAL in that•which In trust theholds theLIBERMAN oftrustcase which trust assets of an aassets probate Israeliare in forIsrael. application:the trustee, whethera notice on Asapplicationinstrumentthereof. regards Notification of charitable forhekdesh.’ an inheritanceof the trusts, existence s.26 order of aof public theare Lawmade• That residentto the trustee is adirectly beneficiary;the holds submission all or of indirectly, theor underlying of an in application accordance for with a probate the hekdesh shall be accompanied by a copy of the company’s• any trust shares, in which directly the trust or indirectly; assets are the in Israel. providestheAsinstrument evidentRegistrar that: from of hekdesh.’ of the Inheritance, wording of this whichsection, is authorised•term That ‘indirect the trusteeterms holding’order holds set is shallall only forth of the abe holding underlyingbelow: delivered through to all beneficiaries under 24 tosuch‘A declare‘A atrustee public trust thehekdesh of pursuant arights trust, is not of therequired the toobjective heirs contract, to meet accordingly. or one where of anotherthecompany’s one company, shares, of• Thatthe its which directly will, objectives the is togetheroneunderlying or indirectly; that meets iswith thethe companythe a copy ofis incorporatedthe will. If the However,thefurtheranceobjectivesAs conditions evident in from of ofthe s.17 which,the circumstances ofof wording the a isLaw. public the of Hence, this furtherance section, purpose, adescribed trust of in awould public provisionss.67Aterm ‘indirect be of paras.(1)considered holding’solelybeneficiaries and for is only(2) the of a asthe purposeholding under Ordinance,a public through the of holding will do thenot includetrust assets. the ofpursuantsuchpurpose the a publicSuccession to contract, (hereinafter: hekdesh where Law,is not one required thepublic of Registrar its toobjectiveshekdesh) meet of Inheritanceshall,as another mentioned company, •above, Thatchildren which and notice all is of ofone the of that theshares deceased meets incorporation are the held or their of children, the underlying the isthe thehekdesh conditions furtherance, ofand s.17of a ofpublic therefore the Law. purpose, Hence, wouldsubject a trust be to registrationbyprovisions the trustee. of paras.(1) with and the(2) of theregistrar’ Ordinance, mustconsideredpursuantwithin forward three to as contract, a public monthsthe hekdesh whereapplication from one, and ofthe therefore its to objectivesdate the on relevant which ashe mentioned above,companyparents and allof be ofthe theprovided deceased shares are to held orthe their tax authority children, or court.subjectisbecomes the furtherance to Such registration a circumstances trustee, of a with public inform the purpose, registrar. arise,the wouldRegistrar for be example, ofTRUSTS theby the AND trustee. ESTATEwithinthe spousePLANNING 90 days of the of deceased,the underlying such company’snotice shall TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN whenconsideredexistence the applicationas of a public the hekdesh hekdesh is contested,, and and therefore of the when particulars theA willtrust, is properly setincorporationbe up, delivered, can serve as in where a addition,good it is an to underlyingthe children company of USEsubject OF COMPANIESto registration with the registrar. mechanismTRUSTS AND to transferESTATE assetsPLANNING to the next defected,Theenumerated trust, including or when hereunder, the the hekdesh AG ,unlessrepresents is not notification a minorgeneration.A trust,in the properly To understandofthe set the up, deceased canfollowing the serve advantages asand atrusts: good to of the a person who was the application.recognisedUSETHEthereof OFCHARITABLE COMPANIES ashas a Thelegal been TRUST: entitycourt made THEin is Israel, PUBLICauthorisedpreviously,20 and, HEKDESH and accordingly he trustthatshallmechanism holds for to estate-planning trust to transferassets•deceased’s an for Israeli assets purposesthe trustee, to spouseresident the in whethernextIsrael, at trust; thethe time of their death. ‘A trust pursuant to contract, whereissuetherefore,TheAsinform regards trust, the one athe includingrelevantcommon charitable ofRegistrar its practicethe trusts, order.objectives hekdesh of s.26of 25any trustees , isof changenotthe Law is the in those difficultiesdirectlygeneration. or indirectly, Toand understand •Ifcomplexity an the in Israeli accordance deceased the of theadvantagesresident inheritancewith left the no beneficiaryof a spouse or trust;children, provides that: 20 terms set forth below: torecognisedparticularsProbate hold the assets asprocedure a within legal of a trustentity three in via in Israel anIsrael, months underlying requires and, of the thatdateprocedure thetrust for estate-planning in Israelsuch should notice purposes first beshall demonstrated. in Israel, be delivered the to the deceased’s furtherance of a public purpose, wouldcompanytherefore,‘A trustee incorporated be a ofcommon aconsidered trust, practicethe in accordanceobjective of trustees as or withone a publicisof the the •difficulties UnderThat the the underlying Succession and• complexity a testamentarycompany Law, the of is rightsthe incorporated inheritance of trust the heirs of which an Israeli originalprovisionstothereof. objectiveshold the willof assetsNotification theof which,be Income of submitted a istrust theTax furtherancevia Ordinanceof anthe with underlying existence (Newofthe a public Registrar of a inprocedurepublicsolely the of estate for the in are Israel purpose createdparents,resident should of only holding first and on is the athebe if beneficiary; issuance demonstrated. thetrust deceased assets. of or left no parents hekdesh, and therefore subject toInheritance,Version), companyregistrationhekdeshpurpose 5721-1961 incorporated (hereinafter: shall except (thebe with accompaniedOrdinance), inpublic for accordance thean hekdesh) oral 21registrar’ thereby with will.shall, by the a In copy the of absenceorder• ThattheUnder with notice the respect Successionof the•either, to anyincorporation the Law, trustestate then the byin suchrightsof thewhich the competent underlyingnoticeof the the heirs trustshall assetsbe delivered are in Israel.to within three months from the date on which he company be provided to the tax authority ofcreatingprovisionsinstrument an original a designated of the of will, Income hekdesh.’ legal such Tax entity Ordinanceas towhen hold the(New the originalauthority.in has the estate In circumstances are• Thattheircreated thesibling. only where trustee on the the issuance deceasedholds ofall of the underlying hekdeshVersion),becomes assets 5721-1961 a trustee, on behalf (the inform Ordinance),of the the trustee. Registrar21 thereby of the leftorderwithin a will, with 90 an daysrespect application of the to theunderlying should estate be by company’s made the competent for a alreadyexistence been of the submitted hekdesh and in of theanother particulars jurisdiction, a The inheritance procedure in fact allows the creatingAccording a designated to the Ordinance, legal entity such to an hold the probateauthority.incorporation order, In circumstances and wherecompany’s only it on is anthe underlyingwhere issuance shares, the ofdeceased company directly the or indirectly; the enumerated hereunder, unless notification separateunderlyinghekdeshAs evident assets companyapplication onfrom behalf is thedefined of should wordingthe trustee.as a becompany ofmade this to section, theorder courtleftof the a does will, following thean application willscrutiny termtrusts: become ‘indirect should andvalid interventionand be holding’made enforceable. for a is ofonly the a court,holding where through thereof has been made previously, and he shall • an Israeli resident trust; THE CHARITABLE TRUST: THE PUBLIC HEKDESH to Accordingapprove to the the submission Ordinance, such of an a copy.26 Itprobate should order,also be and noted only that on onlythe issuance a probate of order the suchthatinform holds a public the trust Registrar assets hekdesh forof any the is change trustee, not required in whether those to meet• an Israeli residentotherwiseanother beneficiary company, such trust; would which be avoided, is one that thereby meets the 20underlying PCA 46/94 Zacks-Abramov company v Land is defined Registry Officer as 50(2)a company PD 202 [1996] (Isr.) issuedorder indoes Israel the inwill accordance become valid with and the enforceable. Succession As regards charitable trusts, s.26 of the Law the21directly IncomeSectionparticulars conditions Tax or Ordinance indirectly, 54 within of (New ofthe three Version), ins.17 Inheritanceaccordance months 5721-1961 of the, 6 of DMI Law. the with 120 Regulationsdate(1961) theHence, (Isr.) a trust • a testamentary TRUSTSeffectivelyprovisions trust IN of ISRAELwhich changing of an paras.(1) Israeli DR ALON the and instructions KAPLAN (2) of the AND Ordinance, of MEYTAL the LIBERMAN It should also be noted that only a probate order provides that: (thetermsthereof. Regulations) set forth Notification below:27 ofprovides the existence that of a publiccopy of anyresident is a testator.beneficiary; In or the case of ‘A trustee of a trust, the objective or one of the pursuant20 PCA 46/94 Zacks-Abramov to contract, v Land Registry where Officer one50(2) PD of 202 its [1996] objectives (Isr.) issued in Israel inas accordance mentioned with above, the Succession andThe all Estate of the of shares the deceased are held JUNE•21 That Incomehekdesh 2019 the Tax Ordinanceunderlying shall be (New accompanied Version), company 5721-1961 is by, 6 incorporated DMI a copy 120 (1961) of (Isr.)the 15 • any trust in which the trust assetsWWW.STEP.ORG/TQR are in Israel. 28 application, including an application for a probateLaw is regarded GB as valid,v The and Administrator probate orders issued General a ,will the or the deceased deceased’s family members, as set objectives of which, is the furtherance of a public issolely theinstrument furtherance for the of purpose hekdesh.’ ofof holdinga public the purpose, trust assets. would• That be the trusteeby holds the all trustee. of the underlying purpose (hereinafter: public hekdesh) shall, by foreign authorities are invalid.22 forth below: consideredor•JUNE That inheritance 2019 notice of as the a order, publicincorporation shall hekdesh be of the submitted, and underlying therefore to 15 thecompany’s shares,left directlya will whereor indirectly;WWW.STEP.ORG/TQR he bequeathed the his estate to a within three months from the date on which he reviewcompanyAs evident of be the from provided AG, the which wording to the tax may, of authoritythis in section, its discretion, termHowever, ‘indirect in circumstancesTRUSTShekdesh holding’ is, ANDonlywhose where a holdingESTATE purpose the through PLANNING was the• In well-being the case of an of inheritance his application: a becomes a trustee, inform the Registrar of the subject to registration with the registrar. deceased left a will relating to only a part of notice on the submission of an application for an conductsuchwithin a public 90 additional days hekdesh of the is underlying inspectionnot required company’s to of meet the applicationanother company,two which incapacitated is one that meets sons. the The deceased appointed existence of the hekdesh and of the particulars theincorporation conditions ofwhere s.17 of it theis an Law. underlying Hence, a company trust theirprovisions estate, of or paras.(1)A the trust, deceased and properly (2) did of not the leaveOrdinance,set up, a can serveinheritance as a good order shall be delivered to all heirs enumerated hereunder, unless notification USEandpursuantof the requireOF following COMPANIESto contract, further trusts: where information one of its objectives and documents. willas mentioned at all, an application mechanismtwoabove, trustees and should all of to the for be transfer shares made the hekdesh forare assetsheld . Onto thelisted the next demisein the application, of the and shall include the 23 thereof has been made previously, and he shall Theis•Section anthe trust, Israeli furtherance 17 includingresident of the of atrust; publicRegulations the purpose, hekdesh wouldrequires, is not be thatanby a inheritance the trustee.generation.deceased, order. one To ofunderstand the trustees the was advantagesportion appointed of each of ofaas them in the estate. inform the Registrar of any change in those Both an application for a probate order and an • In the case of a probate application: a notice on recognisednoticeconsidered• an Israeli with as resident as respecta public a legal beneficiary hekdesh to entity the, and application trust;in therefore Israel, 20 for and, the trusta guardian for estate-planning of the two sons. purposes The Family in Israel, Court the of particulars within three months of the date subject• a testamentary to registration trust with of which the registrar. an Israeli TRUSTSapplication AND for ESTATE an inheritance PLANNING order are made to the submission of an application for a probate thereof. Notification of the existence of a public therefore,inheritanceresident is a a common orbeneficiary; probate practice ororder be of publishedtrustees is inA the trust, one Registrar properly ofdifficultiesTel setInheritance, Avivup, can (the serve which Court)and as a is goodcomplexity authorised held that of a theguardian,order inheritance shall be due delivered to to all beneficiaries under hekdesh shall be accompanied by a copy of the todailyUSE• holdany OF newspaper trust theCOMPANIES in assets which and theof atrust in trust the assets viaformal are an in underlying Israel.publicationmechanismto declare of the to transferrightsproceduretheir of responsibility assets the heirs into theIsrael accordingly. next should and24 the first trust thebe given will,demonstrated. together in them with by a copy of the will. If the instrument of hekdesh.’ companythe• TheThat State trust, the trustee includingofincorporated Israel holds the (Reshumot all hekdesh of inthe ,accordance underlyingis not). The notice with includes generation.theHowever, in To the understandthe circumstancesUnder court the the to advantages Successiontake described care of in ofa s.67A Law, the incapacitatedthe rightsbeneficiaries of the person, under heirs the will do not include the recognisedcompany’s asshares, a legal directly entity in or Israel, indirectly;20 and, the trustof the for Succession estate-planning Law, the purposes Registrar in Israel,of Inheritance the children of the deceased or their children, the As evident from the wording of this section, provisionsantherefore,term invitation ‘indirect a common of holding’ theto contest Incomepractice is only theof Taxa trustees holding application. Ordinance isthrough (Newdifficultiesmust forward and theinis complexity subject theapplication estate toof to themoreare the inheritance createdrelevant supervision only on in theparents comparison issuance of the deceased of or their children, or such a public hekdesh is not required to meet Version),toanotherSection hold the company, 5721-1961 assets14(b)(4) of which a trust of (the theis via one Ordinance), Regulationsan that underlying meets the 21 therebyprovidesprocedurecourt. Such in circumstances Israelorderto a should trustee, with first arise, respect whobe fordemonstrated. example,is to independent the estate bythe and the spouse exercises competent of the deceased, such notice shall the conditions of s.17 of the Law. Hence, a trust creatingthatcompanyprovisions an application incorporateda ofdesignated paras.(1) andin for accordance legal (2) a probateof theentity Ordinance,with orto the inheritancehold thewhenUnder the the application Successionauthority.discretion is Law, contested, theIn in rights circumstancesthe when management of the the heirs will is where ofbe the delivered,the trust. deceased in addition, to the children of pursuant to contract, where one of its objectives orderprovisionsas mentioned shall of thebe above, Incomedismissed and Tax all ofOrdinance unlessthe shares (New a areregistered held indefected, themail estate or arewhenTherefore, created the AG only represents on the the Court issuance a minor held of in the that boththe deceased trustees and to the person who was the is the furtherance of a public purpose, would be hekdeshVersion),by the trustee. 5721-1961assets on (the behalf Ordinance), of the21 thereby trustee. orderapplication. with respect Theleft court to a the will, is estate authorised an by application the accordingly competent should to bedeceased’s made forspouse a at the time of their death. considered as a public hekdesh, and therefore certificatecreatingAccording a designated orto anthe legalaffidavit Ordinance, entity to holdwere such the attached an authority.toissue the the relevantIn circumstancesprobateare order. to be25 order, subject where and the to deceased only the supervisionon the issuanceIf the of deceased the of theAG left no spouse or children, subject to registration with the registrar. underlyingapplication,TRUSTShekdesh AND assets ESTATEcompany whichon behalf PLANNING confirms of is the defined trustee. that as a companynotice leftonProbate athe will, an procedure applicationorderas if both in does Israelshould have the requires be willmadebeen thatbecome for appointed a the valid as suchand guardians. noticeenforceable. shall be delivered to the deceased’s According to the Ordinance, such an probate order, and only on the issuance of the submissionA trust, properly of set the up, application can serve as a good has been deliveredoriginal will beIt submittedAnother should alsowith important the be Registrar noted issue that of relatingonly aparents, probate to estate and order if the deceased left no parents USE OF COMPANIES mechanismunderlying tocompany transfer is assets defined to theas a nextcompany orderInheritance, does the except will become for an validoral will. and enforceable.In the absence either, then such notice shall be delivered to 20to PCAthe 46/94 heirs Zacks-Abramov under law, v Land the Registry beneficiaries Officer 50(2) PD 202underIt should[1996] (Isr.) also beplanning noted that only concerns a probate s.8(b) order of the Succession Law, The trust, including the hekdesh, is not 21generation. Income Tax ToOrdinance understand (New Version), the advantages 5721-1961, 6 of DMI a 120 (1961) of(Isr.) an original will,issued such in as Israelwhen the in original accordance has withtheir the sibling. Succession 20 20 PCA 46/94 Zacks-Abramov v Land Registry Officer 50(2) PD 202 [1996] (Isr.) issuedalready in been Israel submitted in accordance in another with the jurisdiction, Succession a The inheritance procedure in fact allows the recognised as a legal entity in Israel, and, 22trust21 Succession Income for Tax estate-planning Ordinance Law, § (New39 Version), purposes 5721-1961, 6 DMI in 120Israel, (1961) (Isr.) the which provides that a gift granted by a donor therefore, a common practice of trustees is 23difficulties At § 66 and complexity of the inheritance separate application should be made to the court scrutiny and intervention of the court, where to hold the assets of a trust via an underlying JUNE24procedure Ibid 2019 in Israel should first be demonstrated. to approve the15 submission of a copy.26 otherwiseWWW.STEP.ORG/TQR such would be avoided, thereby 25JUNE At § 201967A(b) 15 28 File no. 12695/06 FamilyWWW.STEP.ORG/TQR Court (Tel Aviv) The Estate of the deceased company incorporated in accordance with the 26Under At § 68(b) the Succession Law, the rights of the heirs Section 54 ofGB the v InheritanceThe Administrator Regulations General (Apr. 16, 2008) Nevoeffectively Legal Database changing (by the instructions of the 27 , 1998, KT 5923 (Isr.) (the Regulations)subscription)27 provides (Isr.). that a copy of any testator. In the case of The Estate of the deceased 60 provisions of the Income Tax Ordinance (New in theInheritance estate Regulationsare created only on the issuance of 61 21 application, including an application for a probate GB v The Administrator General,28 the deceased Version), 5721-1961 (the Ordinance), thereby order with respect to the estate by the competent Contents creating a designated legal entity to hold the authority. In circumstances where the deceased or inheritance order, shall be submitted to the left a will where he bequeathed his estate to a hekdesh assets on behalf of the trustee. JUNEleft a will, 2019 an application should be made for a review of the16 AG, which may, in its discretion, hekdeshWWW.STEP.ORG/TQR, whose purpose was the well-being of his According to the Ordinance, such an probate order, and only on the issuance of the conduct additional inspection of the application two incapacitated sons. The deceased appointed underlying company is defined as a company order does the will become valid and enforceable. and require further information and documents. two trustees for the hekdesh. On the demise of the It should also be noted that only a probate order Section 17 of the Regulations requires that a deceased, one of the trustees was appointed as 20 PCA 46/94 Zacks-Abramov v Land Registry Officer 50(2) PD 202 [1996] (Isr.) issued in Israel in accordance with the Succession notice with respect to the application for the a guardian of the two sons. The Family Court of 21 Income Tax Ordinance (New Version), 5721-1961, 6 DMI 120 (1961) (Isr.) inheritance or probate order be published in one Tel Aviv (the Court) held that a guardian, due to daily newspaper and in the formal publication of their responsibility and the trust given in them by JUNE 2019 15 WWW.STEP.ORG/TQR the State of Israel (Reshumot). The notice includes the court to take care of the incapacitated person, an invitation to contest the application. is subject to more supervision in comparison Section 14(b)(4) of the Regulations provides to a trustee, who is independent and exercises that an application for a probate or inheritance discretion in the management of the trust. order shall be dismissed unless a registered mail Therefore, the Court held that both trustees certificate or an affidavit were attached to the are to be subject to the supervision of the AG application, which confirms that a notice on the as if both have been appointed as guardians. submission of the application has been delivered Another important issue relating to estate to the heirs under law, the beneficiaries under planning concerns s.8(b) of the Succession Law,

22 Succession Law, § 39 which provides that a gift granted by a donor 23 At § 66 24 Ibid 25 At § 67A(b) 28 File no. 12695/06 Family Court (Tel Aviv) The Estate of the deceased 26 At § 68(b) GB v The Administrator General (Apr. 16, 2008) Nevo Legal Database (by 27 Inheritance Regulations, 1998, KT 5923 (Isr.) subscription) (Isr.).

JUNE 2019 16 WWW.STEP.ORG/TQR TRUSTSTRUSTS IN ISRAEL IN ISRAEL DR ALON DR KAPLAN ALON AND KAPLAN MEYTAL AND LIBERMAN MEYTAL LIBERMAN

TRUSTS IN ISRAEL DR ALON KAPLANLaw is AND regarded MEYTAL as valid, and LIBERMANprobate orders issued a will or the deceased’s family members, as set byLaw foreign is regarded authorities as are valid, invalid. and22 probate ordersforth issued below: a will or the deceased’s family members, as set byHowever, foreign in authorities circumstances are where invalid. the 22 • In the case of forthan inheritance below: application: a deceasedHowever, left a inwill circumstances relating to only a part where of the notice on the •submission In the case of an of application an inheritance for an application: a Law is regarded as valid, and probate orders issued theira will estate, or the or the deceased’s deceased did family not leave members, a as inheritanceset order shall be delivered to all heirs by foreign authorities are invalid.22 willforthdeceased at all, below: an left application a will relatingshould be madeto only for a part of listed in the application,notice on and the shall submission include the of an application for an an inheritance order.23 portion of each of them in the estate. However, in circumstances where the •their In the estate, caseTRUSTS or of the an IN inheritancedeceased ISRAEL didDR application: ALONnot leave KAPLAN a a AND MEYTALinheritance LIBERMAN order shall be delivered to all heirs deceased left a will relating to only a part of willBothnotice at an all, application on an the application submission for a probate should orderof an andbe application madean for• In for the an case of a probatelisted inapplication: the application, a notice on and shall include the application for an inheritance23 order are made to the submission of an application for a probate their estate, or the deceased did not leave a theanLawinheritance Registrarinheritance is regarded of Inheritance, as order order.valid, andshall which probate be is delivered authorisedorders issued to allaorder heirswill or shall the bedeceased’s deliveredportion family to of all each members,beneficiaries of them as set under in the estate. will at all, an application should be made for toby listedBothdeclare foreign an inthe authorities applicationthe rights application, of arethe invalid.heirs for aaccordingly. 22probateand shall 24order include andforththe thean will, below: together • In with the a casecopy of of the a probatewill. If the application: a notice on an inheritance order.23 However,applicationportionHowever, in intheof circumstancesfor eachcircumstances an of inheritance them where described in thethe order estate.in s.67A are made•beneficiaries In to the case of anunderthe inheritance submissionthe will do application: not includeof an a application the for a probate ofdeceased the Succession left a will Law, relating the Registrar to only a of part Inheritance of childrennotice on of the the submission deceased or of their an application children, the for an Both an application for a probate order and an •the In Registrar the case of of a Inheritance, probate application: which is authoriseda notice on order shall be delivered to all beneficiaries under musttheir forward estate, or the the application deceased didto the not relevant leave a parentsinheritance24 of the order deceased shall orbe their delivered children, to all or heirs application for an inheritance order are made to court.towillthe declare at Such submission all, an circumstances the application rights of anshould of arise, theapplication befor heirs made example, accordingly.for for a probatethelisted spouse in the of application,thethe deceased, will, and together such shall notice include with shall the a copy of the will. If the the Registrar of Inheritance, which is authorised whenHowever,anorder inheritance the applicationshall in theorder. be deliveredcircumstances is23 contested, to when all thedescribedbeneficiaries will is inbe s.67Aportion delivered,under of each in beneficiariesaddition, of them in to the the estate. children under of the will do not include the to declare the rights of the heirs accordingly.24 defected,oftheBoth the will, anSuccession or application when together theTRUSTS AG Law,for withrepresents a INprobate the ISRAEL a copyRegistrar order a minor DR of and ALON the in an of the will.KAPLAN Inheritance If•the In the AND thedeceased caseMEYTAL of and achildren probate LIBERMAN to the person application: of the who deceased was a notice the on or their children, the application.application Thefor an court inheritance is authorised order accordingly are made to to deceased’sthe submission spouse of at an the application time of their for a death. probate However, in the circumstances described in s.67A issuemustthebeneficiaries Registrar the forward relevant of Inheritance, order.the under application25 the which will is to authoriseddo the not relevant include If order thethe deceased shall be delivered leftparents no spouse to of all the or beneficiaries children, deceased under or their children, or of the Succession Law, the Registrar of Inheritance court.toProbatechildren declare Such procedure the‘Section of rightscircumstances the in of deceased Israelthe 23 heirs of requires theaccordingly. orarise, theirContracts that for the children,24 example, Lawsuchthe the provides will, notice together shall thethat be with deliveredspouse a a contractcopy toofof thethethe deceased’swill. deceased, If the such notice shall must forward the application to the relevant originalwhenHowever,parents the will inmay applicationbe ofthe submittedthe circumstancesbe deceased made with is contested,orally, the described or Registrar their in in writing children,when s.67Aof the or parents,orwillbeneficiaries in someis and ifother theunderbe deceased delivered, theform, will left unlessdo noinnot parents addition,include the to the children of Inheritance,defected,of the Succession or except when Law, for theanthe oral Registrar AG will. represents In of the Inheritance absence a minor either,children in the then of suchthethe deceased notice deceased shall or their be delivered and children, to theto the person who was the court. Such circumstances arise, for example, ofmust thean original forward spousea form will, the of suchapplication theis a as deceased,condition when to the the original relevant such of validity hasnotice shall bytheirparents virtue sibling. of theof deceasedlaw or agreementor their children, or when the application is contested, when the will is alreadyapplication.court.be delivered, Such been circumstances submitted The in court addition, in another arise, is authorised for jurisdiction,to example, thebetween children accordingly a the of Theparties’the inheritancespouse to of thedeceased’s procedure deceased, in such spousefact notice allows at shall the the time of their death. defected, or when the AG represents a minor in the separateissuewhenthe thedeceasedthe application application relevant and should is order. contested, to bethe 25made person when to the the whocourt will wasis scrutinythebe delivered, and intervention inIf addition, the deceased of to the the court, children left where no of spouse or children, 26 application. The court is authorised accordingly to todefected, deceased’sProbateapprove or the procedurewhen submission spouse the AG at representsofin athe Israel copy. time arequires minor of their in the that death. otherwise thethe deceased such wouldandsuch to bethe notice avoided, person shall whothereby was be thedelivered to the deceased’s 25 application.Section 54 ofThe the court Inheritance is authorised Regulations accordingly to effectivelydeceased’s changing spouse atthe the instructions time of their of death.the issue the relevant order. (theoriginalissueIf Regulations)the the deceasedrelevant will be27 order.provides submitted left25 no that spouse a with copy of the or any children, Registrar testator. If of the deceased In the caseparents, left of no The spouse Estate and or ofif children, thethe deceased deceased left no parents Probate procedure in Israel requires that the application,Inheritance,suchProbate notice procedure including except shall in an Israelbe applicationfor delivered an requires oral for thatwill. a to probate thethe In thedeceased’s absenceGBsuch v The notice Administrator shalleither, be delivered General then, 28tosuch the the deceased deceased’snotice shall be delivered to original will be submitted with the Registrar of oroforiginal parents, inheritancean original •will Subject andbe order, submitted to will, ifthe shallthe said such minimumbedeceased with submitted as the when legislation, Registrar left to the the no oforiginal parentsforthleft parents,has a in will s.1, it where thereforeand if he theirthe followsbequeathed deceased sibling. that, to left determinehis no estate parents to a reviewalreadyInheritance, of the beenthe AG,partiesexcept submittedwhich are for free may,an tooral agreein in will.its betweenanother discretion, In the them absence jurisdiction, whetherhekdesheither, a, contractwhose then such canpurposeThe be notice regarded inheritance was shall theas a be trustwell-being delivered procedure of to his in fact allows the Inheritance, except for an oral will. In the absence conductofeither, an original additionalon then the will, powers such inspectionsuch of noticetheas when trustee, of thetheshall and applicationoriginal its berights delivered has contract,two totheir incapacitated thesibling. nature of sons.the relationship The deceased between appointed and obligations. the parties should be examined. of an original will, such as when the original has andseparatealreadytheir require beensibling. application further submitted information in should another and bejurisdiction, documents. made to a thetwo courtThe trustees inheritance forscrutiny the procedure hekdesh and. On in intervention factthe demiseallows theof the of the court, where • The parties must confer on the trustee power26 and Goren J affirmed this in the case ofArnon v already been submitted in another jurisdiction, a toseparateSectionThe approve inheritance 17applicationauthorities of the the Regulations submission by should transferring procedure be requires made the of proprietary a toin copy. thatthe fact court a rights allows Pieutrekovskydeceased,scrutiny the and one,12 stating: interventionofotherwise the trustees of such wasthe court,appointed would where be as avoided, thereby noticetoSection approve within respectthe 54the submissionassets of theto to the the Inheritance application trustee, of a copy. or by26 forgranting Regulations the the aotherwise guardian ofsuch theeffectively would two sons. be avoided, The changing Family thereby Court the of instructions of the separate application should be made to the court scrutinytrustee and controlintervention and power over of the the assets. court, where‘A transaction shall be regarded as a trust inheritanceSection 54 or of probate the Inheritance27 order be Regulationspublished in one Teleffectively Aviv (the changingCourt) held the that instructions a guardian, of thedue to 26 (the Regulations)A debenture trustee, provides whose modus that operandi a copy of anytransaction subjecttestator. to the provisions In the of the case of to approve the submission of a copy. dailyotherwise(the Regulations)newspaper such and27 provides would in the formal thatbe avoided, a publication copy of any thereby of their testator. responsibility In the case and of The the Estatetrust given of the in deceased themThe by Estate of the deceased 9 Trust Law if the conditions of the definition 28 is governed by the Securities Law, and a trustee 28 Section 54 of the Inheritance Regulations theeffectivelyapplication,application, State ofof employee Israel including changingincluding (Reshumot stock an option application thean). incentiveThe applicationinstructions notice for programmes, aincludes probate for of a the probatetheGBstipulated court v The into Administrator the take LawGB care have v The ofbeen theGeneral materiallyAdministrator incapacitated, the deceased person, General , the deceased (the Regulations)27 provides that a copy of any antestator.oror invitationinheritancewhose In to modusthe order,contest order, case operandi shall the of shallbeapplication. is The submittedgoverned be Estate submitted by theto the of the deceasedto istheleftfulfilled. subject a will The to where moreapplicabilityleft he supervision abequeathed willof the wheredefinition in his comparison estateheof bequeathed to a his estate to a reviewSection ofIncome 14(b)(4) the AG, Tax ofwhich Rules the (TaxRegulationsmay, Relief in its in discretion, the provides Allocation28 of tohekdesha atrust trustee, on, awhose transaction who purpose is independent is not subject was the to and thewell-being exercises of his review of the AG, which10 may, in its discretion, hekdesh, whose purpose was the well-being of his application, including an application for a probate thatGBconduct van The application Sharesadditional Administrator to Employees), forinspection a probate serve Generalof or theas inheritancegood application examples, the deceaseddiscretiontwomere incapacitated wishes in of thethe parties,management sons. and The despite deceased of usingthe trust. appointed or inheritance order, shall be submitted to the leftconduct a willof additionalsuch where trustees. he inspectionbequeathed of his the estate application tothe a phrase “trust”two in the incapacitatedtransaction between sons. The deceased appointed orderand require shall be further dismissed information unless a andregistered documents. mail Therefore,twothem, trustees the transaction the for Court the shall hekdeshheld not bethat a. trustOn both the trustees demise of the review of the AG, which may, in its discretion, certificatehekdeshandSection requireA , 17TRUST whoseor of an thefurther CREATEDaffidavit Regulations purpose informationUNDER were requireswas A attached CONTRACT the that andwell-being to athe documents.aredeceased,transaction of to his be subject andone subject twoof to the the totrustees trustees the supervision provisions was for of appointed of the the hekdesh AG as . On the demise of the TRUSTS IN ISRAEL DR ALON KAPLANapplication,noticeSection AND withA trust MEYTAL 17whichrespect createdof theconfirms to by LIBERMAN the Regulations a contract application that is aone notice governedfor requires the on theby thatasathe guardianifa lawboth if its have contents of thebeendeceased, twodo appointed not sons. go in The oneline as with Family guardians.of the Court trustees of was appointed as conduct additional inspection of the application two incapacitated sons.11 The deceased appointedthe definition of the trust in the Law.’13 submissionnoticeinheritance withthe ofIsraeli or the respect probate contractsapplication order to laws the be has and published application been accordingly delivered in one for theTelAnother Aviv (the important Court)a guardian heldissue that relating of a guardian, the to twoestate due sons. to The Family Court of and require further information and documents. totwodaily the trustees newspaperheirsrequires under an for and law, agreement thein the the hekdesh beneficiaries formalbetween publicationthe. On settlor under the and ofdemise the planningtheir of theresponsibility concerns s.8(b) and theof the trust Succession given in themLaw, by trustee. Under this framework, a trust contract can As mentioned above, s.23 of the Contracts Law Section 17 Lawof the is regarded Regulations as valid, requires and probate that orders a issued adeceased,inheritancethe will State or the of deceased’sIsrael one or of(probateReshumot the family trustees ).order members,The notice be was published as includes appointedset inwhichthe oneas court provides to takeTel that care Aviv a gift of the granted(the incapacitated Court) by a donor held person, that a guardian, due to 22 22 Successionbe Law, viewed § 39 as being established for the benefit of a provides that a contact may be entered orally, i.e. by foreign authorities are invalid. forth23dailyan At invitation§ 66below: newspaper to contest and the in application. the formal publicationis subject of to moretheir supervision responsibility in comparison and the trust given in them by notice with respect to the application for the 24a guardianIbid third party of the in accordance two sons. with s.34 The of the Family Contracts Court without of a written document. Therefore, a trust However, in circumstances where the •25the In AtSection § theState 67A(b) case(General 14(b)(4) of of Israel an Part) inheritanceof Law,the (Reshumot Regulations1973 (the application: Contracts). provides The Law), a notice includesrelationship28to File a trustee,no. 12695/06 may whoFamily bethe created Courtis courtindependent (Tel by Aviv) the to Themere takeEstate behaviourand of the careexercises deceased of the incapacitated person, inheritance or probate order be published in one 26Tel At § Aviv 68(b) thereby (the granting Court) the heldbeneficiary that a righta guardian, to enforce dueofGB the v The parties.to Administrator This Generalis commonly (Apr. 16, 2008)known Nevo as Legal an Database (by deceased left a will relating to only a part of 27that notice Inheritance an onapplication Regulations the submission, 1998, for KT a5923 probate (Isr.)of an application or inheritance for an subscription)discretion (Isr.). in the management of the trust. daily newspapertheir estate, and in or the deceased formal did publication not leave a of theiranorderinheritance invitation shallresponsibilitythe trustbe order dismissed contract.to shallcontest beunlessand delivered the the a registered application. trust to all given heirs mail in ‘impliedthemTherefore, trust’. by the Shamgaris Court subject J addressed held that to this more both issue trustees insupervision in comparison Section 23 of the Contracts Law provides that a the case of Wallas v Gat,14 stating the following: the State of Israelwill at all, (Reshumot an application). The should notice be made includes for thecertificatelistedSection court in the 14(b)(4)toor application, antake affidavit care of theand of were shall Regulationsthe attached includeincapacitated to the the provides person,are to be subject to to a thetrustee, supervision who of is the independent AG and exercises 23 JUNE 2019 contract may be made orally, in writing or in some 16 WWW.STEP.ORG/TQR an invitationan to inheritance contest theorder. application. isthatapplication,portion subject another ofapplication eachto which form, more of unless themconfirms supervision a for inform the a isthat probate estate.a condition a notice in of or comparison validityon inheritance the as‘The if Impliedboth have Trustdiscretion beenwas created appointed in the in Common asthe guardians. management of the trust. Both an application for a probate order and an •ordersubmission In the shall caseby virtue ofof be thea ofprobate dismissed lawapplication or agreement application: has unless between been a notice delivered thea registered parties. on LawAnother mail to deal with important circumstancesTherefore, issue where relating the the Court to estate held that both trustees Section 14(b)(4)application of thefor an Regulations inheritance order provides are made to totothe athe trustee,submission heirsSince under the who Law of law, an does is application the independentnot beneficiaries require forthe fulfilmenta probate andunder exercisesof planningbehavior of concernsthe parties ands.8(b) their of actions the Succession imply Law, that an applicationthe Registrar for of a Inheritance,probate or which inheritance is authorised discretioncertificateorder shallany form be in ordelivered conditions,the an managementaffidavit to and all it beneficiariesapplies were to ofany the attachedtrust under trust. towhich that theythe provides intendedare tothat create to a giftbe a trust, grantedsubject but for by some to a donorthe supervision of the AG 24 22 Successionrelationship Law, § 39 that complies with the definition set reason, this intention was not explicitly expressed to declare the rights of the heirs accordingly. application,23the At § will, 66 together which with confirmsa copy of the will.that If a the notice on the as if both have been appointed as guardians. order shall be dismissed unless a registered mail Therefore,24 Ibid 9 Securities the Law, 5728-1968 Court, 541 SH held 234 (1968) (Isr.)that both trustees… It is implied from their relationship and However, in the circumstances described in s.67A 25beneficiaries At § 67A(b)10 Income Tax under Rules (Tax the Relief inwill the Allocation do not of Sharesinclude to Employees), the 28 File no. 12695/06 Family Court (Tel Aviv) The Estate of the deceased certificate or an affidavit were attached to the aresubmission26 At to§ 68(b) be5763-2003, subject KTof 6222, the 448 to (Isr.) application the supervision has been of the delivered 12AGGB File v No. The 548/06 Administrator District Court GeneralAnother (Tel Aviv), (Apr. Arnon 16, v 2008) Pieutrekovsky important Nevo (30Legal June Database issue (by relating to estate of the Succession Law, the Registrar of Inheritance 27children Inheritance11 ContractsRegulationsof the (General deceased, 1998, Part) KT Law, 5923 5733-1973or (Isr.) their, 27 SH children, 117 (1972-1973) (Isr.) the and 2013),subscription) Nevo Legal (Isr.).Database (by subscription) (Isr.) Contracts (Remedies for Breach of Contract) Law, 5731-1970, 25 SH 11 (1970-1971) 13 See note 3 application,must which forward confirms the application that ato notice the relevant on the astoparents theif both heirs(Isr.), of and thehave relevant under deceased casebeen law relatinglaw, orappointed thereto their the children,beneficiaries as guardians.or under14 CA 3829/91 Wallas v Gat 48(1)planning PD 801, 810 [1994] concerns(Isr.) s.8(b) of the Succession Law, court. Such circumstances arise, for example, the spouse of the deceased, such notice shall which provides that a gift granted by a donor submission of the application has been delivered 22JUNE Another Succession 2019 Law, important § 39 issue relating to estate16 WWW.STEP.ORG/TQR to the heirs whenunder the law, application the beneficiaries is contested, when under the will is planning23be At delivered, § 66 JUNE concerns 2019 in addition, s.8(b) to the of children the Succession of 13 Law, WWW.STEP.ORG/TQR defected, or when the AG represents a minor in the 24the Ibid deceased and to the person who was the which25 At § 67A(b) provides that a gift granted by a donor 28 File no. 12695/06 Family Court (Tel Aviv) The Estate of the deceased 22 Succession Law,application. § 39 The court is authorised accordingly to 26deceased’s At § 68(b) spouse at the time of their death. GB v The Administrator General (Apr. 16, 2008) Nevo Legal Database (by 23 At § 66 issue the relevant order.25 27If Inheritance the deceased Regulations left no, 1998, spouse KT 5923 or children, (Isr.) subscription) (Isr.). 24 Ibid Probate procedure in Israel requires that the such notice shall be delivered to the deceased’s 25 At § 67A(b) 28 File no. 12695/06 Family Court (Tel Aviv) The Estate of the deceased 26 At § 68(b) original will be submitted with the Registrar of GBparents, v The Administrator and if the General deceased (Apr. left 16, 2008)no parents Nevo Legal Database (by 27 Inheritance RegulationsInheritance,, 1998, KTexcept 5923 (Isr.)for an oral will. In the absence subscription)JUNEeither, 2019 then (Isr.). such notice shall be delivered to 16 WWW.STEP.ORG/TQR of an original will, such as when the original has their sibling. already been submitted in another jurisdiction, a The inheritance procedure in fact allows the 62 JUNE 2019 separate application should be made to the court 16 scrutiny and intervention of the court, whereWWW.STEP.ORG/TQR Contents to approve the submission of a copy.26 otherwise such would be avoided, thereby Section 54 of the Inheritance Regulations effectively changing the instructions of the (the Regulations)27 provides that a copy of any testator. In the case of The Estate of the deceased application, including an application for a probate GB v The Administrator General,28 the deceased or inheritance order, shall be submitted to the left a will where he bequeathed his estate to a review of the AG, which may, in its discretion, hekdesh, whose purpose was the well-being of his conduct additional inspection of the application two incapacitated sons. The deceased appointed and require further information and documents. two trustees for the hekdesh. On the demise of the Section 17 of the Regulations requires that a deceased, one of the trustees was appointed as notice with respect to the application for the a guardian of the two sons. The Family Court of inheritance or probate order be published in one Tel Aviv (the Court) held that a guardian, due to daily newspaper and in the formal publication of their responsibility and the trust given in them by the State of Israel (Reshumot). The notice includes the court to take care of the incapacitated person, an invitation to contest the application. is subject to more supervision in comparison Section 14(b)(4) of the Regulations provides to a trustee, who is independent and exercises that an application for a probate or inheritance discretion in the management of the trust. order shall be dismissed unless a registered mail Therefore, the Court held that both trustees certificate or an affidavit were attached to the are to be subject to the supervision of the AG application, which confirms that a notice on the as if both have been appointed as guardians. submission of the application has been delivered Another important issue relating to estate to the heirs under law, the beneficiaries under planning concerns s.8(b) of the Succession Law,

22 Succession Law, § 39 which provides that a gift granted by a donor 23 At § 66 24 Ibid 25 At § 67A(b) 28 File no. 12695/06 Family Court (Tel Aviv) The Estate of the deceased 26 At § 68(b) GB v The Administrator General (Apr. 16, 2008) Nevo Legal Database (by 27 Inheritance Regulations, 1998, KT 5923 (Isr.) subscription) (Isr.).

JUNE 2019 16 WWW.STEP.ORG/TQR TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN

procedure. It may also be uncomfortable for the TRUSTS IN ISRAEL DR ALON KAPLAN‘Evidence AND MEYTAL on LIBERMANthe operation deceased’s family members, who are required of foreign trust-like entities to disclose the contents of the will. Due to this procedure. It may also be uncomfortable for the reason, it is usually advisable to set up an inter ‘Evidence on the operation deceased’sin Israel family can members, be found who are inrequired vivos trust, rather than a testamentary trust, and of foreign trust-like entities to disclose the contents of the will. Due to this special attention should be paid to the transfer of reason,the records it is usually ofadvisable the toIsraeli set up an inter assets into the trust in order to avoid a situation in Israel can be found in vivosRegistrar trust, rather of than Companies a testamentary trust,as and where such transfer is struck down by the court special attentionTRUSTS IN should ISRAEL be DR paid ALON to the KAPLAN transfer AND of MEYTAL under LIBERMAN s.8(b), as mentioned above. the records of the Israeli assetsforeign into the corporations’ trust in order to avoid a situation TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN RECOGNITION OF FOREIGN TRUSTS Registrar of Companies as where‘Evidence such transfer on the is operation struck down by theprocedure. court It may also be uncomfortable for the under s.8(b), as mentioned above. deceased’s‘Evidence family on ANDmembers, the TRUST-LIKE operation who are required STRUCTURES procedure. IN It may ISRAEL also be uncomfortable for the to disclose the contents of the will. Due to this deceased’s family members, who are required of foreign trust-like entities Several different wealth tomanagement disclose the contents or legacy of the will. Due to this foreign corporations’ TRUSTS IN ISRAEL DR ALON reason,KAPLANof foreign it is AND usually MEYTALtrust-like advisable LIBERMAN to entities set up an inter reason, it is usually advisable to set up an inter RECOGNITIONduringin Israel the candonor’s be OF lifetime,found FOREIGN in when TRUSTS such gift vivos is trust, to be rather structures than a testamentary can be trust, found and in operation in Israel. in Israel can be found in vivos trust, rather than a testamentary trust, and effectively provided to the donee after thespecial donor’s attention shouldThese be structures paid to the transfer include of not only common-law ANDthe recordsTRUST-LIKE‘Evidence of the STRUCTURESon Israelithe operation IN ISRAEL procedure. It may also be uncomfortable for the special attention should be paid to the transfer of Severaldemise, different is null and wealthvoid, unlessmanagement such gift or assetswas legacythe deceased’s intorecords the trust familytrusts, of in ordermembers,the but toIsraeli avoid also who aare foundations, situation required assets establishments into the trust in order to avoid a situation Registrarof foreign of Companies trust-like entitiesas whereto such disclose transfer the contentsis struck of down the will. by the Due court to this where such transfer is struck down by the court during the donor’s lifetime, when such gift is to be structuresincluded within can be a foundvalid will. in operation in Israel.underRegistrarreason, s.8(b), asit is mentioned of usuallyand Companies settlements advisable above. to set as upmade an inter under the laws of other 29 under s.8(b), as mentioned above. effectively provided to the donee after the donor’s TheseforeignIn the structuresin case corporations’Israel of Doe can include v Doebe foundnot, the only deceased in common-law foreignmadevivos trust, corporations’ ratherjurisdictions. than a testamentary Evidence trust, andon the operation of foreign RECOGNITIONspecial attention OF FOREIGN should be TRUSTS paid to the transfer ofRECOGNITION OF FOREIGN TRUSTS demise, is null and void, unless such gift was trusts,several but TRUSTSwills also and foundations,IN one ISRAEL draft DR of establishments ALON will prior KAPLAN to his AND MEYTALtrust-like LIBERMAN entities in Israel can be found in the the records of the Israeli AND TRUST-LIKEassets into the STRUCTURES trust in order INto avoidISRAEL a situation AND TRUST-LIKE STRUCTURES IN ISRAEL included within a valid will. anddemise. settlements In the first made wills, under the the deceased laws of bequeathedotherSeveralwhere different such transferrecordswealth ismanagement struck of the down Israeli or by legacy the courtRegistrar Several differentof Companies wealth management as or legacy Registrar of Companies as 31 In the case of Doe v Doe,29 the deceased made ‘Evidencejurisdictions.duringhis estate the donor’s mainly on Evidence lifetime, the to hisoperation when onfamily such the gift operationmembers, is to be procedure. structuresof during foreignunder the It can donor’s s.8(b), may be also foreignfound as lifetime, mentioned be in uncomfortable operation whencorporations. above. such in gift Israel. for is theto be structures can be found in operation in Israel. several wills and one draft of will prior to his trust-likeeffectivelywhereasforeign inprovided entities the last corporations’to thein two Israeldonee wills after can andthe be donor’s the found draft deceased’s inTheseeffectively willthe structures family provided members,includeFurther, to the not doneewho only s.75Care after common-law required the of donor’s Israel’s These Income structures Tax include not only common-law ofdemise, foreign is null and trust-like void, unless entitiessuch gift was totrusts,demise, discloseRECOGNITION but is the alsonull contents andfoundations, void, OF of unless FOREIGNthe establishments will. such Due TRUSTSgift to was this trusts, but also foundations, establishments demise. In the first wills, the deceased bequeathed recordsincludedhe bequeathed within of the a valid Israeli his will. estate Registrar to another of Companies person,reason,andincluded settlements andAND asit is within TRUST-LIKEusually madea Ordinancevalid advisable under will.STRUCTURES tothe set (New laws up INofan Version),otherISRAEL inter and5721-1961 settlements (the made under the laws of other 29 his estate mainly to his family members, inforeigninstructedIn Israel the case corporations. ofcan that Doe vbe theDoe found, 29two the31 deceasedpersons in made whom hadvivosjurisdictions.In been trust, theSeveral case rather of differentEvidence Doe thanIncome v Doe a on wealthtestamentary, the the Tax operation managementdeceased Law) trust, madeof32 foreignordefines andlegacy jurisdictions. a trust asEvidence an on the operation of foreign several willsduring and the one donor’s draft lifetime,of will prior when to such his gift is tospecialtrust-like beseveral structures attention wills entities and canshould one in beIsrael draft found be paidofcan willin be tooperation prior foundthe transfer to in his in the Israel. of trust-like entities in Israel can be found in the whereas in the last two wills and the draft will addedFurther, aseffectively co-owners s.75C provided of Israel’s to to his the bankdoneeIncome after account Taxthe donor’s execute These structuresarrangement include not only according common-law to which a trustee thedemise. records In the first of wills, the the Israeli deceased bequeathed assetsrecordsdemise. into of In the the trustIsraeli first in wills,Registrar order the to deceased avoid of Companies a situationbequeathed as records of the Israeli Registrar of Companies as demise, is null and void, unless such gift was trusts, but also foundations, establishments 31 he bequeathed his estate to another person, and Ordinancehiscertain estate mainlypayments, (New to his Version), family which members, were5721-1961 not expressly (thewhere foreignhis estate statedsuch corporations. mainlytransfer holdsto is his31 struck family the down members,trust’s by the assets court in foreignfavour corporations. of a Registrarincluded of within Companies32 a valid will. as whereasand in settlements the last two made wills under and the the draft laws willof other Further, s.75C of Israel’s Income Tax whereasin the wills.in the last two wills and the29 draft will underFurther, s.8(b), s.75C as mentioned ofbeneficiary, Israel’s above.Income Taxwhich was established in Israel instructed that the two persons whom had been Income InTax the Law)case of Doe defines v Doe, the a deceasedtrust as made an he bequeathedjurisdictions. his estateEvidence to another on the operation person, and of foreignOrdinance (New Version), 5721-1961 (the foreignhe bequeathedseveral corporations’ his wills estate and toone another draft of person, will prior and to his Ordinancetrust-like (New entities Version), in Israel5721-1961 can be(the found in the 32 added as co-owners to his bank account execute arrangementThe Supreme according Court determined to which a thattrustee theinstructed written that the32or two outside persons whomIsrael, had whether been Income it is defined Tax Law) definesunder a trust as an instructeddemise. that the In thetwo first persons wills, whom the deceased had been bequeathed RECOGNITIONIncomeadded records as Tax co-owners Law) of OFthe definesFOREIGNIsraeli to his bankRegistrar a trust TRUSTS account asof Companiesan execute as arrangement according to which a trustee certain payments, which were not expressly stated holdsaddedand executed as the co-owners trust’s wills to assets his of bank the in account deceasedfavour execute of werea AND arrangementvoid TRUST-LIKE according STRUCTURESthe law to 31which applicable IN a trustee ISRAEL to it as a trust or whether his estate mainly to his family30 members, certainforeign payments, corporations. which were not expressly stated holds the trust’s assets in favour of a in the wills. beneficiary,certaindue to payments, whereasunjust in influence, whichwhich the last were twowas not willsestablished andexpressly and thethe draft statedaddition in will IsraelSeveral holdsin ofthe the wills.differentFurther, trust’s s.75C assetsdefinedwealth of in Israel’s managementfavour otherwise. Income of a Taxor legacy beneficiary, which was established in Israel The Supreme Court determined that the written duringorinthe the outside co-owners wills.thehe donor’s bequeathed Israel, lifetime, to whetherhisthe estate when bank tosuch it anotheraccount is gift defined is person, to bewas and undermadestructuresbeneficiary, The Ordinance Supreme can which be Court (New found Thewas Version),determined inestablished Incomeoperation 5721-1961 that in inTax the IsraelIsrael. (the written Law further or outside provides Israel, whether that it a is defined under effectivelyThe Supremeinstructed provided Court that to determined the the doneetwo persons after that thethe whom writtendonor’s had been Theseor and outside executed structuresIncome Israel, Tax wills includewhether Law) of the32 defines notdeceased it is only defined a common-law trustwere voidasunder an the law applicable to it as a trust or whether and executed wills of the deceased were void demise,theandunlawfully, executed law isadded null applicable willsand as and co-owners void, of thewas unless to deceased therefore itto ashissuch banka were gifttrust account was voidalso or void.whetherexecutetrusts, theUnder due law to arrangementbut unjustapplicable also influence, foundations,trustee to according it as30 anda trust establishmentsis to the ‘awhich oraddition person whether a trustee of to whomdefined assets otherwise. or income of due to unjust influence,30 and the addition of includeddefinedduethese to unjust circumstances, withincertain otherwise. influence, a payments, valid will.30 and which the the were additioncourt not expresslyheld of that statedanddefined nothe settlements co-ownersholds otherwise. the trust’sto made theassets bank underassets accountare inthe favour attributed,laws was of made aother or whoThe holds Income assets Tax Law in further trust provides that a 29 the co-owners to the bank account was made thehekdeshInThe theco-owners case Incomein wasthe of Doewills.to properly the Taxv Doe bank Law, accountthe set furtherdeceased up. was made made provides jurisdictions. thatunlawfully,The beneficiary,Incomea and Evidence Tax was ... Lawwhich Fortherefore onfurther was thisthe established operationalso providespurpose void. Under inofthat foreignIsrael … a a legal trustee entity is ‘a personlisted to in whom the assets or income of severalunlawfully, willsThe and Supreme wasone drafttherefore Court of will determined also prior void. to Under histhat the writtentrust-liketrusteethese or circumstances, is outside entities ‘a person Israel, in to Israel thewhom whether court can assets be itheld is found defined orthat income inno the under of assets are attributed, or who holds assets in trust unlawfully, and was therefore also void. Under demise.trusteetheseIt was circumstances, Inand theis further executed‘a first person wills, argued thewills thecourtto of whomthedeceased heldthat deceased that a assets bequeathedtrust no were orvoidhad income beenrecordsassetshekdesh the are of was lawthe attributed, properlyapplicableIsraeliFirst Registrar setor to who up.Schedule it as holds aof trust Companies assets or A whether shall in trust as be regarded... For this purpose as a trustee;… a legal entity listed in the 30 these circumstances, the court held that no hisassetshekdeshcreated estate wasare duemainly by properlyto attributed, an unjust to oral his setinfluence, family contract up. or members, who and in the holds accordance addition assets of foreign... in ForwithIt wastrust thisdefined corporations. further purpose otherwise. arguedthe …31 a legalMinister that aentity trust listedhad of beenFinance in the may,First Scheduleby order, A shall add be regarded as a trustee; the co-owners to the bank account was made createdThe by anIncome oral contract Tax Law in further accordance provides with that a hekdesh was properly set up. whereas...s.2It For was of thethisinfurther the Law. purpose last argued two The wills that …Supreme aand trustlegal the had draft entity Court been will listed held that FirstinFurther, the Schedule s.75C A of shall corporateIsrael’s be regarded Income bodies Tax as a trustee; to First Schedulethe Minister ofA.’ Finance may, by order, add hecreated bequeathed byunlawfully, an oral his estate contract and wasto anotherin therefore accordance person, also withvoid. and Under Ordinance thes.2 Minister oftrustee the (NewLaw. ofis The ‘aFinanceVersion), person Supreme may,to 5721-1961 whom Court by order, assets held (the addthat or income of corporate bodies to First Schedule A.’ these circumstances, the court held that no assets are attributed, or who holds assets in trust It was further argued that a trust had been instructedFirsts.2the of purpose the Schedule Law. that Thethe of twoSupreme Athe shallpersons deceased Court be whom regarded held washad that been to as set a uptrustee;Incomecorporatethe an purpose Tax bodies Law) of the32 to definesdeceased FirstThe Schedulelegal a wastrust to entities setas A.’ an up an listed inThe said legal First entities Schedule listed in said A First Schedule A hekdesh was properly set up. ... For this purpose … a legal entity listed in the addedthearrangement purpose as co-owners of the of deceased to payments his bank was account to toset beup execute an executed arrangement arrangementonThe his legal entities according of paymentsare listed theto in whichto following:said be executed aFirst trustee Schedule on his A are the following: created by an oral contract in accordance with the MinisterIt was further of Finance argued that may, a trust by had order, been add First Schedule A shall be regarded as a trustee; certainarrangement payments, of payments which were to be not executed expressly on stated his holdsaredemise; the the following: trust’stherefore, assets it did in not favour accord of awith s.8(b) • a foundation under the laws of Liechtenstein, s.2 of the Law. The Supreme Court held that corporatedemise;created therefore, bodies by an oral to it contractFirst did not Schedule in accordanceaccord A.’with with s.8(b)of thethe Succession Minister Law,• of a Finance foundation which requiresmay, by order, thatunder such add the lawsPanama, of Liechtenstein, the Bahamas, and the Netherlands indemise; the wills. therefore, it did not accord with s.8(b) beneficiary,• a foundation which under was the established laws of Liechtenstein, in Israel s.2 of the Law. The Supreme Court held that arrangementscorporate be bodies set up to by First will. Schedule The Supreme A.’ Antilles (Curaçao); the purpose of the deceased was to set up an of Thethe the Succession legalSuccession entities Law, which Law, listed requires which in said that requires suchFirst Schedule thatPanama, such A the Bahamas,Panama, and the the Netherlands Bahamas, and the Netherlands The Supremethe purpose Court ofdetermined the deceased that was the to writtenset up an orCourt outside continuedThe Israel, legal whetherentities and held listed it that is defined inthe said creation First under Scheduleof such A• an establishment under the laws of arrangement of payments to be executed on his andarearrangements executed thearrangement following: wills be set of be theup of set by paymentsdeceased will. up Theby towere will.Supremebe executed void The onSupreme histhe trustAntilles law areshould applicable the (Curaçao); following:have to been Antillesit as made a trust in accordance(Curaçao); or whether with Liechtenstein; and 30 demise; therefore, it did not accord with s.8(b) due•Court a to foundation unjust continued continueddemise; influence, therefore, and under held and and thatit thedidheld the the not additionlaws creationthat accord of the of with Liechtenstein,of suchcreation s.8(b) defined•s.17 an of establishmentof• thesuchaotherwise. foundation Law. • under underan establishment the laws ofof Liechtenstein, under •the a registered laws of trust enterprise (trust reg.) under thetrust co-owners should shouldof the have to Succession thehave been bank made been Law,account in which made accordance was requires madein accordance with that such TheLiechtenstein;As with IncomeevidentPanama, fromTax theand Law the Bahamas,Liechtenstein; above, further the and provides inheritance the Netherlands that and a the laws of Liechtenstein. of the Succession Law, which requires that such unlawfully,s.17Panama, of thearrangements Law. and the was Bahamas,therefore be set up also by and void.will. The theUnder Supreme Netherlands trustee•procedure a registered is Antilles ‘a personin Israeltrust (Curaçao); to enterpriseis whom a complex assets (trust and or cumbersome reg.)income under of arrangements be set up by will. The Supreme theses.17AsAntilles evident circumstances,of theCourt from (Curaçao);Law. continued the the above, court and the held held inheritance that that the no creation of suchassetsthe lawsare• an attributed, ofestablishment Liechtenstein.• a or registered who under holds the assetslaws trust of in trust enterprise 31 A review (trust of the records reg.) of the Registrar under of Companies shows, for example, trust should have been made in accordance with 29 File no.Liechtenstein; 7033/15 Supreme Court, and Doe v Doe (1 September 2016) Nevo Legal a company named ‘Favorit Establishment’, which was incorporated on 19 hekdeshprocedureAs evident was in properly Israel from is set a complex theup. above, and cumbersome the inheritance ... DatabaseFor this (by subscription)purpose (Isr.) … thea legal laws entity of listed Liechtenstein. in the November 1987 in Liechtenstein. Court continued and held that the creation of such • an establishment under the laws of 30 Section 30 of the Succession Law provides that a will made as a result of 32 Income Tax Ordinance (New Version), 5721-1961, 6 DMI 120, Fourth2 Chapter: It was furthers.17 of theargued Law. that a trust had been First31unjust A review Schedule influence• aof registered the – recordsi.e. Anot shall outof thetrustof free Registrarbe willregardedenterprise – is ofvoid. Companies as (trust a shows, trustee; reg.) for example, under 29procedure File no. 7033/15 Supreme in Israel Court, Doe vis Doe a (1 complexSeptember 2016) Nevoand Legal cumbersome a company named ‘Favorit Establishment’, which was incorporated on 19 Trusts (1961) (Isr.) (the Income Tax Law). trust should have been made in accordance with createdDatabaseLiechtenstein; (by by subscription) anAs oralevident (Isr.)contract from and the in accordance above, the inheritance with theNovember Minister 1987the in laws Liechtenstein. of Finance of Liechtenstein. may, by order, add s.230 Sectionof the 30 Law.procedure of the TheSuccession Supreme in LawIsrael provides isCourt a that complex a heldwill made that and as a resultcumbersome of corporate32 Income Tax bodiesOrdinance to(New31 First AVersion), review Schedule 5721-1961 of the, 6 DMI recordsA.’ 120, Fourth2 of the Chapter: Registrar of Companies shows, for example, s.17 of the Law. •unjust a registeredinfluence – i.e. not out trust of free will enterprise– is void. (trust reg.)TrustsJUNE under (1961) 2019 (Isr.) (the Income Tax Law). 17 WWW.STEP.ORG/TQR the29 purposeFile no. 7033/15 of the Supreme deceased Court, was Doe to setv Doe up (1 an September 2016)The Nevo legal31 ALegal review entities of the recordsa listed company of the in Registrar saidnamed First of ‘FavoritCompanies Schedule Establishment’, shows, for A example, which was incorporated on 19 As evident from the above, the inheritance Databasethe laws (by29 File subscription) no.of 7033/15 Liechtenstein. Supreme (Isr.) Court, Doe v Doe (1 September 2016) Nevo Legal a company named ‘FavoritNovember Establishment’, 1987 inwhich Liechtenstein. was incorporated on 19 arrangement30 SectionDatabase 30 of (bypaymentsthe subscription) Succession (Isr.)to beLaw executed provides thaton his a will madeare as athe resultNovember following: of 1987 in Liechtenstein. JUNE 2019 30 Section 30 of the Succession Law provides that a will made as a result17 of 32 Income Tax Ordinance32 Income (New Version), Tax Ordinance5721-1961WWW.STEP.ORG/TQR, 6 DMI (New 120, Fourth2 Version), Chapter: 5721-1961 , 6 DMI 120, Fourth2 Chapter: procedure in Israel is a complex and cumbersome demise;unjust influence therefore,unjust influence – i.e. it not – didi.e. notout not outof ofaccordfree free willwill – iswith– isvoid. void. s.8(b) • a foundationTrusts (1961) (Isr.) under (theTrusts Income the (1961) Taxlaws Law). (Isr.) of Liechtenstein, (the Income Tax Law). of31 the A review Succession of the records Law, which of the Registrarrequires of that Companies such shows,Panama, for example, the Bahamas, and the Netherlands 29 File no. 7033/15 Supreme Court, Doe v Doe (1 September 2016) Nevo Legal arrangementsa companyJUNE named 2019be ‘Favorit set up Establishment’,by will. The Supreme which was incorporatedAntilles on17 19 (Curaçao); WWW.STEP.ORG/TQR Database (by subscription) (Isr.) NovemberJUNE 2019 1987 in Liechtenstein. 17 WWW.STEP.ORG/TQR 30 Section 30 of the Succession Law provides that a will made as a result of Court32 Income continued Tax Ordinance and held (New that Version), the creation 5721-1961, of6 DMIsuch 120, Fourth2• an establishment Chapter: under the laws of unjust influence – i.e. not out of free will – is void. trustTrusts should (1961) (Isr.) have (the been Income made Tax Law).in accordance with Liechtenstein; and s.17 of the Law. • a registered trust enterprise (trust reg.) under As evident from the above, the inheritance the laws of Liechtenstein. 63 JUNE 2019 17 procedure in Israel is a complex and cumbersomeWWW.STEP.ORG/TQR Contents 31 A review of the records of the Registrar of Companies shows, for example, 29 File no. 7033/15 Supreme Court, Doe v Doe (1 September 2016) Nevo Legal a company named ‘Favorit Establishment’, which was incorporated on 19 Database (by subscription) (Isr.) November 1987 in Liechtenstein. 30 Section 30 of the Succession Law provides that a will made as a result of 32 Income Tax Ordinance (New Version), 5721-1961, 6 DMI 120, Fourth2 Chapter: unjust influence – i.e. not out of free will – is void. Trusts (1961) (Isr.) (the Income Tax Law).

JUNE 2019 17 WWW.STEP.ORG/TQR TheTrusts Use & Trustees of Real, Vol. Estate 25, No. Trust 1, February for Holding 2019, pp. of 135–137 and Management of Property in Israel 135 Trusts & Trustees, Vol. 25, No. 1, February 2019, pp. 135–137 135 TheTrusts & Trustees, use of Vol. 25, real No. 1, February estate 2019, trust pp. 135–137 for holding of andThethe use management use of of real real estate estate of propertytrust trust for for in holding holding Israel of andof and management management of of property property in in Israel israel Alon Kaplan* and Meytal Libermany

Alon Kaplan* and Meytal Libermany

Dr. Alon Kaplan | Meytal Liberman Downloaded from https://academic.oup.com/tandt/article-abstract/25/1/135/5258080 by guest on 16 February 2019 Downloaded from https://academic.oup.com/tandt/article-abstract/25/1/135/5258080 by guest on 16 February 2019 Abstract Another old example of the historical use of a RET canAnother be foundold inexample the establishmentof the historical of Tel Avivuse of ina 1909.RET RealAbstract estate trust in Israel is a useful legal structure At that time, it was prohibited for Jewish residents to for families who wish to register real property in can be found in the establishment of Tel Aviv in 1909. Real estate trust in Israel is a useful legal structure purchase land, thus the land was purchased by a non- the name of a corporate body acting as a ‘trans- At that time, it was prohibited for Jewish residents to for families who wish to register real property in resident investor, who acted as trustee for the new parent entity’ and keep tax advantages granted to purchase land, thus the land was purchased by a non- the name of a corporate body acting as a ‘trans- 2 individual persons. This structure may be found residentsettlors. investor, who acted as trustee for the new parent entity’ and keep tax advantages granted to 3 Trusts2 in Israel are governed by the Trust Law. In individualparticularly persons. useful andThisefficient structure for may non-Israeli be found settlors. addition, other laws contribute to the enhancement3 of particularlyfamilies that useful decide and to efficientinvest in for real non-Israeli estate in Trusts in Israel are governed by the Trust Law. In the various uses of trusts, such as the Agency Law4 familiesIsrael or that have decide a second to invest home in for real the estate family in addition, other laws contribute to the enhancement of and the Real Property Taxation Law.5 This framework4 Israelcompound. or have a second home for the family the various uses of trusts, such as the Agency Law compound. andis augmented the Real Property by court Taxation cases and Law. rulings5 This of framework the Israeli Taxis augmented Authority. by court cases and rulings of the Israeli Introduction Tax Authority. Introduction RETs in Israel Real estate trusts (RETs) have been used in Israel for RETs in Israel Realmany estate years trustsand for (RETs) various have purposes, been used including in Israel legit- for The RET in Israel is a legal structure under which real manyimate yearstax planning, and for variousasset protection, purposes, and including commercial legit- estateThe RET is purchased in Israel is by a legala trustee, structure or is under transferred which to real a transactions.imate tax planning, asset protection, and commercial estatetrustee, is andpurchased the trustee by a trustee,acts as ora isnominee transferred or bareto a transactions.For instance, the RET was used in the 19th century trustee,trustee forand anthe identifiabletrustee acts beneficiary. as a nominee Israeli or barelaw, byFor Jewish instance, people the living RET in was Jerusalem used in thein order 19th centuryto pur- trusteenamely forthe anReal identifiable Property beneficiary.Taxation Law Israeli and law,the bychase Jewish land people and protect living theirin Jerusalem property in from order confisca- to pur- namelyTrust Law, the provideReal Property the legal Taxation structure Law for andsuch thean tionchase by land the and Ottoman protect rulers.their property This was from achieved confisca- by TrustRET. Law, provide the legal structure for such an tionplacing by thethe propertyOttoman in rulers. a Moslem This trustwas achievedknown as by a RET. placingWaqf, thus the propertyensuring inthat a Moslemthe Moslem trust governmentknown as a The RET in Israel is a legal structure under Waqfwould, notthus interfere ensuring with that the the ownership Moslem rightsgovernment of the ThewhichRE realT in estaIsraelte is ispurchaseda legal structureby a trustee,under or 1 wouldland. not interfere with the ownership rights of the iswhich transferred real esta tote a trustee,is purchased and the by trustee a trustee, acts or land.1 is transferred to a trustee, and the trustee acts

* Alon Kaplan, TEP, Advocate & Notary, Founder and Manager at Alon Kaplan, Advocate & Notary, of 1 King David Boulevard, Tel Aviv 6495301, Israel. Tel: +972-3-5084966; Fax: +972-3-5084969; Email: [email protected] y* MeytalAlon Kaplan, Liberman, TEP, TEP, Advocate Advocate & Notary, & Notary, Founder Associate and Manager Attorney at atAlonAlon Kaplan, Kaplan, Advocate Advocate & & Notary,, of of 1 1 King King David David Boulevard, Boulevard, Tel Aviv 6495301, Israel. Tel: +972-3-5084966; Fax: +972-3-5084969; Email: [email protected]@alonkaplan-law.com 1.y Meytal Ron Shaham, Liberman, ‘Christian TEP, Advocate and Jewish & Notary, ‘Waqf’ inAssociate Palestine Attorney during theat Alon Late Kaplan, Ottoman Advocate Period’ & (1991) Notary 54(3), of 1 Bulletin King David of the Boulevard, School of Tel Oriental Aviv 6495301, and African Israel. Studies Tel: +972-3-5084966;460. Fax: +972-3-5084969; Email: [email protected] 1.2. RonShimon Shaham, Rubinstein, ‘ChristianConstraints and Jewish and ‘Waqf’ Hope in in the Palestine Matter during of Land the Purchases Late Ottoman by Jews Period’ in the (1991) Land of 54(3) Israel Bulletin at the End of the of theSchool Ottoman of Oriental Period and(Hebrew) African5 Sthttp://udies 460.www.kkl.org.il/files/HEBREW_FILES/machon-mediniut-karkait/karka-41/karka-41-1996-10.pdf4. 2.3. Shimon(1966–1967) Rubinstein, 5739-1979,Constraints 33 LSI 41and (Isr). Hope in the Matter of Land Purchases by Jews in the Land of Israel at the End of the Ottoman Period (Hebrew) 5http:// www.kkl.org.il/files/HEBREW_FILES/machon-mediniut-karkait/karka-41/karka-41-1996-10.pdf4. (1964–1965) 5725-1965, 19 LSI 231 (Isr). 4. 3.5. (1966–1967)(1963) (Capital 5739-1979, Gains and 33 Purchase) LSI 41 (Isr). 5723-1963, 17 LSI 193 (Isr). 4. (1964–1965) 5725-1965, 19 LSI 231 (Isr). ß The5. (1963) Author(s) (Capital (2018). Gains Published and Purchase) by Oxford 5723-1963, University 17 Press. LSI 193 All (Isr). rights reserved. doi:10.1093/tandt/tty182 Advance Access publication 22 December 2018 64ß The Author(s) (2018). Published by Oxford University Press. All rights reserved. doi:10.1093/tandt/tty182 65 Advance Access publication 22 December 2018 Contents 13 6 Articles Trusts & Trustees, Vol. 25, No. 1, February 2019

as a nominee or bare trustee for an identifiable upon accepting this evidence, ruled that the creditor beneficiary had no right against the real estate property even though the Land Registry did not have any reference Under such a structure, the trustee is registered as to the rights of the beneficiaries. the legal owner of the real estate but under Israeli Tax This was an important precedent reconfirming laws, namely the Income Tax Ordinance6 and the Real the concept of holding real estate in trust for a bene- Property Taxation Law, the beneficiary of the real ficiary and ensuring beneficiaries’ rights against third estate is considered as the real owner, similar to a parties. Downloaded from https://academic.oup.com/tandt/article-abstract/25/1/135/5258080 by guest on 16 February 2019 beneficiary of a bare trust in the common law.7 The trustee may be registered directly in its name in Taxation of real estate in Israel the Land Registry, but it may also hold the real estate indirectly via an underlying company registered for A sale for the purposes of the Real Property Taxation this purpose—a special purpose vehicle (SPV), whose Law is considered as such whether it was made for shares are wholly held by the trustee. consideration, or not. However, it should be noted, An example of how this presumption works can be that the transfer of real estate under inheritance pro- gleaned from a recently published case where a father cedure is not considered as a sale, and therefore does purchased an apartment in Israel and invested most not trigger the imposition of any of the taxes men- of the funds required to purchase the property.8 The tioned above. In fact, Israeli law does not provide for apartment was registered in the name of his daughter. any estate tax, thus the transfer of any property upon The apartment was used alternatively for the parents death, including real estate, is not subject to any tax in and the daughter upon her visits to Israel. After the Israel. demise of the mother, the daughter filed a claim Under the Real Property Taxation Law, two main against the father demanding the eviction of the taxes are imposed upon a sale of real estate: Capital father from the apartment, claiming that she had Gains Tax on the seller and a Purchase Tax on the the ownership of the apartment. The court dismissed purchaser. The Capital Gains Tax is calculated in ac- the claim recognizing the ownership rights of the cordance with the increase in the value of the prop- father who provided evidence that the apartment erty since its purchase; the time period during which was his property held by the daughter as a trustee the seller owned the property; and the existence of for the father. other real properties owned by the seller. The Another interesting case was ruled upon by the Purchase Tax represents a certain percentage of the Supreme Court.9 In that matter, a trustee was regis- purchase price. This percentage is set in accordance tered in the Land Registry as the owner of a real estate with other real properties owned by the purchaser. property. The registration did not reference the fact 10 that the property was held in trust. The trustee was Tax exemption for an RET declared bankrupt and a creditor tried to attach the property for the satisfaction of his claim against the A pre-ruling published in 2012 by the Israeli Tax trustee. The court was presented with evidence that Authority11 dealt with the transfer of real estate prop- the property was held in trust for beneficiaries, and, erties into a private trust. In this case, an elderly

6. [New Version] (1961) 5721-1961, 6 LSI [NV] 120 (Isr). 7. Trusts and Taxes, see 5https://www.gov.uk/trusts-taxes/types-of-trust4. 8. Family Case (TA) 19831-04-10 RG v MP (7 July 2013) Nevo Legal Database (by subscription) (Isr). 9. CA 5955/09 Amster (Receiver) v Tauber Tov (19 July 2011) Nevo Legal Database (by subscription) (Isr). 10. Such a reference is possible under a procedure named ‘caveat’ under s 4 of the Trust Law, and Land Law (1968-1969) 5729-1969, 23 LSI 293, 127 (Isr). 11. Tax Ruling no 3324/12, The Establishment of a Hekdesh – Tax Ruling in Agreement 5https://www.misim.gov.il/tmmisuyweb/frmShowLinkedAbs.aspx ?num 201200304 accessed 10 December 2018 (Hebrew). ¼

64 65 Contents Trusts & Trustees, Vol. 25, No. 1, February 2019 Articles 137

person created a trust in his favour and in favour of If the creation of a trust (by the settlor/beneficiary) and other beneficiaries. The Israeli Tax Authority recog- the vesting of the trust’s properties to the trustee, desig- nized the establishment of a trust regulated under nated until the end of his days to benefit the benefi- section 17 of the Trust Law known as Hekdesh. The ciary, his welfare and quality of life, while still alive, and Israeli Tax Authority confirmed that the transfer of after his death, in favor of specific beneficiaries, which the real estate property to the trust was exempt from the beneficiary determined in the trust document and tax, thus recognizing in this case an RET. in the aforementioned will, will not be deemed to be a ‘sale of a right in land’ in the sense of the law. Downloaded from https://academic.oup.com/tandt/article-abstract/25/1/135/5258080 by guest on 16 February 2019 The Israeli Tax Authority confirmed that the transfer ofthe real estate property to the trust was exempt from tax, thus recognizing in Conclusion this case an RET Real estate investments in Israel are in great demand The importance of the ruling is in the clarification by both Israeli and foreign investors. Some investors given, for the first time, regarding the existence of tax choose to hold properties they purchase in the name exemption for the transfer of real property by a bene- of a trustee. ficiary into an RET. However, if an investor is considering using this Until this ruling there had been no orderly source structure to invest in real estate in Israel, he showing that when an owner of real property transfers should note that there are some issues of trust, inher- the property to a trustee and becomes a beneficiary of itance, and tax laws, which require proper consult- the RET, the transfer is tax exempt. The ruling stated ations and consideration. Therefore, expert advice is as follows: recommended.

Alon Kaplan, PhD (Zurich), TEP, President of STEP Israel, practices law in Tel Aviv, specializing in Trusts and Estates. He is General Editor of Trusts in Prime Jurisdictions (4th edition, April 2016), the Israel Country Correspondent for Oxford Journals’ Trusts and Trustees, and author of Trusts in Israel: Development and Current Practice (Helbing Lichtenhahn Verlag 2015), and Trusts and Estate Planning in Israel (Juris Publishing 2016). E-mail: [email protected].

Meytal Liberman, LL.B, LL.M, TEP, was admitted to the Israel Bar in 2013. She advises clients from Israel and overseas on trusts and estate planning as an Associate Advocate at Dr. Alon Kaplan, Advocate & Notary, where she also completed her legal internship. Meytal has been a member of the Society of Trusts and Estates Practitioners (STEP) since 2015, after she had completed two years of studies and earned a Diploma in International Trust Management. Meytal is the General Editor and contributor of the book ‘‘Trust in Israel: Theory and Practice’’ by Alon Kaplan, which was published in Hebrew in 2017. E-mail: meytal@alonkaplan- law.com.

66 67 Contents TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN

procedure. It may also be uncomfortable for the ‘Evidence on the operation deceased’s family members, who are required of foreign trust-like entities to disclose the contents of the will. Due to this TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN reason, it is usually advisable to set up an inter in Israel can be found in vivos trust, rather than a testamentary trust, and special attention should be paid to the transfer of The fact that foreign trusts are recognised under The Ordinance provides for tax benefits to new the records of the Israeli assets into the trust in order to avoid a situation Israeli law is demonstrated more forcefully in the immigrants and long-term returning residents, Registrar of Companies as where such transfer is struck down by the court case of Lnl Reg Trust v Levine,33 where a trust entity namely an exemption from tax and reporting under s.8(b), as mentioned above. litigated in the Israeli District Court (the District obligations for a period of ten years on all forms foreign corporations’ Court). In this case, the trust entity, Lnl Reg Trust, of income, active or passive, as long as they are RECOGNITION OF FOREIGN TRUSTS was established in 1965 for holding assets and the derived from sources abroad. These benefits may AND TRUST-LIKE STRUCTURES IN ISRAEL administration thereof for a family. A dispute arose be applied to a trust of such new immigrants and Several different wealth management or legacy with respect to the validity of a certain document long-term returning residents accordingly. during the donor’s lifetime, when such gift is to be structures can be found in operation in Israel. executed by the founder, where he left instructions effectively provided to the donee after the donor’s These structures include not only common-law to the trustee, since it was not probated as a will. CONCLUSION demise, is null and void, unless such gift was trusts, but also foundations, establishments The importance of this case lies in the fact The Israeli trust institution, which has its included within a valid will. and settlements made under the laws of other that the legal capacity of a Liechtenstein foundations in Israeli case law, became statutory In the case of Doe v Doe,29 the deceased made jurisdictions. Evidence on the operation of foreign trust reg. entity was effectively recognised on the enactment of the Law in 1979, and has since several wills and one draft of will prior to his trust-like entities in Israel can be found in the by the Israeli District Court, since it was able continued its development through court cases. demise. In the first wills, the deceased bequeathed records of the Israeli Registrar of Companies as to file a claim and litigate in Israel. Further, The above analysis demonstrates that a trust his estate mainly to his family members, foreign corporations.31 the District Court reviewed the by-laws of can be considered as an efficient instrument to whereas in the last two wills and the draft will Further, s.75C of Israel’s Income Tax the trust entity and other legal arrangements plan an estate, as it both minimises the need he bequeathed his estate to another person, and Ordinance (New Version), 5721-1961 (the within the trust and determined the rights of for inheritance procedures and allows a greater instructed that the two persons whom had been Income Tax Law)32 defines a trust as an the beneficiaries accordingly. degree of control over the assets, provided it is set added as co-owners to his bank account execute arrangement according to which a trustee up properly. certain payments, which were not expressly stated holds the trust’s assets in favour of a TAX CONSIDERATIONS For this purpose, it is therefore recommended to in the wills. beneficiary, which was established in Israel Under the Income Tax Law, trusts with an Israeli- set up a trust in accordance with the procedure set The Supreme Court determined that the written or outside Israel, whether it is defined under resident settlor, or an Israeli-resident beneficiary, out in s.17 of the Law, preferably as an inter vivos and executed wills of the deceased were void the law applicableTRUSTS to it as a trust IN ISRAELor whether DR ALONor that KAPLANhave assets situated AND in MEYTAL Israel, are subject LIBERMAN trust that does not require probate proceedings. due to unjust influence,30 and the addition of defined otherwise. to reporting and tax in Israel. As can be inferred, The trust instrument should be drafted carefully, Trusts & Trustees, Vol. 25, No. 1, February 2019 the co-owners to the bankArticles account was137 made The Income Tax Law further provides that a the location of the trustee is irrelevant for this with special care given to future events that may unlawfully, and was therefore also void. Under trusteeThe isfact ‘a person that foreignto whom assetstrusts or are income recognised of purpose. under The transferringThe Ordinance of assets to provides a trust, for taxoccur, benefits such as deathto new and divorce of beneficiaries. these circumstances, the court held that no assets are attributed,TRUSTS or who IN holds ISRAEL assets DR inALON trust KAPLAN whether AND MEYTALa testamentary LIBERMAN trust or an inter vivos It is also highly recommended to use an underlying person created a trust in his favour and in favour of If the creationhekdesh of a trust was (by properly the settlor/beneficiary) set up. and ...Israeli For this law purpose is demonstrated … a legal entity listedmore in forcefully the trust, in the may, however,immigrants impose reporting and long-term and tax returningcompany residents, to hold the trust assets, thereby holding other beneficiaries. The Israeli Tax Authority recog- the vesting of theIt was trust’s further properties argued to the that trustee, a trust desig- had been Firstcase Schedule of Lnl Reg A shall Trust be regarded v Levine as ,a33 trustee; where a trustobligations entity on thenamely trustee. an exemption from tax themand byreporting a designated separate legal entity. The nized the establishment of a trust regulated under nated until thecreated end of by his an days oral to contract benefit the in accordance benefi- with thelitigated Minister in ‘Sectionof the Finance Israeli may,23 District of by order,the Contracts Courtadd (the LawDistrictIt should provides be notedobligations that that a there contract for is no a giftperiod or of ten yearstransfer on of all the forms assets to the underlying company section 17 of the Trust Law known as Hekdesh. The ciary, his welfares.2 of and the quality Law. of The life, Supreme while still alive, Court and held that corporate bodiesmay tobe First made Schedule orally, A.’ in writing orestate in taxsome in Israel, other and, form, should aunless person decide can be made either during the lifetime of the settlor Court). In this case, the trust entity, Lnl Regto Trust,transfer theirof assets income, by way active of inheritance or passive, as longor by way as they of succession are to the trustee or underlying Israeli Tax Authority confirmed that the transfer of after his death,the in purpose favor of specificof the deceased beneficiaries, was which to set up an The legal entities listed in said First Schedule A arrangement of payments to be executed on his arewas the established following:a form is in a 1965 condition for holding of validity assets and byto a virtuetrusteethe in of accordancederived law or from agreementwith the sources Succession abroad. Thesecompany benefits as heirs. Althoughmay it is usually preferred the real estate property to the trust was exempt from the beneficiary determined in the trust document and demise; therefore, it did not accord with s.8(b) •administration a foundation under thereof the laws forof Liechtenstein, a family.between A dispute theLaw, parties’ arose or by way beof will, applied the transfer to a trust would ofnot such be newto immigrantstransfer the assets and during the life of the settlor, tax, thus recognizing in this case an RET. in the aforementioned will, will not be deemed to be a TRUSTS IN ISRAEL DR ALON KAPLAN AND MEYTAL LIBERMAN of the Succession Law, which requires that such withPanama, respect the Bahamas, to the validity and the Netherlands of a certain documentconsidered a taxlong-term event in Israel, returning regardless residents of the accordingly.the type of assets and the tax consequences of the ‘sale of a rightarrangements in land’ in the be sense set of up the by law. will. The Supreme Antilles (Curaçao); nature of the assets.34 transactions should also be considered. Downloaded from https://academic.oup.com/tandt/article-abstract/25/1/135/5258080 by guest on 16 February 2019 Court continued and held that the creation of such •executed an establishment by the under founder, the laws where of he left instructions The Israeli Tax Authority confirmed that the The fact that foreign trusts are recognised under 33 The File no. Ordinance 1327/96 District providesCourt (TA) Lnl for Reg taxTrust benefitsv Levine (2 January to new 2008) trust should have been made in accordance with toIsraeliLiechtenstein; the law trustee, is demonstrated and since it morewas forcefullynot probated in the as aNevoimmigrants will. Legal Database and (byCONCLUSION subscription)long-term (Isr.) returning residents, DR ALON KAPLAN TEP IS AN ADVOCATE AT transfer ofthe real estate property to the 34 It should be noted that, in the case of a sale of a real property that was s.17 of the Law. • a registered trust enterprise33 (trust reg.) under ALON KAPLAN, ADVOCATE & NOTARY, AND trust was exempt from tax, thus recognizing in caseThe of LnlimportanceTRUSTS Reg Trust vIN Levineof ISRAEL this, wherecase DR liesa ALON trust in entity the KAPLAN fact receivednamely AND by anway MEYTALofexemption inheritance,The theIsraeli LIBERMANfrom Taxation tax oftrust Real and Property reporting institution, Law (Capital which has its ConclusionAs evident from the above, the inheritance litigatedthe laws •in ofSubject the Liechtenstein. Israeli to the saidDistrict minimum Court legislation, (the District forthGainsobligations inand s.1, Purchase), it therefore for 5723-1963 a period follows, 17 SH of 193 that, ten (1963) toyears (Isr.) determine provides on all that forms the time MEYTAL LIBERMAN TEP IS AN ADVOCATE this case an RET that the thelegal parties capacity are free to ofagree a Liechtensteinbetween them whetherperiod in which a contract the propertyfoundations can bewas regarded owned by the as indeceaseda trust Israeli is taken caseinto account law, became statutory procedure in Israel is a complex and cumbersome Court). In this case, the trust entity, Lnl Reg Trust, whenof income, capital gains active tax due oris calculated. passive, as long as they are AT HERZOG, FOX & NEEMAN Real estate investments in Israel are in great demand trustThe fact reg. thaton entity the foreign powers was trustsof the effectively trustee, are recognised and its rightsrecognised under contract, The Ordinance the natureon ofprovides thethe relationship enactment for tax between benefits of the to new Law in 1979, and has since 31was A review established of theand records obligations. in of the1965 Registrar for holdingof Companies assets shows, forand example, the thederived parties from should sources be examined. abroad. These benefits may 29 File no. 7033/15 Supreme Court, Doe v Doe (1 September 2016) Nevo Legal aIsraeli company law named is ‘Favorit demonstrated Establishment’, morewhich was forcefully incorporated onin 19 the immigrants and long-term returning residents, The importance of the ruling is in the clarification by both IsraeliDatabase and foreign(by subscription) investors. (Isr.) Some investors November 1987• inThe Liechtenstein. parties must confer on the trustee power and Goren J affirmed this in the case ofArnon v byadministration the Israeli thereof District for a Court, family.33 A since dispute it arosewas ablebe applied to a trustcontinued of such new its developmentimmigrants and through court cases. 30 Section 30 of the Succession Law provides that a will made as a result of 32case Income of LnlTax Ordinance authoritiesReg Trust (New by Version),v transferringLevine 5721-1961, where, 6the DMI proprietary 120, a trustFourth2 entityChapter: rights Pieutrekovskynamely an exemption,12 stating: from tax and reporting given, for the first time, regarding the existence of tax choose to holdunjust properties influence – i.e.they not outpurchase of free will –in is void.the name Truststowith file (1961) respect (Isr.) a (theclaim toIncome the Taxand validity Law). litigate of a certain in Israel. document Further, long-term returningThe residents above accordingly.analysis demonstrates that a trust litigatedexecuted in byin the thethe Israeli assets founder, to District the where trustee, Court he or left by (the granting instructions District the obligations for a period of ten years on all forms exemption for the transfer of real property by a bene- of a trustee. trustee control and power over the assets. ‘A transaction shall be regarded as a trust Court).theto the District trustee, In this case, sinceCourt the it was reviewedtrust not entity, probated theLnl Regas by-laws a Trust,will. of ofCONCLUSION income, activecan or passive, be considered as long as they as an are efficient instrument to ficiary into an RET. However, ifJUNE an 2019investor is considering using this 17 was establishedA debenture in 1965 trustee, for holding whose WWW.STEP.ORG/TQRmodus assets operandi and the derivedtransaction from subject sources to the abroad. provisions These of the benefits may theThe trust importanceis governed entity ofby and thisthe Securities othercase lies Lawlegal in, 9the and arrangements fact a trustee TheTrust Israeli Law if the trust conditionsplan institution, an of theestate, definition which as has it its both minimises the need Until this ruling there had been no orderly source structure to invest in real estate in Israel, he administration thereof for a family. A dispute arose be applied to a trust of such new immigrants and withinthat the legalofthe employee capacitytrust stock and of option a determinedLiechtenstein incentive programmes, the rights foundationsofstipulated in the in Law forIsraeli have inheritance casebeen law,materially became procedures statutory and allows a greater showing that when an owner of real property transfers should note that there are some issues of trust, inher- with respect to the validity of a certain document long-termfulfilled. The returning applicability residents of the definition accordingly. of thetrust beneficiaries reg.whose entity modus was operandieffectively accordingly. is governed recognised by the on the enactmentdegree of the ofLaw control in 1979, andover has the since assets, provided it is set the property to a trustee and becomes a beneficiary of itance, and tax laws, which require proper consult- executedby the Israeli Incomeby the District Taxfounder, Rules Court, (Taxwhere Relief since he inleft it the was instructions Allocation able of continueda trust on a transactionits development is not subject through to the court cases. to the trustee,Shares since to Employees), it was not10 serve probated as good as examples a will. CONCLUSIONmere wishes of theup parties, properly. and despite using the RET, the transfer is tax exempt. The ruling stated ations and consideration. Therefore, expert advice is to file a claim and litigate in Israel. Further, JUNEThe 2019 above analysis demonstrates that a trust 18 WWW.STEP.ORG/TQR The importanceof such trustees. of this case lies in the fact Thethe Israeliphrase “trust trust” in institution, the transaction which between has its as follows: recommended. TAXthe District CONSIDERATIONS Court reviewed the by-laws of canthem, be the considered transactionFor asshall an thisnot efficient be purpose, a trust instrument it is therefore to recommended to thatUnderthe trustthe legaltheA entity TRUST capacityIncome and CREATED other of Tax a UNDERLiechtensteinlegal Law, arrangements A CONTRACT trusts with an foundationsIsraeli-plantransaction an estate, and in subject Israeli setas it upboth to case the a minimises trustprovisions law, became in of accordance the statutory need with the procedure set trustwithin reg. theA entity trust trust created was and effectively determined by a contract recognised is the one rights governed of by onforthe the inheritance law enactment if its contents procedures of do the not Law go in and inline 1979, allowswith and a greaterhas since resident settlor, or an Israeli-resident11 beneficiary,the definition of theout trust in in s.17 the Law.’of13 the Law, preferably as an inter vivos Alon Kaplan, PhD (Zurich), TEP, President of STEP Israel, practices law in Tel Aviv, specializing in Trusts and bythe the beneficiaries Israelithe Israeli District contractsaccordingly. Court, laws since and itaccordingly was able continueddegree of controlits development over the assets,through provided court cases. it is set requires an agreement between the settlor and the Estates. He is General Editor of Trusts in Prime Jurisdictions (4th edition, April 2016), the Israel Country toor file that a claim have and assets litigate situated in Israel. inFurther, Israel, are subjectupThe properly. above analysistrust demonstrates that does not that requirea trust probate proceedings. the Districttrustee. Court Under reviewed this framework, the by-laws a trust of contract can canAs mentionedbe considered above, as s.23 an of efficient the Contracts instrument Law to Correspondent for Oxford Journals’ Trusts and Trustees, and author of Trusts in Israel: Development and toTAX reporting CONSIDERATIONSbe viewed and as being tax established in Israel. for the As benefit can beof a inferred,providesFor this that purpose, a contactThe may it trust is be therefore entered instrument orally, recommended i.e. should to be drafted carefully, the trust entity and other legal arrangements plan an estate, as it both minimises the need Current Practice (Helbing Lichtenhahn Verlag 2015), and Trusts and Estate Planning in Israel (Juris Under thethird Income party inTax accordance Law, trusts with s.34with of an the Israeli- Contracts withoutset up a writtentrust in document. accordance Therefore, with athe trust procedure set withinthe location the(General trust of andPart) the determined Law, trustee 1973 (the the Contractsis irrelevantrights Law), of for thisrelationshipfor inheritance may be withprocedures created special by the and mere careallows behaviour given a greater to future events that may Publishing 2016). E-mail: [email protected]. resident settlor, or an Israeli-resident beneficiary, out in s.17 of the Law, preferably as an inter vivos thepurpose.or that beneficiaries havethereby The assets granting transferringaccordingly. situated the beneficiary in Israel, of assetsaare right subject to enforceto a trust, ofdegreetrust the parties. that of control does This occur, notis over commonly require the such assets, known probate as providedas death anproceedings. and it is set divorce of beneficiaries. the trust contract. ‘impliedup properly. trust’. Shamgar J addressed this issue in whetherto reporting a andtestamentary tax in Israel. As trust can be or inferred, an inter vivosThe trust instrumentIt is14 also should highly be drafted recommended carefully, to use an underlying Meytal Liberman, LL.B, LL.M, TEP, was admitted to the Israel Bar in 2013. She advises clients from Israel and TAX CONSIDERATIONSSection 23 of the Contracts Law provides that a theFor case this of Wallas purpose, v Gat it, isstating therefore the following: recommended to trust,the location may,contract of however, the may trustee be made imposeis orally, irrelevant in writing reporting for or this in some and taxwith special carecompany given to future to hold events the that trust may assets, thereby holding overseas on trusts and estate planning as an Associate Advocate at Dr. Alon Kaplan, Advocate & Notary, where Under the Income Tax Law, trusts with an Israeli- set‘The up Implied a trust Trust in accordancewas created in with the Common the procedure set obligationspurpose.other The form,transferring on theunless trustee. a form of assets is a condition to a trust, of validity occur, such as deaththem and by divorce a designated of beneficiaries. separate legal entity. The she also completed her legal internship. Meytal has been a member of the Society of Trusts and Estates residentwhether settlor, bya testamentary virtue or of an law Israeli-resident or agreement trust or an between inter beneficiary, vivosthe parties. outItLaw is in alsoto s.17 deal highly of with the circumstances recommendedLaw, preferably where to asthe use an aninter underlying vivos behavior of the parties and their actions imply ortrust, Itthat should may, haveSince however, assets thebe Law noted situated doesimpose not that in require reporting Israel, there the are fulfilment andis subject no tax gift of or trustcompany that doesto hold nottransfer the require trust ofassets,probate the therebyassets proceedings. holding to the underlying company Practitioners (STEP) since 2015, after she had completed two years of studies and earned a Diploma in any form conditions, and it applies to any trust that they intended to create a trust, but for some toestateobligations reporting tax on and in the Israel,tax trustee. in Israel. and, As should can be inferred, a person decideThethem trust by a instrument designatedcan be shouldseparate made be legal eitherdrafted entity. carefully,during The the lifetime of the settlor International Trust Management. Meytal is the General Editor and contributor of the book ‘‘Trust in Israel: the locationrelationship of the trustee that complies is irrelevant with the definitionfor this set withreason, special this intention care given was not to explicitly future eventsexpressed that may It should be noted that there is no gift or transfer… It is implied of the from assets their relationship to the underlying and company to transfer9 Securities their Law, 5728-1968 assets, 541 SH 234 by (1968) way (Isr.) of inheritance or by way of succession to the trustee or underlying Theory and Practice’’ by Alon Kaplan, which was published in Hebrew in 2017. E-mail: meytal@alonkaplan- purpose. 10The Income transferring Tax Rules (Tax Relief ofin the assets Allocation toof Shares a trust, to Employees), occur, such as death and divorce of beneficiaries. estate tax5763-2003, in Israel, KT 6222, and,448 (Isr.) should a person decide 12can File No. be 548/06 made District either Court (Tel duringAviv), Arnon vthe Pieutrekovsky lifetime (30 June of the settlor law.com. whetherto a trustee a11 testamentaryContracts in (General accordance Part) Law,trust 5733-1973 or, 27an withSH inter117 (1972-1973) thevivos (Isr.) Succession and 2013),It is Nevo also Legal highly Database (by companyrecommended subscription) (Isr.) as toheirs. use an Although underlying it is usually preferred to transferContracts their (Remedies assets for Breach by wayof Contract) of inheritanceLaw, 5731-1970, 25 SH 11 (1970-1971) 13or See by note way 3 of succession to the trustee or underlying trust,Law,to a trustee may, or(Isr.), by however, and in way relevant accordance caseof impose law will, relating with theretoreportingthe the transfer Succession and tax would not14companycompany CA be3829/91 Wallas to as vhold heirs.Gat 48(1)to the PD transferAlthough 801, trust 810 [1994] assets, (Isr.) it the is usually thereby assets preferred holding during the life of the settlor, obligationsconsideredLaw, or by wayon thea of tax will,trustee. event the transfer in Israel, would regardless not be them ofto transferthe by a designated the theassets type separate during of theassets legal life entity. of and the Thesettlor, the tax consequences of the It shouldJUNE be 2019 noted that there is no gift or 13 transfer of the assets to the underlyingWWW.STEP.ORG/TQR company natureconsidered of athe tax eventassets. in Israel,34 regardless of the the type of assetstransactions and the tax consequences should also of thebe considered. estatenature tax of inthe Israel, assets. and,34 should a person decide cantransactions be made either should during also be the considered. lifetime of the settlor to transfer their assets by way of inheritance or by way of succession to the trustee or underlying to3333 a File trustee no. no. 1327/96 1327/96 in District accordance District Court (TA)Court Lnl with Reg(TA) Trust the Lnl v RegSuccessionLevine Trust (2 January v Levine 2008) (2 Januarycompany 2008) as heirs. Although it is usually preferred NevoNevo Legal Legal Database Database (by subscription) (by subscription) (Isr.) (Isr.) DR ALON KAPLANDR ALON TEP IS KAPLAN AN ADVOCATE TEP AT IS AN ADVOCATE AT Law,3434 It should shouldor by be way benoted noted ofthat, will, inthat, the thecase in the oftransfer a case sale of of a realwoulda sale property of not a thatreal be was property to that transfer was the assets during the life of the settlor, received by way of inheritance, the Taxation of Real Property Law (Capital ALON KAPLAN,ALON ADVOCATE KAPLAN, & NOTARY, ADVOCATE AND & NOTARY, AND consideredreceivedGains and Purchase),by way a tax of 5723-1963 inheritance, event, 17 inSH Israel,193 the (1963) Taxation (Isr.)regardless provides of Real that of Propertythe the time Lawthe MEYTAL(Capital type of assetsLIBERMAN and the TEPtax consequences IS AN ADVOCATE of the natureGainsperiod inand which of Purchase), the the assets.property 5723-1963 was34 owned, 17 by SH the deceased193 (1963) is taken(Isr.) intoprovides account that transactions the time shouldMEYTAL also be considered. LIBERMAN TEP IS AN ADVOCATE periodwhen capital in which gains taxthe due property is calculated. was owned by the deceased is taken ATinto HERZOG,account FOX & NEEMAN when capital gains tax due is calculated. 33 File no. 1327/96 District Court (TA) Lnl Reg Trust v Levine (2 January 2008) AT HERZOG, FOX & NEEMAN Nevo Legal Database (by subscription) (Isr.) DR ALON KAPLAN TEP IS AN ADVOCATE AT 66 34 It should be noted that, in the case of a sale of a real property that was 67 received by way of inheritance, the Taxation of Real Property Law (Capital ALON KAPLAN, ADVOCATE & NOTARY, AND Gains and Purchase), 5723-1963, 17 SH 193 (1963) (Isr.) provides that the time ContentsMEYTAL LIBERMAN TEP IS AN ADVOCATE period in which the property was owned by the deceased is taken into account when capital gains tax due is calculated. AT HERZOG, FOX & NEEMAN

JUNE 2019 18 WWW.STEP.ORG/TQR

JUNE 2019 18 WWW.STEP.ORG/TQR JUNE 2019 18 WWW.STEP.ORG/TQR ISRAEL: TRUSTS AND ESTATES Trusts and Estates in Israel

trustsISRAEL: TRUSTS AND ESTATESand estates in israel

Trusts and Estates in Israel Dr. Alon Kaplan | Meytal Liberman Trusts and Estates in Israel An overview of Inheritance and trust laws in Israel and their implications on Israeli and US persons. An overview of Inheritance and trust laws in Israel and their implications on Israeli and US persons.

INTRODUCTION immigrants were born the USA.5 srael is a small country, about the same size Moreover, Israel is known as a “start-up nation” Ias BelgiumINTRODUCTION in Europe or New Jersey in North immigrantswhen relating were born to the high-tech USA.5 and technology. This America. sraelIt is islocated a small on country, the eastern about the shore same of size the sectorMoreover, of Israelthe economyis known as is a “start-upa source nation” of tremendous Ias Belgium in Europe or New Jersey in North when relating to high-tech and technology. This MediterraneanAmerica. ItSea is locatedand has on excellentthe eastern access shore ofby the air sectorwealth of the and economy has created is a source a newof tremendous generation of rich 1 and seaMediterranean to Europe, Africa, Sea and Asia has andexcellent North access America. by air wealthfamilies. and has The created magazine a new generationIsrael 21c of richreported that Since 2010,and sea Israel to Europe, is a member Africa, Asia of andthe NorthOECD. America.2 1 families.in the The year magazine 20176 Israeli Israel 21chigh-tech reported exits that totalled in IsraelSince is 2010,a country Israel is a memberof immigration. of the OECD. 2 Formal in $7.44the year billion. 20176 Israeli This high-techamount exits represents totalled in an increase statistics3 Israelshow thatis a atcountry the time of ofimmigration. its establishment, Formal $7.44of 9%billion. over This 2016, amount and represents 9% of those an increase deals were worth statistics3 show that at the time of its establishment, of 9% over 2016, and 9% of those deals were worth Israel’s Israel’spopulation population was wasonly only 872,700 872,700 people,people, outout $400$400 million million to $1 tobillion. $1 billion. ThisThis demographic demographic and economic and economic environment environment providesprovides a fertile a fertile ground ground for US persons, for US whetherpersons, whether USUS or Israelor Israel residents, residents, to invest to in invest assets in Israel.assets in Israel. Israel’s high-tech economy is a Israel’s high-tech economy is a INHERITANCE IN ISRAEL source of tremendous wealth and InheritanceINHERITANCE in Israel is INgoverned ISRAEL by the Succession source of tremendous wealth and Law.Inheritance7 According into Israelsection is 2 governed of the Succession by the Succession has created a new generation of Law,Law. the7 estateAccording of a deceased to section passes to 2 his of heirs the in Succession accordanceLaw, the with estate the oflaw a deceased– intestate passesinheritance, to his heirs in has createdrich families. a new generation of unless the deceased has left a valid will, in which accordance with the law – intestate inheritance, case the estate is bequeathed in accordance thereof. rich families. unlessThe Israeli the court deceased has jurisdiction has left over a valid a person’s will, in which estatecase provided the estate that is the bequeathed person’s center in accordance of life at thereof. of which 716,700 (82%) Jews, and 156,000 (18%) the timeThe of hisIsraeli or her court death haswas injurisdiction Israel, or that over the a person’s 4 8 Muslims, Christians and Druze. formal statistics personestate left providedassets in Israel. that Accordingly, the person’s the Israelicenter of life at further show Israel’s phenomenal population growth, court has jurisdiction, for example, over the estate of whichas Israel’s716,700 population (82%) in Jews, the end and of 2018 156,000 was 8,955,300, (18%) of thea US time resident of his who or passes her death way leaving was in assets Israel, in or that the 4 8 Muslims,out Christians of which 6,554,700 and Druze.(73%) Jews, formal 1,874,800 statistics (21%) Israel,person as well left as assets on a US in person Israel. who Accordingly, immigrated the Israeli further Muslimsshow Israel’s and 525,800 phenomenal (6%) others. population All of growth, whom to Israel.court has jurisdiction, for example, over the estate as Israel’senjoy population equal legal in rights the end in all of 2018areas wasof life. 8,955,300, It is also of a US resident who passes way leaving assets in out of whichinteresting 6,554,700 to note that(73%) since Jews, the establishment 1,874,800 of(21%) the IntestateIsrael, inheritanceas well as on a US person who immigrated State of Israel and until 2017, approximately 110,000 In the absence of a valid will, the Succession Muslims and 525,800 (6%) others. All of whom to Israel. enjoy equal legal rights in all areas of life. It is also 100 The US-Israelinteresting Legal Review to note2019 that since the establishment of the Intestate inheritance State of Israel and until 2017, approximately 110,000 In the absence of a valid will, the Succession

68 69 100 The US-Israel Legal Review 2019 Contents law provides a mechanism that determines the order of inheritance, and the portion of each heir.

equally between the spouse of the deceased and his children.Accordingly, The the spouse first receivesright of inheritance one-half of theis divided estate and the childrenlaw divide provides the a remaining mechanism half that between determines the them in equal shares.order of 9inheritance, and the portion of each heir.

equally between the spouse of the deceased and his Inheritance underchildren.Accordingly, a willThe the spouse first receivesright of inheritance one-half of theis divided estate Alternatively, theand estatethe children can bedivide distributed the remaining a set half out between in the testator’sthem will. in Under equal shares. the Succession9 law, a will can be made in one of four ways, as set forth below:10 Inheritance under a will 11 DR. ALON KAPLAN MEYTAL LIBERMAN a) A handwrittenAlternatively, will – suchthe estate will can shall be distributedbe written a set out entirely in thein the testator’s testator’s will. own Under hand the and Succession shall be law, a will TEP, ADVOCATE & NOTARY TEP, ADVOCATE dated and signedcan be made by the in onetestator. of four ways, as set forth below:10 b) A will madea) in A the handwritten presence will of 11witnesses – such will12 shall – such be written DR. ALON KAPLAN MEYTAL LIBERMAN will is writtenentirely and indated, the testator’s and signed own hand by andthe shall be TEP, ADVOCATE & NOTARY TEP, ADVOCATE dated and signed by the testator. testator before two witnesses after the testator b) A will made in the presence of witnesses12 – such has declared beforewill is writtenthe witnesses and dated, that and it signedis the by the testator’s will.testator The beforewitnesses two witnesses must attest after the by testator cornerstones of the Israeli inheritance law. Section their signaturehas upon declared the before will thatthe witnesses the testator that it is the27, whose title is “Liberty to bequeath”, provides declared and signedtestator’s the will. will The as stated.witnesses must attest thatby ancornerstones undertaking of the to Israeli make inheritance a will, to law.change Section it, or their signature upon the will that the testator 27, whose title is “Liberty to bequeath”, provides c) A Will made before an authority13 – such will must to cancel it, or not to make any thereof – is invalid. declared and signed the will as stated. that an undertaking to make a will, to change it, or be made byc) theA Will testator made before stating an authority its provisions13 – such will mustIt furtherto cancel provides, it, or not that to make a provision any thereof of – isa invalid.will that orally before bea madeJudge, by athe Court testator Registrar, stating its theprovisions negates It further or limits provides, the right that ofa provision the testator of a willto change that Registrar of Inheritance,orally before aor Judge, a Member a Court ofRegistrar, the thethe willnegates or cancel or limits it – the is rightinvalid. of the testator to change Religious Court,Registrar or by aof deposit Inheritance, of a writtenor a Member will of the Thethe principle will or cancel of itFreedom – is invalid. of Testation is also by the testatorReligious with any Court, of these or by authorities.a deposit of a written It is willevident Thein Section principle 8 ofof Freedom the Succession of Testation Law, is alsowhich by the testator with any of these authorities. It is evident in Section 8 of the Succession Law, which further providedfurther that provided for this that purpose, for this purpose,a notary a notary is equivalent tois equivalenta judge. to a judge. d) An oral will14d) – An people oral will who14 – peopleare on who their are deathbeds, on their deathbeds, or who in all orcircumstances who in all circumstances reasonably reasonably regard regardPeople People who who are are on their their themselves asthemselves facing death, as facing may death, declare may adeclare will a will orally before two witnesses. The testator’s deathbeds, or who reasonably orally beforedirections two witnesses. and the circumstances The testator’s of the making deathbeds, or who reasonably directions andof the the circumstanceswill must be recorded of the in makinga memorandum regard themselves as facing of the will mustsigned be byrecorded the two witnessesin a memorandum and deposited withregard death, themselves may declare aas will facing orally signed by the thetwo Registrar witnesses of Inheritance. and deposited An oral willwith becomes death, may declare a will orally the Registrar ofinvalid Inheritance. one month An within oral will one becomesmonth, provided before two witnesses. the circumstances which warranted its making invalid one month within one month, provided has changed, and the testator is still alive. before two witnesses. the circumstancesDespite which the formalwarranted requirements its making mentioned has changed,above, and thethe testatorcourt is authorizedis still alive. to validate a will provides that “an agreement in respect of the Despite theeven formal if it is requirementsdefective or missing mentioned certain formal succession of a deceased and a renouncement above, the courtrequirements, is authorized provided to the validate court is convinceda will thatprovides regarding that such“an succession,agreement executed in respect prior to of the the demise of the deceased, are void.” The section even if it is defective or missing certain formal succession of a deceased and a renouncement further provides that that “a gift granted by a donor requirements,Freedomit provided reflects theof the testation true court and free is convinced will of the testator. that regardingduring such the donor’s succession, lifetime, executedwhen such giftprior is toto be the The principle of Freedom of Testation is one of thedemise effectively of the provided deceased, to the are donee void.” subsequent The tosection the further provides that that “a gift granted by a donor it reflects the true and free will of the testator. Freedom of testation during the donor’s lifetime, when suchThe gift US-Israel is to beLegal Review 2019 101 The principle of Freedom of Testation is one of the effectively provided to the donee subsequent to the

68 69 Contents The US-Israel Legal Review 2019 101 ISRAEL: TRUSTS AND ESTATES

ISRAEL: TRUSTS AND ESTATES donor’s demise, is also null and void, unless such deceased, who is handicapped, or mentally ill, or gift was included within a valid will.” cognitively disabled is entitled to maintenance. Justice Cheshin stressed the importance of the Chief Justice Shamgar in the case of Levitt17 freedom of testation in the Lishitzky15 case: persons that are entitled to maintenance out of the clarified that it is insufficient to belong to the class of If theredonor’s is a demise,foundation is also principle, null and ifvoid, you unlesswill, a suchsuper- deceased,estate, who and is thathandicapped, a “need ofor maintenance”mentally ill, or should also principle,gift was in included inheritance within law, a valid there will.” is none but the cognitivelybe established, disabled is andentitled where to maintenance. such need is not properly principleJustice that Cheshin instruct stressed us that the a person,importance any of person, the Chiefestablished, Justice Shamgar the testator in the casemay ofbequeath Levitt17 his entire freedom of testation in the Lishitzky15 case: is at liberty to bequeath his estate, and the principle estate to another. Chief Justice Shamgar continued persons that are entitled to maintenance out of the that derivesIf there fromis a foundation it, whereby principle, the ifliving you will, are a super-obliged estate,clarifiedand and thatheld that it is a insufficientthat“need ofsuch maintenance” to needbelong toexists shouldthe class alsoonly of when the to keepprinciple, the deceased’s in inheritance wishes. law, there The is none freedom but the of be established,applicant andfor where maintenance such need iscannot not properly properly satisfy testationprinciple and thethat obligationinstruct us that to akeep person, the any deceased’s person, established,his basic the needs. testator According may bequeath to Shamgar,his entire the wishes wishesis – at two liberty sides to bequeathof the same his estate, coin and– the the two principle as one estateof tothe another. testator Chief should Justice beShamgar enforced continued only to a certain that derives from it, whereby the living are obliged and held that such need exists only when the derive tofrom keep the the humandeceased’s dignity, wishes. and The thefreedom personal of applicant for maintenance cannot properly satisfy autonomytestation derived and the from obligation the dignity. to keep the deceased’s his basicthe testator needs. According becomes to an Shamgar, unreasonable the wishes burden on the wishes – two sides of the same coin – the two as one of thesociety.extent. testator The The should limitmaintenance be lies enforced where onlyout a offirstto thea certain degree estate relativemanifests of Maintenancederive outfrom of the the human estate dignity, and the personal the notion that the existence of a family relationship autonomy derived from the dignity. the testator becomes an unreasonable burden on the An exemption to the principle of the freedom of society.extent. The The limitmaintenance lies where out a offirst the degree estate relativemanifests of testationMaintenance is the right out ofto the receive estate maintenance out the notion that the existence of a family relationship justifies imposing an obligation of maintenance, in of the Anestate. exemption16 Section to the 56principle of the of Successionthe freedom Lawof providestestation that iswhere the right the to deceased receive maintenance left a spouse, out Inheritancespecific instances, procedure upon the in estate.Israel 16 justifies imposing an obligation of maintenance, in childrenof orthe parents estate. thatSection are 56 in ofneed the ofSuccession maintenance, Law Under the Succession Law, the rights of the heirs provides that where the deceased left a spouse, Inheritancespecific instances, procedure upon the in estate.Israel children or parents that are in need of maintenance, Underin the Successionestate are Law, created the rights only of upon the heirs the issuance of in theorder estate with are created respect only to upon the theestate issuance by the of competent orderauthority. with respect In circumstancesto the estate by the where competent the deceased left Only a probate order issued authority.a will, In an circumstances application where should the deceased be made left for a probate a will, an application should be made for a probate Only a probate order issued order, and only upon the issuance of the order the in Israel in accordance with order, and only upon the issuance of the order the in Israel in accordance with will willbecomes becomes valid and valid enforceable. and enforceable. It should also It should also the Successionthe Succession Law Law is is valid. valid. be notedbe noted that only that a probateonly a orderprobate issued order in Israel issued in Israel in accordancein accordance with the with Succession the Succession Law is regarded Law is regarded ProbateProbate orders orders issued issued by by foreign foreign as valid,as valid, and probateand probate orders issuedorders by issuedforeign by foreign authorities are invalid.18 However, in circumstances 18 authorities are invalid. whereauthorities the deceased are left invalid. a will relating However, to only ain part circumstances authorities are invalid. of hiswhere or her the estate, deceased or the deceased left a will did relating not leave to only a part a willof athis all, or an herapplication estate, should or the be deceased made for an did not leave shall be entitled to such maintenance, regardless inheritancea will atorder. all,19 an application should be made for an whether the deceased has made a valid will. Both an application for a probate order and an shall be entitled to such maintenance, regardless inheritance order.19 Moreover, section 63 of the Succession Law application for an Inheritance order are made to whetherprovides the deceased a “claw-back” has rule made and a determines valid will. that in the RegistrarBoth anof Inheritance, application and for it ais probateauthorized order and an Moreover, section 63 of the Succession Law to declareapplication the rights for anof theInheritance heirs accordingly. order20 are made to providesmaintenance a “claw-back” to all that rule are and entitled determines to it, the courtthat in However,the Registrar is the circumstances of Inheritance, described and it inis authorized the event that the estate is insufficient to provide is authorized to view transfers of assets carried out sectionto declare67A of the the Succession rights Law,of thethe Registrarheirs accordingly. 20 without proper consideration during the two years of Inheritance must forward the application to maintenance to all that are entitled to it, the court However, is the circumstances described in the eventperiod that prior the to estatethe death is ofinsufficient the deceased toas partprovide of the Family Court. Such circumstances arise, for is authorizedthe estate, to except view fortransfers gifts and of donations assets carriedmade in as out example,section when 67A the ofapplication the Succession is contested, Law, when the Registrar withoutcustomary proper considerationunder the circumstances. during the two years the ofwill Inheritance is defected, ormust when forwardthe Administrator the application to period prior to the death of the deceased as part of Generalthe representsFamily Court. in the applicationSuch circumstances minor. The arise, for maintenance out of the estate, and inter alia Family Court is authorized accordingly to issue the the estate, except for gifts and donations made in as example, when the application is contested, when providesSection that 57 a defines child under the scope18 years of theof age right of the for relevant order.21 customary under the circumstances. the will is defected, or when the Administrator General represents in the application minor. The 102 The US-Israel Legal Review 2019 maintenance out of the estate, and inter alia Family Court is authorized accordingly to issue the providesSection that 57 a defines child under the scope18 years of theof age right of the for relevant order.21

70 71 102 The US-Israel Legal Review 2019 Contents Probate procedure in Israel requires that the original will be submitted with the Registrar of some other purpose. Inheritance, except to an oral will. In the absence underA trust its controlcan be created for the either benefit in ofaccordance another or with for of an original will, such as when the original has the law, by a contract with the trustee, or by deed of Probate procedure in Israel requires that the Hekdesh 25 already been submittedoriginal will inbe anothersubmitted jurisdiction, with the Registrar a of some (endowment): other purpose. separate applicationInheritance, should except be madeto an oral to the will. court In the to absence a) A underTrustA trust its that controlcan beis created forcreated the either benefit in in ofaccordance another or with forwith approve the submissionof an original of will,a copy. such22 as when the original has thethe law law, byis a acontract relationship with the trustee,that complies or by deed ofwith Section 54already of the been Inheritance submitted in Regulationsanother jurisdiction,23 a Hekdesh (endowment):25 provides that aseparate copy of application any application, should be including made to the an court to conditionsa) A Trust are that determined is created in legislation,accordance withsuch as approve the submission of a copy.22 the law is a relationship that complies with the definition of section 1 that its terms26 and application for a probateSection 54 or ofinheritance the Inheritance order, Regulations shall 23 the modus operandi of an estate executor , or a 27 be submitted providesto the reviewthat a copy of of the any application,Administrator including an companyconditions liquidator. are determined in legislation, such as General, whoapplication may, in for its a probate discretion, or inheritance conduct order, shallb) A trustthe modus definitioncreated operandi ofby section a of contract an estate 1 that executor is its governed terms26, or and a by additional inspectionbe submitted of the to application the review of and the require Administrator the contractscompany liquidator. law,28 27and requires accordingly further informationGeneral, and who documents. may, in its discretion, conduct anb) agreement A trust created between by a contract the issettlor governed and by the additional inspection of the application and require the contracts law,28 and requires accordingly Section 17further of theinformation Inheritance and documents. Regulations an agreement between the settlor and the requires that a noticeSection with 17 respect of the to Inheritance the application Regulations for its validity. for the inheritancerequires or probatethat a notice order with berespect published to the application in trusteefor its with validity. no specific procedure necessary trustee with no specific procedure necessary one daily newspaperfor the inheritance and in the or probateformal orderpublication be published in of the State oneof dailyIsrael newspaper (Reshumot). and in theThe formal notice publication of the State of Israel (Reshumot). The notice includes an invitationincludes an to invitation contest theto contest application. the application. OnceOnce the the assets assets are are settled settled into into Section 14 of theSection Inheritance 14 of the Inheritance Regulations Regulations provides provides that an applicationthat an for application a probate for or a probateinheritance or inheritance order orderthe the trust trust during during the the lifetime lifetime of of

respect thereof as follows: the settlor, they are removed respect thereof as follows: the settlor, they are removed a)shall In bethe dismissed, instance unless of notificationsan application are sentfor with an from his estate ... provided the a)shall In bethe dismissed, instance unless of notificationsan application are sentfor with an from his estate ... provided the under law listed in the application. trust is irrevocable and was set under law listedb) Ininheritance the in thecase application.of order an application – notifications for a probate to the order heirstrust properly. is irrevocable and was set b) inheritanceIn the case of order an application – notifications for a probate to the order heirs will, together with a copy of the will itself. properly.If – notifications to the beneficiaries under the will, together childrenwith a ofcopy the ofdeceased the will or itself.their children,If c) A Trust created by a deed of Hekdesh refers to – notifications to the beneficiaries under the parentsthe beneficiaries of the deceased under the or willtheir do children, not include or two types of trust: children of the deceased or their children, c) A Trust• An created inter vivos by trust a deed – such of trustHekdesh must refersbe in to parentsthe beneficiaries of theshould deceased under be delivered the or willtheir to dothe children, notdeceased’s include or children two typeswriting of trust: and signed in the presence of a notary. andthe spouse deceased’s at the spouse, time of thanhis death, such and notifications if none of This Trust becomes operative during the • An inter vivos trust – such trust must be in whom is alive – to the deceased’s parents, and if lifetime of the settlor upon transfer of the should be deliverednone of whom to the is alive deceased’s – to the deceased’s children siblings. writingassets and of the signed trust to in the the control presence of the trustee.of a notary.29 the deceased’s spouse, than such notifications and spouse at theAs evidenttime of fromhis death, the above, and ifthe none inheritance of This• A Trusttestamentary becomes trust operative – such trust during must the whom is aliveprocedure – to the in deceased’sIsrael is a complex parents, and andcumbersome if lifetimecomply of with the thesettlor formal upon requirements transfer under of the none of whomprocedure. is alive It– tomay the also deceased’s be uncomfortable siblings. for the assetsthe of Succession the trust toLaw the for control executing of the a will trustee. as 29 deceased’s family members due to the requirement detailed above.30 A Testamentary trust will As evident from the above, the inheritance A testamentary trust – such trust must to disclose the contents of the will. • become valid upon issuance of a probate procedure in Israel is a complex and cumbersome complyorder with with respectthe formal thereof. requirements31 under procedure. It THEmay ISRAELIalso be TRUST uncomfortable for the theThe Succession inter vivos Hekdesh Law for is aexecuting secret document, a will as deceased’s familyAnother members possible due way to theto transfer requirement assets is by contrarydetailed to aabove. will, and30 theA Testamentary only copy the trust trust deed will 24 to disclose thecreating contents a trust of the under will. the Trust Law. The Trust isbecome deposited valid with theupon Notary. issuance The settlor of maya probate set 31 on a trustee to hold or to otherwise deal with assets Onceorder the with assets respect are settled thereof. into the trust during the THE ISRAELI LawTRUST defines in section 1 a trust as the duty imposed Thethe interterms vivosand conditions Hekdesh of theis atrust secret as he document,sees fit. Another possible way to transfer assets is by contrary to a will, and the only copy the trust deed The US-Israel Legal Review 2019 103 creating a trust under the Trust Law. 24 The Trust is deposited with the Notary. The settlor may set

on a trustee to hold or to otherwise deal with assets Once the assets are settled into the trust during the Law defines in section 1 a trust as the duty imposed the terms and conditions of the trust as he sees fit. 70 71 Contents The US-Israel Legal Review 2019 103 ISRAEL: TRUSTS AND ESTATES

ISRAEL: TRUSTS AND ESTATES

lifetime of the settlor, they are removed from his CONCLUSION estate, and therefore the need for an inheritance Inheritance procedure in Israel is complex. In a or probate order with respect thereof becomes situation where a US person owns assets in Israel, or an Israeli resident owns assets in the US, a separate lifetime of the settlor, they are removed from his CONCLUSION was set properly. procedure must be executed in each jurisdiction. superfluous,estate, provided and therefore the trustthe need is irrevocable for an inheritance and Inheritance procedure in Israel is complex. In a or probate order with respect thereof becomes Thesituation creation where aof US a person trust owns may assets provide in Israel, a or good TAX CONSIDERATIONS alternative,an Israeli resident especially owns assetsif the personin the US, wishes a separate that his There is wasno gift set taxproperly. and estate tax in Israel and should orprocedure her assets must will be be executed managed in each in accordance jurisdiction. with superfluous, provided the trust is irrevocable and a person decide to transfer his or her assets by way hisThe or creationher instructions of a trust for may a relatively provide longa good period of inheritanceTAX CONSIDERATIONS in accordance with the Succession ofalternative, time after especially his death. if the However, person wishes tax implications that his There is no gift tax and estate tax in Israel and should or her assets will be managed in accordance with law, or by way of will, the transfer is would not be a person decide to transfer his or her assets by way his or her instructions for a relatively long period considered as a tax event, regardless of the nature consideration when deciding the best course of of inheritance in accordance with the Succession andof time possible after hisconflict death. of However, laws should tax implications be taken into of the assets.law, or byHowever, way of will,such the transfer transfer ofis wouldassets not in be action. Given the complexity of such situation, it is Israel mayconsidered be regarded as a tax as event, a tax regardlessevent under of the US naturelaw highlyconsideration recommended when deciding to consult the withbest professionals,course of in circumstancesof the assets. where However, the deceased such transfer is a US of person. assets in andaction.and apossible fertile Given conflictthecooperation complexity of laws between ofshould such situation,be UStaken and intoit isIsraeli ShouldIsrael a person may be decide regarded to transfer as a tax hisevent or underher assets US law professionalhighly recommended is highly to important. consult with n professionals, by way ofin creatingcircumstances a trust where – an the inter deceased vivos is trust a US person. or a and a fertile cooperation between US and Israeli Should a person decide to transfer his or her assets professional is highly important. n testamentary trust – than there may be applicable ABOUT THE AUTHORS by way of creating a trust – an inter vivos trust or a reporting and tax obligations in accordance with Dr. Alon Kaplan, LLM (Jerusalem), PhD (Zurich), TEP, testamentary trust – than there may be applicable ABOUT THE AUTHORS the law forreporting the taxation and tax ofobligations trusts from in accordance 2006, which with practicesDr. Alon Kaplan law in, LLMTel Aviv(Jerusalem), specializing PhD (Zurich), in Trusts TEP, and was laterthe amended law for the in taxation2014.32 ofAlthough trusts from the 2006, transfer which Estates.practices Alon law isin a Telmember Aviv specializing of the Israel in Bar Trusts Association, and of assetswas to alater trustee amended in a in testamentary 2014.32 Although trust the istransfer not FrankfurtEstates. Alon Bar, is aand member the Newof the YorkIsrael bar.Bar Association, He serves as a of assets to a trustee in a testamentary trust is not memberFrankfurt of Bar, the andinternational the New York board bar. He of servesthe Weizmann as a Institute,member ofand the ainternational member of board the ofboard the Weizmann of the Israel- SwitzerlandInstitute, and Chamber a member of of Commerce. the board of Alon the Israel- is the co- In a situation where a US person Switzerland Chamber of Commerce. Alon is the co- In a situation where a US person chairman of the committee on International private chairman of the committee on International private ownsowns assets assets in Israel, in Israel, or oran an lawlaw of of thethe Israel BarBar Association. Association. He Heis the is Generalthe General IsraeliIsraeli resident resident owns owns assets assets in in EditorEditor ofof Trusts inin Prime Prime Jurisdictions Jurisdictions (4th (4th edition, edition, AprilApril 2016),2016), thethe IsraelIsrael Country Country Correspondent Correspondent for for the US,the a US, separate a separate procedure procedure OxfordOxford Journals’Journals’ Trusts Trusts and and Trustees Trustees, author, author of Trusts of Trusts must be executed in each inin Israel:Israel: Development and and current current practice practice (2015 (2015 must be executed in each HelbingHelbing LichtenhahnLichtenhahn Verlag) Verlag) and and Trusts Trusts and andEstate Estate planning in Israel (Oct. 2016, Juris Publishing). jurisdiction. planning in Israel (Oct. 2016, Juris Publishing). [email protected] jurisdiction. [email protected] Meytal Liberman, LLB (Bar-Ilan), LLM (Tel Aviv), considered a tax event, there may be reporting MeytalTEP, was Liberman admitted , toLLB the (Bar-Ilan),Israel Bar inLLM 2013. (Tel She Aviv), consideredand taxa tax obligation event, imposedthere may upon bethe reportingtrustee and TEP,advises was private admitted clients to from the IsraelIsrael and Bar overseas in 2013. on She and tax obligation imposed upon the trustee and advisestrusts and private estate planningclients from as an AssociateIsrael and Advocate overseas at on In circumstances where a US person owns assets trusts and estate planning as an Associate Advocate at beneficiariesin Israel, or an under Israeli the resident law for owns the taxation assets inof thetrusts. US, In circumstances where a US person owns assets or where a US person or Israeli resident is related the law office of Herzog Fox & Neeman, after acquiring inbeneficiaries Israel, or an under Israeli the resident law for owns the taxation assets inof thetrusts. US, expertise in her field of practice as an Associate to a trust, reporting and tax obligations may be theMeytal law officehas been of Herzog a member Fox of & theNeeman, Society after of Trusts acquiring or whereapplicable a US person both in or Israel Israeli and inresident the US. is related andAdvocate Estates at Practitioners Dr. Alon Kaplan, (STEP) Advocate since 2015. & Notary. She expertise in her field of practice as an Associate to a trust, Furthermore,reporting and it should tax obligationsalso be noted maythat Israelbe Meytalholds a hasDiploma been in a International member of Trustthe Society Management of Trusts applicableand both the inUS Israel have andbeen in parties the US. to a treaty for the andAdvocateand Estatesis the General at Practitioners Dr. AlonEditor Kaplan,and contributor(STEP) Advocate since of the 2015. & book Notary. She Furthermore,avoidance ofit doubleshould taxation also be since noted 1975, that33 and Israel Israel holdsTrust ain Diploma Israel: Theory in International and Practice byTrust Alon Management Kaplan, 34 and the isUS a partyhave tobeen many parties other suchto atreaties, treaty for yet thethese andwhich is the was General published Editor in Hebrew and contributorin 2017. of the book treaties usually do not regulate estate tax. [email protected] avoidance of double taxation since 1975,33 and Israel Trust in Israel: Theory and Practice by Alon Kaplan, is a party to many other such treaties,34 yet these which was published in Hebrew in 2017. 104 The US-Israeltreaties Legal usually Review 2019 do not regulate estate tax. [email protected]

72 73 104 The US-Israel Legal Review 2019 Contents CONTACT: 24 Law of Trust, 5739-1979, 33 LSI 41 (1966-1967) (Isr.). 25 Trust Law, §2. Dr. Alon Kaplan, Advocate & Notary 26 Succession Law, §§ 97-106. 1 King David Boulevard 27 Insolvency and Economic Rehabilitation Law, 5778-2018, Tel Aviv 6495301 2708 SH 310 (2018) (Isr.). 28 Namely: Contracts (General Part) Law, 5733-1973, 27 LSI 117 Israel (1972-1973) (Isr.) and Contracts (Remedies for Breach of Con- tract) Law, 5731-1970, 25 LSI 11 (1970-1971) (Isr.), and relevant Tel +972-3-508-4966 case law relating thereto. 29 Trust Law, § 17. Fax +972-3-508-4969 30 Succession Law, §§ 18-23, and 2.2. Inheritance under a will. 31 Succession Law, § 39. www.alonkaplan-law.com 32 Income Tax Ordinance ]New Version[, 5721-1961, 6 DMI 120, [email protected] §§ 75C-75R (1961) (Isr.). 33 Convention Between The Government Of The United States Of Meytal Liberman, Advocate America And The Government Of Israel With Respect To Taxes On Income, U.S.-Israel, Nov. 11, 1975, available at https://mof. gov.il/chiefecon/internationaltaxation/doclib/usa_eng.pdf (last Asia House, 4 Weizmann St. Herzog, Fox & Neeman Law Office accessed: Jan. 22, 2019). Tel Aviv 6423904 34 All of Israel’s treaties for the avoidance of double taxation are Israel available at https://mof.gov.il/en/InternationalAffairs/Interna- tionalTaxation/Pages/AvoidanceDoubleTaxationTreaties.aspx www.hfn.co.il (last accessed: Jan. 22, 2019). [email protected]

NOTES 1 Alon Kaplan (General Editor), Trusts in Prime Jurisdictions, fourth edition (April 2016), chapter on Israel. 2 http://www.oecd.org/israel/israelsaccessiontotheoecd.htm. 3 Central Bureau of Statistics, Population, by Religion and Popu- lation Group, available at https://www.cbs.gov.il/he/publica- tions/DocLib/2004/2.%20Shnaton%20Population/st02_01.pdf (last accessed: Jan. 22, 2019). 4 Central Bureau of Statistics, Population, by Population Group, available at https://www.cbs.gov.il/he/publications/ doclib/2019/yarhon1218/b1.pdf (last accessed: Jan. 22, 2019). 5 Central Bureau of Statistic, Immigrants, (1) By Period of Immi- gration, Country of Birth and Last Country of Residence, available at https://www.cbs.gov.il/he/publications/doclib/2018/4.%20 shnatonimmigration/st04_04.pdf (last accessed: Jan. 22, 2019). 6 ISRAEL21c Staff, Israeli high-tech exits in 2017 totaled $7.44 billion, available at https://www.is- rael21c.org/israeli-high-tech-exits-in-2017-totaled-7-44-billion Israel21c (Dec. 31, 2017), 7 Succession Law, 5725-1965, 19 SH 215 (1964-65) (Isr.). 8(last Succession accessed: Law, Jan. §§ 135-136.22, 2019). 9 Succession Law, §§ 11, 12. 10 Succession Law, §§ 18-23. 11 Succession Law, § 19. 12 Succession Law, § 20. 13 Succession Law, § 22. 14 Succession Law, § 23. 15 CA 4660/94 Attorney-Gen. v. Lishitzky 55(1) PD 88, 115 [1999] (Isr.). 16 Succession Law, §§ 56-65. 17 CA 393/93 Doe v. the estate of Israel Levitt (Apr. 3, 1994), Nevo CONTACT: 24Legal Law Database of Trust, (by 5739-1979, subscription) 33 LSI (Isr.). 41 (1966-1967) (Isr.). 25 Trust Law, §2. Dr. Alon Kaplan, Advocate & Notary 18 Succession Law, § 39. 2619 Succession Law, §§§ 66. 97-106. 1 King David Boulevard 2720 SuccessionInsolvency Law,and § Economic66. Rehabilitation Law, 5778-2018, Tel Aviv 6495301 270821 Succession SH 310 (2018) Law, § (Isr.). 67A(b). 28 Namely: Contracts (General Part) Law, 5733-1973, 27 LSI 117 Israel 22 Succession Law, § 68(b). (1972-1973)23 Inheritance (Isr.) Regulations, and Contracts 1998, (RemediesKT 5923 (Isr.). for Breach of Con- tract) Law, 5731-1970, 25 LSI 11 (1970-1971) (Isr.), and relevant 24 Law of Trust, 5739-1979, 33 LSI 41 (1966-1967) (Isr.). CONTACT: case law relating thereto. Tel +972-3-508-4966 25 Trust Law, §2. 29 Trust Law, § 17. Dr. Alon Kaplan, Advocate & Notary 26 Succession Law, §§ 97-106. The US-Israel Legal Review 2019 105 Fax +972-3-508-4969 30 Succession Law, §§ 18-23, and 2.2. Inheritance under a will. 1 King David Boulevard 27 Insolvency and Economic Rehabilitation Law, 5778-2018, 31 Succession Law, § 39. 2708 SH 310 (2018) (Isr.). Tel Aviv 6495301 32 Income Tax Ordinance ]New Version[, 5721-1961, 6 DMI 120, www.alonkaplan-law.com 28 Namely: Contracts (General Part) Law, 5733-1973, 27 LSI 117 §§ 75C-75R (1961) (Isr.). [email protected] (1972-1973) (Isr.) and Contracts (Remedies for Breach of Con- 33 Convention Between The Government Of The United States Of tract) Law, 5731-1970, 25 LSI 11 (1970-1971) (Isr.), and relevant Meytal Liberman, Advocate America And The Government Of Israel With Respect To Taxes case law relating thereto. Tel +972-3-508-4966 On Income, U.S.-Israel, Nov. 11, 1975, available at https://mof. 29 Trust Law, § 17. gov.il/chiefecon/internationaltaxation/doclib/usa_eng.pdf (last Fax +972-3-508-4969 30 Succession Law, §§ 18-23, and 2.2. Inheritance under a will. Asia House, 4 Weizmann St. accessed: Jan. 22, 2019). Herzog, Fox & Neeman Law Office 31 Succession Law, § 39. Tel Aviv 6423904 34 All of Israel’s treaties for the avoidance of double taxation are 32 Income Tax Ordinance ]New Version[, 5721-1961, 6 DMI 120, www.alonkaplan-law.com available at https://mof.gov.il/en/InternationalAffairs/Interna- Israel §§ 75C-75R (1961) (Isr.). [email protected] tionalTaxation/Pages/AvoidanceDoubleTaxationTreaties.aspx www.hfn.co.il 33 Convention Between The Government Of The United States Of Meytal Liberman, Advocate (last accessed: Jan. 22, 2019). [email protected] America And The Government Of Israel With Respect To Taxes On Income, U.S.-Israel, Nov. 11, 1975, available at https://mof. gov.il/chiefecon/internationaltaxation/doclib/usa_eng.pdf (last Asia House, 4 Weizmann St. Herzog, Fox & Neeman Law Office accessed: Jan. 22, 2019). NOTESTel Aviv 6423904 34 All of Israel’s treaties for the avoidance of double taxation are available at https://mof.gov.il/en/InternationalAffairs/Interna- 1Israel Alon Kaplan (General Editor), Trusts in Prime Jurisdictions, tionalTaxation/Pages/AvoidanceDoubleTaxationTreaties.aspx fourth edition (April 2016), chapter on Israel. www.hfn.co.il (last accessed: Jan. 22, 2019). [email protected] http://www.oecd.org/israel/israelsaccessiontotheoecd.htm. 3 Central Bureau of Statistics, Population, by Religion and Popu- lation Group, available at https://www.cbs.gov.il/he/publica- tions/DocLib/2004/2.%20Shnaton%20Population/st02_01.pdf (lastNOTES accessed: Jan. 22, 2019). 4 Central Bureau of Statistics, Population, by Population 1 Alon Kaplan (General Editor), Trusts in Prime Jurisdictions, Group, available at https://www.cbs.gov.il/he/publications/ fourth edition (April 2016), chapter on Israel. doclib/2019/yarhon1218/b1.pdf (last accessed: Jan. 22, 2019). 2 http://www.oecd.org/israel/israelsaccessiontotheoecd.htm. 5 Central Bureau of Statistic, Immigrants, (1) By Period of Immi- 3 Central Bureau of Statistics, Population, by Religion and Popu- gration, lation Group, available at https://www.cbs.gov.il/he/publica- Country of Birth and Last Country of Residence, available at tions/DocLib/2004/2.%20Shnaton%20Population/st02_01.pdf https://www.cbs.gov.il/he/publications/doclib/2018/4.%20 (last accessed: Jan. 22, 2019). shnatonimmigration/st04_04.pdf (last accessed: Jan. 22, 2019). 4 Central Bureau of Statistics, Population, by Population 6 ISRAEL21c Staff, Israeli high-tech exits in 2017 totaled $7.44 Group, available at https://www.cbs.gov.il/he/publications/ billion, available at https://www.is- doclib/2019/yarhon1218/b1.pdf (last accessed: Jan. 22, 2019). rael21c.org/israeli-high-tech-exits-in-2017-totaled-7-44-billion 5 CentralIsrael21c Bureau of (Dec. Statistic, 31, 2017), Immigrants, (1) By Period of Immi- gration, 7 Succession Law, 5725-1965, 19 SH 215 (1964-65) (Isr.). Country of Birth and Last Country of Residence, available at 8(last Succession accessed: Law, Jan. §§ 135-136.22, 2019). https://www.cbs.gov.il/he/publications/doclib/2018/4.%20 9 Succession Law, §§ 11, 12. shnatonimmigration/st04_04.pdf (last accessed: Jan. 22, 2019). 10 Succession Law, §§ 18-23. 6 ISRAEL21c Staff, Israeli high-tech exits in 2017 totaled $7.44 11 Succession Law, § 19. billion, available at https://www.is- 12 Succession Law, § 20. rael21c.org/israeli-high-tech-exits-in-2017-totaled-7-44-billion 13 SuccessionIsrael21c Law, (Dec.§ 22. 31, 2017), 14 Succession Law, § 23. 7 Succession Law, 5725-1965, 19 SH 215 (1964-65) (Isr.). 15 CA 4660/94 Attorney-Gen. v. Lishitzky 55(1) PD 88, 115 8(last Succession accessed: Law, Jan. §§ 135-136.22, 2019). [1999] (Isr.). 9 Succession Law, §§ 11, 12. 16 Succession Law, §§ 56-65. 10 Succession Law, §§ 18-23. 17 CA 393/93 Doe v. the estate of Israel Levitt (Apr. 3, 1994), Nevo 11 Succession Law, § 19. Legal Database (by subscription) (Isr.). 72 12 Succession Law, § 20. 73 18 Succession Law, § 39. 13 Succession Law, § 22. Contents 19 Succession Law, § 66. 14 Succession Law, § 23. 20 Succession Law, § 66. 15 CA 4660/94 Attorney-Gen. v. Lishitzky 55(1) PD 88, 115 21 Succession Law, § 67A(b). [1999] (Isr.). 22 Succession Law, § 68(b). 16 Succession Law, §§ 56-65. 23 Inheritance Regulations, 1998, KT 5923 (Isr.). 17 CA 393/93 Doe v. the estate of Israel Levitt (Apr. 3, 1994), Nevo Legal Database (by subscription) (Isr.). 18 Succession Law, § 39. The US-Israel Legal Review 2019 105 19 Succession Law, § 66. 20 Succession Law, § 66. 21 Succession Law, § 67A(b). 22 Succession Law, § 68(b). 23 Inheritance Regulations, 1998, KT 5923 (Isr.).

The US-Israel Legal Review 2019 105 Trusts and Estate Planning in Israel 132 Trusts & Trustees, Vol. 25, No. 1, February 2019, pp. 132–134 trusts132 and estate Trusts & Trustees, Vol. 25, No. 1, February 2019, pp. 132–134 planningTrusts and estate in israel planning in Israel Trusts and estate planning in Israel Alon Kaplan* and Meytal Libermany

Alon Kaplan* and Meytal Libermany Dr. Alon Kaplan | Meytal Libermany

Abstract Families in the modern era of globalization and the Downloaded from https://academic.oup.com/tandt/article-abstract/25/1/132/5248226 by Alon Kaplan on 16 April 2019 movement of people and assets require adequate IsraelAbstract has long been a ‘home’ for many interna- Families in the modern era of globalization and the Downloaded from https://academic.oup.com/tandt/article-abstract/25/1/132/5248226 by Alon Kaplan on 16 April 2019 planning for the holding of assets, investments, tional families. The Law of Trust, the Law of movement of people and assets require adequate Israel has long been a ‘home’ for many interna- cross-generational transfer of assets, cross-border suc- Contract, and the Law of Agency together form planning for the holding of assets, investments, tional families. The Law of Trust, the Law of cession issues, and similar areas. the legal framework for trusts and estate planning cross-generational transfer of assets, cross-border suc- Contract, and the Law of Agency together form in Israel. cession issues, and similar areas. the legal framework for trusts and estate planning in Israel. Trusts under Israeli law Trusts under Israeli law Introduction A trust is considered as a legitimate planning instru- ment for families in Israel that has been in use for Introduction A trust is considered as a legitimate planning instru- Israel is a country of immigration, and its total popu- mentmany foryears. families The first in Israeltrust law that was has legislated been in in use 1924 for 1 Israellation is as a of country November of immigration, 2018 is 8.9 and million. its totalSince popu- its manyat the years.time of The the first British trust Mandate law was (1922–1948) legislated in relat- 1924 establishmentlation as of November in 1948, 3.2 2018 million is 8.9 people million. have1 Since immi- its ating the totime public of charities the British and Mandate was based (1922–1948) on the common relat- 3 establishmentgrated to Israel, in out 1948, of which3.2 million 26,000 people have immigratedhave immi- inglaw to trust. publicPrivate charities trusts and were wasutilized based on by the Zionist common or- gratedduring to 2017. Israel, Out out of of the which 2017 26,000 new immigrants, have immigrated 62 per ganizationslaw trust.3 Private and Jewish trusts families were utilized who immigrated by Zionist or- to duringcent immigrated 2017. Out of from the 2017 the new former immigrants, USSR, namely 62 per ganizationsIsrael from and Europe, Jewish the families USA, Canada, who immigrated and South to centRussia immigrated and Ukraine, from 12 the per centformer from USSR, France, namely and IsraelAfrica, from as these Europe, were jurisdictions the USA, Canada, in which individualsand South Russia10 per andcent Ukraine, from the 12 USA. per Most cent of from them France, settled and in Africa,and professionals as these were were jurisdictions familiar with in which the trust individuals regime. 10Israel’s percent large from cities, the such USA. as Jerusalem, Most of them Tel Aviv, settled and in andFollowing professionals the establishment were familiar of with the state the trust of Israel regime. in 2 Israel’sHaifa, and large hold cities, an academic such as Jerusalem, degree. This Tel data Aviv, dem- and Following1948, court the precedents establishment were established of the state in of matters Israel inof Haifa,onstrates and that hold there an academic is a growing degree. need2 This for wealth data dem- and 1948,inheritance, court precedents gifts, and trusts. were established in matters of onstratesestate planning that there in Israel is a growing for new need immigrants, for wealth a ma- and inheritance, gifts, and trusts. estatejority having planning a well-established in Israel for new financial immigrants, background. a ma- A trust is considered as a legitimate planning jorityIn addition having a to well-established this community financial of immigrants, background. there Ainstrument trust is considered for families as in a Israel legitimate that has planning been isIn a growing addition number to this community of High Net of Worth immigrants, Individuals, there instrumentin use for many for families years in Israel that has been iswho a growing are Israeli number residents, of High that have Net Worth succeeded Individuals, in accu- in use for many years whomulating are Israeli wealth residents, from high-tech that have and succeeded real estate in accu- busi- Trusts in Israel today are governed by the Trust 4 mulatingnesses in Israelwealth and from overseas. high-tech and real estate busi- LawTrustsof 1979. in Israel The today Israeli are Trust governed Law provides by the a Trust very nesses in Israel and overseas. Law4 of 1979. The Israeli Trust Law provides a very

* Dr. Alon Kaplan, TEP, Advocate & Notary, Founder and Manager at Alon Kaplan, Advocate & Notary, of 1 King David Boulevard, Tel Aviv 6495301, Israel. Tel: +972-3-5084966; Fax: +972-3-5084969; E-mail: [email protected]. *y MeytalDr. Alon Liberman, Kaplan, TEP, Advocate & Notary, FounderAssociate and Attorney Manager at Alon at Alon Kaplan, Kaplan, Advocate Advocate & Notary & Notary, of 1, of King 1 King David David Boulevard, Boulevard, Tel Aviv Tel Aviv 6495301, 6495301, Israel. Israel. Tel: +972-3-5084966;Tel: +972-3-5084966; Fax: Fax: +972-3-5084969; +972-3-5084969; E-mail: E-mail: [email protected]. [email protected]. 1. Central Bureau of Statistics, see 5http://www.cbs.gov.il/reader/?MIval cw_usr_view_SHTML&ID 6294 accessed 28 November 2018. y Meytal Liberman, TEP, Advocate & Notary, Associate Attorney at Alon¼ Kaplan, Advocate & Notary,¼ of 1 King David Boulevard, Tel Aviv 6495301, Israel. Tel: 2. Central Bureau of Statistics, Immigration to Israel 2017 (5 July 2018) 5http://www.cbs.gov.il/reader/newhodaot/hodaa_template.html?hodaa 2018211974 +972-3-5084966; Fax: +972-3-5084969; E-mail: [email protected]. ¼ accessed1. Central 28 November Bureau of 2018. Statistics, (Hebrew). see 5http://www.cbs.gov.il/reader/?MIval cw_usr_view_SHTML&ID 6294 accessed 28 November 2018. ¼ ¼ 2.3. CentralCharitable Bureau Trusts of Ordinance, Statistics, ImmigrationLaws of Palestine to Israel(1924) 2017 vol(5 July1, ch 2018) 14, 107.5http://www.cbs.gov.il/reader/newhodaot/hodaa_template.html?hodaa5https://www.nevo.co.il/law_html/law21/PG-e-0116.pdf4 accessed 28201821197 November4 accessed2018. 28 November 2018. (Hebrew). ¼ 3.4. Charitable(1966–1967) Trusts 5739-1979, Ordinance, 33 LSILaws 41 (Isr). of Palestine (1924) vol 1, ch 14, 107. 5https://www.nevo.co.il/law_html/law21/PG-e-0116.pdf4 accessed 28 November 2018. ß The4. (1966–1967) Author(s) (2018). 5739-1979, Published 33 LSI by 41 Oxford (Isr). University Press. All rights reserved. doi:10.1093/tandt/tty181 74 Advance Access publication 14 December 2018 75 ß The Author(s) (2018). Published by Oxford University Press. All rightsContents reserved. doi:10.1093/tandt/tty181 Advance Access publication 14 December 2018 Trusts & Trustees, Vol. 25, No. 1, February 2019 Articles 133 Trusts & Trustees, Vol. 25, No. 1, February 2019 Articles 133

broad definition of a trust. Section 1 of the Law b. A testamentary trust7 is created by way of broadprovides: definition of a trust. Section 1 of the Law b. Aprobate testamentary proceedings trust7 underis created the bySuccession way of 8 provides: probateLaw. Accordingly, proceedings aunder testamentary the Succession trust A trust is a relationship to any property, by virtue of mustLaw.8 complyAccordingly, with the a formal testamentary requirements trust Awhich trust a is trustee a relationship is bound to to any hold property, the same by or virtue to act ofin mustunder comply the Succession with the Law formal for requirements executing a whichrespect a thereof trustee isin bound the interest to hold of the a beneficiary same or to or act for in underwill. These the Succession include signing Law for the executing will in the a respectsome other thereof purpose. in the interest of a beneficiary or for will.presence These of include two witnesses signing the or will an in Israeli the

some other purpose. presencenotary. A of testamentary two witnesses trust becomesor an Israeli valid Downloaded from https://academic.oup.com/tandt/article-abstract/25/1/132/5248226 by Alon Kaplan on 16 April 2019

It therefore follows that the Trust Law is applicable to notary.only upon A testamentary the issuance trust of a becomes probate order valid Downloaded from https://academic.oup.com/tandt/article-abstract/25/1/132/5248226 by Alon Kaplan on 16 April 2019 Itany therefore relationship follows that that is the fiduciary Trust Law in nature is applicable and in- to onlywith respect upon the thereof. issuance of a probate order anyvolves relationship property, and that it is does fiduciary not require in nature a transfer and in- of with respect thereof. volveslegal title property, in the trustand it assets does to not the require trustee. a transfer of The Trust Law also provides in section 2 how legal title in the trust assets to the trustee. Thesuch Trust relationship Law also can provides be created in section and provides 2 how That theTrust Law is applicable to any relation- suchthat: relationship ‘A trust is created can be bycreated law, by and a contractprovides Thatship theTrustthat is fiduciary Law is applicable in nature to andany relation- involves that:with a ‘A trustee trust is or created byan instrument by law, by of ahekdesh contract’ shipproperty that is fiduciary in nature and involves with a trustee or byan instrument of hekdesh’ property The Israeli Trust Law allows the creation of both The Trust Law also provides in section 2 how such charitableThe Israeli and Trust private Law trusts, allows and the does creation not set of a both per- relationshipThe Trust can Law be also created provides and inprovides section that: 2 how ‘A trustsuch charitablepetuity period and forprivate trusts. trusts, and does not set a per- relationshipis created by can law, be by created a contract and with provides a trustee that: or ‘A by trust an petuityIn certain period cases, for trusts. Israeli practitioners chose to isinstrument created by of law,hekdesh by a’: contract with a trustee or by an createIn certain trusts for cases, their Israeli clients practitioners under foreign chose trust to instrument of hekdesh’: createregimes. trusts Such for have their been clients recognized under as foreign valid trust 1. A trust created by law is a relationship complying regimes.structures Such by have the Israeli been recognized courts and as the valid Israeli trust 1. Awith trust the created terms of by section law is a 1 relationship mentionedabove, complying and structuresTax Authority. by the Israeli courts and the Israeli withwhich the is alsoterms regulated of section legislatively, 1 mentioned as in above, the cases and Tax Authority. whichof estate is also executors regulated and legislatively, company liquidators. as in the cases The use of real estate trusts for 2. A trust created by contract requires an agreement of estate executors and company liquidators. Theinvestments use of real and estate holding trusts of property for in between the settlor and the trustee with no spe- 2. A trust created by contract requires an agreement investmentsIsrael and holding of property in betweencific procedure the settlor necessary and the for trustee binding with the no parties spe- Israel cificlegally. procedure Such trust necessary is subject for to binding the Trust the Law parties and Real estate trusts (RETs) have been used in Israel for legally.to the Israeli Such trust Contracts is subject Law. to the Trust Law and Realmany estate years trusts and for (RETs) various have purposes, been used including in Israel for 3. Ato trust the Israeli created Contracts by an instrument Law. of hekdesh (also manyresidence years and and commercial for various transactions. purposes, including A RET is for a 3. Aknown trust createdas ‘endowment’) by an instrument refers to of twohekdesh types(also of residencelegal structure and commercial under which transactions. real estate is A purchased RET is a 5 knowntrusts: an asinter ‘endowment’) vivos trust and refers a testamentary to two types trust: of legalby a structure trustee or under is transferred which real to estate a trustee, is purchased and the 6 trusts:a. An aninterinter vivos vivos trustendowment and a testamentary trust is created trust:5 bytrustee a trustee acts as or a is nominee transferred or ‘Bareto a trustee, Trustee’ and for the an a.upon An inter the vivos executionendowment of a trust trust deed6 is created before trusteeidentifiable acts beneficiary. as a nominee Israeli or ‘Bare law, namely Trustee’ the for Real an 9 uponan Israeli the notary,execution and of it a becomes trust deed operative before identifiableProperty Taxation beneficiary. Law Israeliand the law, Trust namely Law, providesthe Real anupon Israeli the transfer notary, ofand the it assets becomes of the operative settlor theProperty legal structure Taxation for Law such9 and an the RET. Trust These Law, laws provides allow uponto the the control transfer of the of trustee.the assets of the settlor the registrationlegal structure of the for trustee such an as RET. the legal These owner laws of allow the to the control of the trustee. the registration of the trustee as the legal owner of the

5. ibid, s 17. 6. ibid, s 17(a)(1). 7.5. ibid, s 17(a)(2).17. 8.6. (1964–1965)ibid, s 17(a)(1). (Isr) 5725-1965, 19 LSI 215 9.7. (Capitalibid, s 17(a)(2). Gains and Purchase) (1963) 5723-1963, 17 LSI 193. 8. (1964–1965) (Isr) 5725-1965, 19 LSI 215 9. (Capital Gains and Purchase) (1963) 5723-1963, 17 LSI 193. 74 75 Contents 13 4 Articles Trusts & Trustees, Vol. 25, No. 1, February 2019

Conclusion real estate while the beneficiary of the real estate is considered as the real owner, like a beneficiary of a Immigration to Israel over the years has brought with bare trust in the common law. For tax reasons, a RET it diverse population from various countries in the must have a named beneficiary and cannot be a dis- world that requires the special benefits of trusts, tax, cretionary trust. estate, and succession planning. It is highly recom- Under the Real Property Taxation Law, two main mended to consult with experts in the field. taxes are imposed upon a sale of real estate: A Recent legal enactments in the fields of due dili-

Capital Gains Tax on the seller and a Purchase Tax gence procedures, Anti-Money Laundering regula- Downloaded from https://academic.oup.com/tandt/article-abstract/25/1/132/5248226 by Alon Kaplan on 16 April 2019 on the purchaser. The Capital Gains Tax is calcu- tions, exchange of information, FATCA, and CRS, lated in accordance with the appreciation in the oblige professionals to pay special attention when value of the property since its purchase, the time providing such consultations and services. period during which the seller owned the property, When considering estate planning in Israel, one and the existence of other real properties owned by should be aware of the importance of inheritance the seller. The Purchase Tax (similar to a stamp duty issues, personal and real estate taxation, and the possible in other countries) is computed as a certain percent- conflict between the Trust Law and the Succession Law. age of the purchase price. This percentage is calcu- For a more elaborate discussion on these issues, see lated in accordance with other real properties owned Trusts in Prime Jurisdictions10 and Trusts and Estate by the purchaser. Planning in Israel.11

Alon Kaplan, PhD (Zurich), TEP, President of STEP Israel, practices law in Tel Aviv, specializing in Trusts and Estates. He is General Editor of Trusts in Prime Jurisdictions (4th edition, April 2016), the Israel Country Correspondent for Oxford Journals’ Trusts and Trustees and author of Trusts in Israel: Development and Current Practice (Helbing Lichtenhahn Verlag 2015), and Trusts and Estate Planning in Israel (Juris Publishing 2016). E-mail: [email protected].

Meytal Liberman, LL.B (Bar-Ilan), LL.M (Tel Aviv), TEP, was admitted to the Israel Bar in 2013. She advises clients from Israel and overseas on trusts and estate planning as an Associate Advocate at Dr. Alon Kaplan, Advocate & Notary, where she also completed her legal internship. Meytal has been a member of the Society of Trusts and Estates Practitioners (STEP) since 2015, after she had completed two years of studies and earned a Diploma in International Trust Management. Meytal is the General Editor and contributor of the book ‘‘Trust in Israel: Theory and Practice’’ by Alon Kaplan, which was published in Hebrew in 2017. E-mail: [email protected].

10. Alon Kaplan (ed), Trusts in Prime Jurisdictions (4th edn, Globe Law & Business, 2016) 5https://www.globelawandbusiness.com/books/trusts-in-prime- 76jurisdictions-fourth-edition4 accessed 28 November 2018. 77 11. Alon Kaplan, Trusts and Estate Planning in Israel (2016) 5https://www.amazon.com/Trusts-Estate-Planning-Israel-Kaplan/dp/15782349564 accessed 28 November 2018. Contents 13 4 Articles Trusts & Trustees, Vol. 25, No. 1, February 2019

Conclusion real estate while the beneficiary of the real estate is considered as the real owner, like a beneficiary of a Immigration to Israel over the years has brought with bare trust in the common law. For tax reasons, a RET it diverse population from various countries in the must have a named beneficiary and cannot be a dis- world that requires the special benefits of trusts, tax, cretionary trust. estate, and succession planning. It is highly recom- Under the Real Property Taxation Law, two main mended to consult with experts in the field. taxes are imposed upon a sale of real estate: A Recent legal enactments in the fields of due dili- Book

Capital Gains Tax on the seller and a Purchase Tax gence procedures, Anti-Money Laundering regula- Downloaded from https://academic.oup.com/tandt/article-abstract/25/1/132/5248226 by Alon Kaplan on 16 April 2019 on the purchaser. The Capital Gains Tax is calcu- tions, exchange of information, FATCA, and CRS, reviews lated in accordance with the appreciation in the oblige professionals to pay special attention when value of the property since its purchase, the time providing such consultations and services. period during which the seller owned the property, When considering estate planning in Israel, one and the existence of other real properties owned by should be aware of the importance of inheritance the seller. The Purchase Tax (similar to a stamp duty issues, personal and real estate taxation, and the possible in other countries) is computed as a certain percent- conflict between the Trust Law and the Succession Law. age of the purchase price. This percentage is calcu- For a more elaborate discussion on these issues, see 10 הקדש lated in accordance with other real properties owned Trusts in Prime Jurisdictions and Trusts and Estate מדריך מקיף זה מספק כל הדרוש לעוסקים בנאמנויות, תכנון נכסי משפחה והעברת בין-דורית של נכסים בישראל של היום. המחבר, ד”ר אלון קפלן, עו”ד ונוטריון, מציג בפני הקורא תמונה מקיפה של מוסד הנאמנות, המספקת תובנות לגבי אופן השימוש במוסד זה היום לאור הרקע ההיסטורי, התרבותי והמשפטי שלו. אנשי מקצוע והקהל הרחב יימצאו בתיאור מוסד הנאמנות בישראל 11 המובא בספר מעשי וחשוב, אשר יאפשר להם להכיר, בין היתר, את הנושאים הבאים: טרמינולוגיה .by the purchaser. Planning in Israel בסיסית ומושגי יסוד בתחום הנאמנות, הדרכים השונות בהן ניתן להקים נאמנות בישראל – על פי חוק, על פי חוזה ועל פי כתב הקדש, נאמנות וירושה, נאמנות ושליחות, מיסוי נאמנויות, נאמנויות לצרכי צדקה, נאמנויות להחזקת נדל”ן, הפרוטקטור ומעמדו בנאמנות, חיסיון וסודיות בנאמנות, נאמנות ובוררות, ה”פמילי אופיס”, הנאמנות הבינלאומית והנאמנות ומשפט בינלאומי פרטי. ד”ר אלון קפלן הוא בוגר האוניברסיטה העברית לתואר ראשון ושני במשפטים וד”ר למשפטים מאוניברסיטת ציריך, הוא חבר לשכות עורכי דין בישראל בפרנקפורט ובניו יורק, וכן הוא הנשיא והמייסד של אגודת הנאמנים “Step Israel”, המהווה חלק מארגון הבינלאומי “STEP”. נאמנות בישראל: אלון ערך וכתב ספרים על עשיית עסקים בישראל שהתפרסמו באנגלית ובגרמנית, ספר על דיני נאמנויות בינלאומיות ושני ספרים על הנאמנות בישראל בשפה האנגלית. Alon Kaplan, PhD (Zurich), TEP, President of STEP Israel, practices law in Tel Aviv, specializing in Trusts and הספר מבוסס על עבודת המחקר של המחבר שהוכנה במסגרת לימודי הדוקטורט שלו באוניברסיטת ציריך, והוא מצטרף למחקרים וספרים נוספים שנכתבו בהשתתפותו של המחבר בשפה האנגלית, נאמנות בישראל: הלכה למעשה הלכה למעשה לרבות Trusts in Prime Jurisdictions בעריכת המחבר, אשר פורסם בשנת Estates. He is General Editor of Trusts in Prime Jurisdictions (4th edition, April 2016), the Israel Country .2016

אלון קפלן Correspondent for Oxford Journals’ Trusts and Trustees and author of Trusts in Israel: Development and אלון קפלן עריכה: מיטל ליברמן Current Practice (Helbing Lichtenhahn Verlag 2015), and Trusts and Estate Planning in Israel (Juris נאמנות

נאמנות .Publishing 2016). E-mail: [email protected] Fifth Edition

Meytal Liberman, LL.B (Bar-Ilan), LL.M (Tel Aviv), TEP, was admitted to the Israel Bar in 2013. She advises clients from Israel and overseas on trusts and estate planning as an Associate Advocate at Dr. Alon Kaplan, Advocate & Notary, where she also completed her legal internship. Meytal has been a member of the Society of Trusts and Estates Practitioners (STEP) since 2015, after she had completed two years of studies and earned a Diploma in International Trust Management. Meytal is the General Editor and contributor of the book ‘‘Trust in Israel: Theory and Practice’’ by Alon Kaplan, which was published in Hebrew in 2017. E-mail: [email protected].

10. Alon Kaplan (ed), Trusts in Prime Jurisdictions (4th edn, Globe Law & Business, 2016) 5https://www.globelawandbusiness.com/books/trusts-in-prime- 76jurisdictions-fourth-edition4 accessed 28 November 2018. 77 11. Alon Kaplan, Trusts and Estate Planning in Israel (2016) 5https://www.amazon.com/Trusts-Estate-Planning-Israel-Kaplan/dp/15782349564 accessed 28 November 2018. Contents Trust & Estate planning in Israel - Juris Publishers

trusts & estate planning in israel ALON KAPLAN

book review by ziva robertson

Trusts & Estate Planning in Israel by A. Kaplan

Trusts have formed part of English law for many centuries. They first arose in feudal times, when a landowner called by his lord to go to the battlefield entrusted his property to a relative, only to discover on his return that his land had been appropriated by the relative for himself. The doctrine of equity intervened to protect the interest of the soldier by holding that although the title to the land - the legal interest - was held by the relative, the beneficial owner entitled to enjoy the asset was the soldier. And we never looked back.

With the growth of the British empire - including the Mandate over Palestine before the Israeli war of independence - the trust concept travelled far and wide, and continued to grow and evolve so as to provide solutions for very modern problems. While retaining many of its original features, the concept has developed a little differently in different jurisdictions. Layer upon layer, it has become an instrument in wealth and estate planning.

Which is why many trust practitioners, in a moment of honest reflection, will admit that Trust Law was their pet hate as students. It is fluid but difficult. It is modern, yet archaic. It is clear in parts, but obscure in others. And there is such a lot of it, that you could spend years studying it and practising it before you can say with confidence that you truly understand it.

Few people take the trouble. Alon Kaplan is one. With years of practice and teaching in this area, Kaplan founded the first Israeli branch of STEP, the Society of Trusts and Estates Practitioners, which now numbers 150 members in Israel (and 20,000 worldwide). His book, Trusts & Estate Planning in Israel, is the fruit of his PHD thesis and research in this complex legal field. In Israel, like elsewhere, trusts constitute a flexible tool for succession planning, tax structuring, charitable giving, an umbrella for corporate holdings and many other uses. Kaplan navigates these complexities with clarity, elegance and erudition and explains the interplay between civil and Rabbinical law; trusts according to Islamic law; the creation of trusts by deeds and by contracts; their uses as testamentary instruments; and, significantly in the current climate, their tax treatment in Israeli law.

As trusts and their uses continue to evolve, it is important for private client and tax practitioners in Israel to understand them, their various uses, their tax treatment, their advantages and their limits. Few Israeli practitioners understand them as thoroughly as Kaplan, and few (if any) modern books have been written about trust law in Israel with the same depth and attention to detail as Kaplan’s book. This book should take pride of place on the bookshelf of any Israeli private client practitioner who strives for a better understanding of this area of the law.

Ziva Robertson, Partner. McDermott Will & Emery UK LLP

78 79 Contents

הספר יצא לאור וניתן לרכישה בישראל אצל הוצאת פרלשטיין גינוסר: רח' אבן הספר יצאגבירול 89 לאור תלוניתן אביב, לרכישהטל': בישראל5247359 03אצל, הוצאת דוא"ל: פרלשטיין גינוסר: [email protected] רח' אבן הספר יצאגבירול 89 לאור תלוניתן מחיראביב , לרכישהטל': הספר: 400 ₪ בישראל5247359 03אצל,)כולל הוצאת דוא"ל:מע"מ(. פרלשטיין גינוסר: [email protected] רח' אבן גבירול 89 תלמחיראביב , טל': הספר: 400 ₪ 035247359,)כולל דוא"ל:מע"מ(. [email protected] מחיר הספר: 400 ₪ )כולל מע"מ(.

78 79 Contents נאמנות בישראל הלכה למעשה - הוצאת הלכות

trusts in israel theory and practice

dr. alon kaplan | editing by meytal liberman

introduction to alon’s book trusts in israel, theory and practice Published december 2017 by halachot publishing | israel

By Daniel Paserman, Advocate and CPA - Director and Secretary of STEP Israel

The Israeli Trust Law was enacted in 1979, but in the early years the use of trusts in Israel was not extensive. The turning point was only two decades later with the הקדש מדריך מקיף זה מספק כל הדרוש לעוסקים בנאמנויות, תכנון נכסי משפחה והעברת בין-דורית של נכסים בישראל של היום. המחבר, ד”ר אלון קפלן, עו”ד ונוטריון, מציג בפני הקורא תמונה מקיפה של מוסד הנאמנות, המספקת תובנות לגבי אופן השימוש במוסד זה היום לאור הרקע ההיסטורי, establishment of the Israeli branch of STEP International in 1998. The establishment התרבותי והמשפטי שלו. אנשי מקצוע והקהל הרחב יימצאו בתיאור מוסד הנאמנות בישראל המובא בספר מעשי וחשוב, אשר יאפשר להם להכיר, בין היתר, את הנושאים הבאים: טרמינולוגיה בסיסית ומושגי יסוד בתחום הנאמנות, הדרכים השונות בהן ניתן להקים נאמנות בישראל – על פי חוק, על פי חוזה ועל פי כתב הקדש, נאמנות וירושה, נאמנות ושליחות, מיסוי נאמנויות, נאמנויות לצרכי צדקה, נאמנויות להחזקת נדל”ן, הפרוטקטור ומעמדו בנאמנות, חיסיון וסודיות בנאמנות, of STEP gave the field of trusts considerable exposure among the professionals in the נאמנות ובוררות, ה”פמילי אופיס”, הנאמנות הבינלאומית והנאמנות ומשפט בינלאומי פרטי. ד”ר אלון קפלן הוא בוגר האוניברסיטה העברית לתואר ראשון ושני במשפטים וד”ר למשפטים מאוניברסיטת ציריך, הוא חבר לשכות עורכי דין בישראל בפרנקפורט ובניו יורק, וכן הוא הנשיא והמייסד של אגודת הנאמנים “Step Israel”, המהווה חלק מארגון הבינלאומי “STEP”. נאמנות בישראל: .field of private clients and the use of trusts אלון ערך וכתב ספרים על עשיית עסקים בישראל שהתפרסמו באנגלית ובגרמנית, ספר על דיני נאמנויות בינלאומיות ושני ספרים על הנאמנות בישראל בשפה האנגלית.

הספר מבוסס על עבודת המחקר של המחבר שהוכנה במסגרת לימודי הדוקטורט שלו באוניברסיטת ציריך, והוא מצטרף למחקרים וספרים נוספים שנכתבו בהשתתפותו של המחבר בשפה האנגלית, נאמנות בישראל: הלכה למעשה הלכה למעשה לרבות Trusts in Prime Jurisdictions בעריכת המחבר, אשר פורסם בשנת The founder and drive behind the Israeli branch of STEP was attorney Alon .2016 Kaplan. Alon was in fact one of the fathers of this field in Israel and he was largely אלון קפלן

אלון קפלן עריכה: מיטל ליברמן responsible for making trusts one of the most useful tools in the planning of transfer נאמנות -of estate between generations. Alon led the way and became a guru in all matters per נאמנות taining to trusts, not only in Israel, but in many other countries as well. He has been a leading figure in the STEP Worldwide organization for many years. About 10 years later, the law of taxation of trusts was enacted under Israeli law, and Alon was a member of a committee that accompanied the legislation process. Regulating the taxation of trusts made it even more popular, and today it serves differ- ent clients for various uses. After many years of lecturing all over the world, writing and editing books and articles in English, and after completing his doctoral dissertation at the University of Zurich, Alon wrote a book on trusts in Israel in Hebrew. The book is a comprehensive guide combining theory and practice with regard to trusts in particular, family planning and transfer of estate between generations. The book is a mandatary item in the library of anyone dealing with private clients The book includes a broad historical overview of the trust institution, and an exhaustive explanation of the basic concepts in the field. It deals with the relationship between the laws of trusteeship and the law of inheritance, contract law, statutory law and even deals with religious trusts (like the Waqf in Islam, and the Jewish Hekdesh. Another important and useful part of the book deals with the taxation of trusts in Israel, a major issue for all those involved in the field. This year, the Israeli branch of STEP celebrates twenty years of activity, and the person who led the organi- zation throughout the entire period is Dr. Alon Kaplan. In this respect, Alon’s publication of the book in Hebrew is a kind of closure and a significant milestone in a long and glorious legal career. We all hope that he will continue to contribute to the organization for many more years energetically and with determination which characterizes him.

Well done! Adv. Daniel Paserman Head of the Tax Department | Gornitzky & Co. | Secretary of STEP Israel

80 81 Contents נאמנות בישראל: הלכה למעשה ד"ר אלון קפלן | עריכה על-ידי מיטל ליברמן

הקדמה לספרו של אלון נאמנות בישראל: הלכה למעשה פורסם בדצמבר 2017 | הוצאת הלכות | ישראל

מאת דניאל פסרמן, עורך- דין ורואה חשבון - מנהל ומזכיר, ארגון STEP ישראל

חוק הנאמנות הישראלי נחקק בשנת 1979, אך בשנים הראשונות השימוש בנאמנויות בישראל לא רווח. היה זה רק כעבור כשני עשורים שחל המפנה, עם היווסדו של הסניף היש־ הקדש מדריך מקיף זה מספק כל הדרוש לעוסקים בנאמנויות, תכנון נכסי משפחה והעברת בין-דורית של נכסים בישראל של היום. המחבר, ד”ר אלון קפלן, עו”ד ונוטריון, מציג בפני הקורא תמונה מקיפה ראלי של ארגון STEP העולמי בשנת 1998. הקמת הארגון הקנתה לתחום הנאמנויות חשיפה של מוסד הנאמנות, המספקת תובנות לגבי אופן השימוש במוסד זה היום לאור הרקע ההיסטורי, התרבותי והמשפטי שלו. אנשי מקצוע והקהל הרחב יימצאו בתיאור מוסד הנאמנות בישראל המובא בספר מעשי וחשוב, אשר יאפשר להם להכיר, בין היתר, את הנושאים הבאים: טרמינולוגיה בסיסית ומושגי יסוד בתחום הנאמנות, הדרכים השונות בהן ניתן להקים נאמנות בישראל – על פי חוק, על פי חוזה ועל פי כתב הקדש, נאמנות וירושה, נאמנות ושליחות, מיסוי נאמנויות, נאמנויות משמעותית בקרב קהל אנשי המקצוע בתחום הלקוחות הפרטיים, והשימוש במכשיר גבר. לצרכי צדקה, נאמנויות להחזקת נדל”ן, הפרוטקטור ומעמדו בנאמנות, חיסיון וסודיות בנאמנות, נאמנות ובוררות, ה”פמילי אופיס”, הנאמנות הבינלאומית והנאמנות ומשפט בינלאומי פרטי. ד”ר אלון קפלן הוא בוגר האוניברסיטה העברית לתואר ראשון ושני במשפטים וד”ר למשפטים מאוניברסיטת ציריך, הוא חבר לשכות עורכי דין בישראל בפרנקפורט ובניו יורק, וכן הוא הנשיא והמייסד של אגודת הנאמנים “Step Israel”, המהווה חלק מארגון הבינלאומי “STEP”. נאמנות בישראל: אלון ערך וכתב ספרים על עשיית עסקים בישראל שהתפרסמו באנגלית ובגרמנית, ספר על דיני נאמנויות בינלאומיות ושני ספרים על הנאמנות בישראל בשפה האנגלית.

הספר מבוסס על עבודת המחקר של המחבר שהוכנה במסגרת לימודי הדוקטורט שלו באוניברסיטת ציריך, והוא מצטרף למחקרים וספרים נוספים שנכתבו בהשתתפותו של המחבר בשפה האנגלית, נאמנות בישראל: הלכה למעשה הלכה למעשה המייסד והרוח החיה מאחורי הסניף הישראלי של STEP היה עורך דין אלון קפלן. אלון לרבות Trusts in Prime Jurisdictions בעריכת המחבר, אשר פורסם בשנת 2016. היה למעשה מאבות התחום בישראל, ומי שתרם תרומה אדירה להפיכתו לאחד מהכלים השי־ אלון קפלן מושיים ביותר בתכנון העברה בין דורית והסדרה משפחתית. אלון פרץ דרך בהקשר זה, והפך אלון קפלן עריכה: מיטל ליברמן

נאמנות לגורו בכל הקשור לנאמנויות, לא רק בישראל אלא במדינות רבות נוספות. שמו הולך לפניו נאמנות בקרב כל העוסקים בתחום בעולם, והוא היה פעיל דומיננטי בארגון STEP העולמי במשך שנים רבות.

כעבור כעשור, כאשר נחקק פרק מיסוי הנאמנויות בדין הישראלי, אלון נטל חלק בועדה שישבה על המדוכה וליווה את הליכי החקיקה. הסדרת מיסוי הנאמנויות הפכה את המכשיר לנפוץ עוד יותר, וכיום הוא משמש קהלים רבים לשימושים שונים.

לאחר שנים ארוכות של הרצאות בכל רחבי העולם וכתיבה ועריכה של ספרים ומאמרים בשפה האנגלית, ולאחר שהשלים את עבודת הדוקטורט שלו באוניברסיטת ציריך, התפנה אלון לכתוב ספר בנושא נאמנויות בישראל בשפה העברית. הספר מהווה מדריך מקיף המשלב תיאוריה ופרקטיקה בכל הקשור לנאמנויות בפרט ולתכנון משפחתי והעברה בין דורית בכלל, והוא פריט חובה בארון הספרים של כל מי שעוסק בתחום הלקוחות הפרטיים.

הספר כולל סקירה היסטורית רחבה של מוסד הנאמנות, וכולל הסבר ממצה אודות מושגי יסוד בתחום. הספר מתייחס ליחס בין דיני הנאמנויות לבין דיני הירושה, דיני החוזים, חוק השליחות ועוד, ואף עוסק בנאמנות הדתית )הן של הווקף המו־ סלמי והן ההקדש היהודי(. חלק חשוב ושימושי אחר בספר דן במיסוי נאמנויות בישראל, נושא מהותי לכל העוסקים בתחום.

השנה חוגג הסניף הישראלי של STEP עשרים שנות פעילות, כאשר מי שהוביל את הארגון בגאון לאורך כל התקופה הוא ד”ר אלון קפלן. מבחינה זו פרסום ספרו של אלון בעברית מהווה מעין סגירת מעגל וציון דרך משמעותי בקריירה משפטית ארוכה ומפוארת. כולנו תקווה שאלון ימשיך להוביל ולתרום לארגון עוד שנים רבות, בנחרצות, בנחישות ובפעלתנות שכל כך מאפיינים אותו.

כה לחי! עו"ד, רו"ח דניאל פסרמן ראש תחום מסים במשרד גורניצ'קי ושות', מזכיר ארגון STEP ישראל

80 81 Contents גאה להציג ספר חדש: נאמנות בישראל: הלכה למעשה מאת: ד"ר אלון קפלן )עו"ד ונוטריון, TEP( ובעריכת מיטל ליברמן )עו"ד, TEP(

• המחבר, ד"ר אלון קפלן, עו"ד, מציג בפני הקורא

תמונה מקיפה של מוסד הנאמנות, המספקת תובנות הקדש

מדריך מקיף זה מספק כל הדרוש לעוסקים בנאמנויות, תכנון נכסי משפחה והעברת בין-דורית של לגבי אופן נכסים השימוש בישראל של היום. המחבר, ד”ר במוסד אלון קפלן, זהעו”ד ונוטריון, מציג בפני היום הקורא תמונה מקיפה לאור הרקע של מוסד הנאמנות, המספקת תובנות לגבי אופן השימוש במוסד זה היום לאור הרקע ההיסטורי, התרבותי והמשפטי שלו. אנשי מקצוע והקהל הרחב יימצאו בתיאור מוסד הנאמנות בישראל המובא בספר מעשי וחשוב, אשר יאפשר להם להכיר, בין היתר, את הנושאים הבאים: טרמינולוגיה ההיסטורי, התרבותיבסיסית ומושגי יסוד בתחום הנאמנות, והמשפטי הדרכים השונות בהן ניתןשלו. להקים נאמנות בישראל הספר– על פי מיועד הן חוק, על פי חוזה ועל פי כתב הקדש, נאמנות וירושה, נאמנות ושליחות, מיסוי נאמנויות, נאמנויות לצרכי צדקה, נאמנויות להחזקת נדל”ן, הפרוטקטור ומעמדו בנאמנות, חיסיון וסודיות בנאמנות, לאנשי מקצוע והן נאמנות ובוררות, ה”לקהל פמילי אופיס”, הנאמנות הרחב. הבינלאומית והנאמנות אלה ומשפט גם בינלאומי פרטי. אלה בספר נאמנות בישראל: ד”ר אלון קפלן הוא בוגר האוניברסיטה העברית לתואר ראשון ושני במשפטים וד”ר למשפטים מאוניברסיטת ציריך, הוא חבר לשכות עורכי דין בישראל בפרנקפורט ובניו יורק, וכן הוא הנשיא , המהווה חלק מארגון הבינלאומי “STEP”. מדריך מעשי וחשוב אלון והמייסד ערך של וכתב אגודת אשר ספרים על הנאמנים “עשיית Step Israelעסקים” יאפשר בישראל שהתפרסמו להם באנגלית ובגרמנית, ספר להכיר,על דיני בין היתר, הלכה למעשה נאמנויות בינלאומיות ושני ספרים על הנאמנות בישראל בשפה האנגלית.

הספר מבוסס על עבודת המחקר של המחבר שהוכנה במסגרת לימודי הדוקטורט שלו באוניברסיטת נאמנות בישראל: הלכה למעשה טרמינולוגיה ציריך, בסיסית והוא מצטרף למחקרים ומושגי וספרים נוספים שנכתבו יסוד בהשתתפותו של המחבר בשפהבתחום האנגלית, הנאמנות, בעריכת המחבר, אשר פורסם בשנת 2016. Trusts in Prime Jurisdictions הדרכים השונות בהןלרבות ניתן להקים נאמנות בישראל )על אלון קפלן פי חוק, על פי חוזה ועל פי כתב הקדש(, נאמנות וירושה, עריכה: מיטל ליברמן נאמנות ושליחות, מיסוי נאמנויות, נאמנויות לצרכי אלון קפלןצדקה, נאמנות נאמנויות להחזקת נדל"ן, הפרוטקטור ומעמדו בנאמנות, נאמנות חיסיון וסודיות בנאמנות, נאמנות ובוררות, ה"פמילי אופיס", ו"הנאמנות הבינלאומית" - הנאמנות ומשפט בינלאומי פרטי. • ד"ר אלון קפלן הוא בוגר האוניברסיטה העברית לתואר ראשון ושני במשפטים וד"ר למשפטים מאוניברסיטת ציריך, הוא חבר לשכות עורכי דין בישראל בפרנקפורט ובניו יורק, וכן הוא הנשיא והמייסד של אגודת הנאמנים "סטפ ישראל", המהווה חלק מארגון הבינלאומי STEP. הספר מבוסס על עבודת המחקר של המחבר שהוכנה במסגרת לימודי הדוקטורט שלו באוניברסיטת ציריך, והוא מצטרף למחקרים וספרים נוספים שנכתבו בהשתתפותו של המחבר בשפה האנגלית. • מיטל ליברמן, עו"ד, עורכת הספר ומחברת אורחת, הוסמכה כחברה בלשכת עורכי הדין בישראל בשנת 2013. היא בוגרת הפקולטה למשפטים של אוניברסיטת בר-אילן משנת LLB( 2012(, ומוסמכת הפקולטה למשפטים של אוניברסיטת תל אביב משנת LLM(2015(. כמו כן, מיטל חברה בארגון הבינלאומי STEP, וזאת לאחר שהשלימה שנתיים של לימודים והוענקה לה דיפלומה בניהול נאמנויות בינלאומיות.

מחיר הספר: 350 ש"ח )לא כולל מע"מ( בלבד לפרטים נוספים והזמנות: הוצאת הלכות בע"מ רחוב ז' בחשוון 6, רמת השרון 4722006 טלפון: 03-5490545 דוא"ל [email protected] פקס 03-5492687

82 83 Contents Trusts in prime jurisdictions - Globe Law Publishers

trusts in prime jurisdictions fifth edition

general editor: dr. alon kaplan | consulting editor: barbara r hauser

New Edition Published by Globe Law Business Co-published in association with STEP

As globalisation continues apace, opportunities are arising Jurisdictions Trusts in Prime for practitioners in trust jurisdictions that did not exist a few years ago. Growth continues in the traditional trust jurisdictions, especially in civil law jurisdictions where trusts and foundations have previously been used in a limited capacity. In parallel, the concept of the foundation has been adopted by several common law jurisdictions that, until recently, have relied exclusively on 20% trusts – notably Jersey and Gibraltar. discount for The fifth edition of 'Trusts in Prime Jurisdictions' has been STEP members fully updated and features a number of new chapters on topics Please enter the code “STEPGLB” on the including trust and real estate trust in Israel, what it means to be website checkout page a fiduciary family office, the role of the trust protector, Islamic to receive your discount. (Waqf) trusts, and trusts in relation to divorce. In addition, new for this edition are chapters on Germany and Bermuda. Produced in association with STEP, this edition provides a Fifth Edition General Editor Alon Kaplan solid grounding in the use of trusts in a wide range of important Advisory Editor Barbara R Hauser jurisdictions and contexts. It also examines related topics such as trust taxation, anti-money laundering laws, the OECD initiative, CRS, exchange of information, transparency of registers and the notion that countries are entitled to collect taxes beyond their New Edition borders, among others. Written by leading professionals and recognised academics, many of whom are STEP members, the fifth edition of 'Trusts in Prime Jurisdictions' will be an essential resource for all lawyers, trust practitioners and banking professionals working in the field.

book review

Barbara R Hauser

ForAdvisory full Editor details, including free sample chapter, Alon Kaplan

go"A to treasureGeneral www.globelawandbusiness.com/books/ Editor of information including updated legislations are at the reader’s disposal,

trusts-in-prime-jurisdictions-fifth-editionFourth Editionthus making this book a must-have and not just to be seen.” Dr Angelo Venardos TEP, Heritage Trust Group

For full details, including free sample chapter, go to:

www.globelawandbusiness.com/books/trusts-in-prime-jurisdictions-fifth-editionJurisdictions Trusts in Prime Trusts

82 83 Contents Jurisdictions Trusts in Prime Trusts 10.6.2018 Book Review - Trusts in Prime Jurisdictions, Fourth Edition | STEP

Book Review - Trusts in Prime Jurisdictions, Fourth Edition

Dr Angelo Venardos, August 2016

Dr Angelo Venardos TEP is Founder and CEO at the Heritage Trust Group, Singapore.

By Dr Alon Kaplan Reviewed by Dr Angelo Venardos

This book, an addition to the series written by practitioners for practitioners, is testament to Dr Alon Kaplan’s focus on detail. It covers 23 jurisdictions – from Australia to the Bahamas, and Gibraltar to Singapore – and identifies issues both for financial advisors in today’s ever-complex and challenging world, and for those who wish to venture for the first time into this line of advisory business.

Focusing on the vital issues in the industry, from data and information leaks to tax and compliance laws, Trusts in Prime Jurisdictions not only provides a bird’s-eye view of what could have happened, but also gives an overview of the liabilities and risk issues in the financial world today. From a trustee’s perspective, it is well received due to the breadth of information on subjects from the Hague Convention on the Law Applicable to Trusts and on their Recognition, 1985 (the Hague Convention) to the Islamic concept of waqf.

The preface, by Geoffrey Shindler, highlights phases in the duty of trust practitioners and points out the chapters that have been updated. In the foreword, Dr Kaplan and Barbara R Hauser note events that have had a huge impact on the financial world, from terrorist attacks to the global financial crisis and countermeasures against ‘tax haven’ jurisdictions.

David Harvey’s introduction of STEP elucidates how the Society not only focuses on training and development through the sharing of knowledge and resources, but also advocates the philanthropic way of advising through cross-border working environments.

Part one explores the Hague Convention and the Uniform Trust Code. The first chapter, by Hein Kötz, looks at the Hague Convention and details issues with the acquisition of land by widows and their children, and the competence of settlors. This chapter is a Swiss Army knife for practitioners who wish to explore the Hague Convention. It also explains the inter vivos trust and how long it can last, and the exemptions of the rule against perpetuities.

Part two assesses the different changes in each jurisdiction. The Singapore section shows how the regulation of trustees works and how this defines the ‘trust business’ in Singapore.

84 85 https://www.step.org/journal/step-journal-august-september-2016-full-issue/book-review-trusts-prime-jurisdictions-fourth 1/3 Contents 10.6.2018 Book Review - Trusts in Prime Jurisdictions, Fourth Edition | STEP Part three covers special topics. In the section on the trust protector, the writer reinforces the role’s importance and the different powers that can be granted to the protector. Judge Mohammad Abu Obied provides a thorough description on the waqf as a form of Islamic trust. The chapter on the English tax treatment of offshore trusts shows how, over the past few years, successive UK governments have enacted legislation with the purpose of attacking trusts.

A chapter on trusts and money laundering, written by Yehuda Shaffer, a Deputy State Attorney in Israel, provides background on anti-money laundering and counter-terrorist financing standards. How the Financial Action Task Force examines contextual information is also explained, from law enforcement to different arrangements of legal persons in each jurisdiction. Also reiterated is how the OECD initiatives have a developing impact on trust management with respect to the constant changes of laws for improved transparency.

Hauser gives attention to international family governance, contributing her knowledge of family governance and family trusts.

Lastly, Filippo Noseda discusses ‘trusts under attack – privacy, transparency and conflict with the taxman’. He covers structuring in light of the US Foreign Account Tax Compliance Act and Common Reporting Standard, and the impact on the bottom line of the Edward Snowden revelations.

Trusts in Prime Jurisdictions offers a vast amount of practical, as well as theoretical, knowledge. It covers a lot of ground and provides priceless practitioner experience that would be of great assistance to junior colleagues. A treasure of information is at the reader’s disposal, making this book a must-have, and not just for trust practitioners.

ISBN: 9781911078081 PRice: GBP230 STEP Member Price: GBP161 (to obtain your discount code, log into www.step.org/books)

The views expressed in the STEP Journal and Trust Quarterly Review are not necessarily those of STEP. Read more.

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