Family Trusts: Intergenerational Planning, Asset Protection and Business Succession

The intergenerational transfer wave

Over the past decade, the volume of assets and wealth moving between generations in Israel has grown significantly, alongside a rising class of tech wealth and changing family structures. As a result, more families are looking beyond a will alone to plan how assets are passed on.

Trust vs will: not the same tool

A will determines who receives assets on death, but it offers no protection beforehand and no control over how assets are used afterward. A trust works differently: assets are transferred to a trustee who holds them for beneficiaries under pre-set conditions, either starting during the settlor's lifetime or only after death.

• A will transfers full, immediate ownership on death
• A trust can spread the transfer over years and attach conditions
• A trust can start during the settlor's lifetime, not only after death

When a trust is the right tool

A family trust is useful well beyond pure tax planning. Common reasons families set one up include protecting family assets from creditors or from claims by a child's future spouse, ensuring a family business keeps functioning smoothly even when heirs disagree, safeguarding assets for a family member with special needs, and preventing inheritance disputes in families with complex relationships.

• Protecting assets from creditors and future claims
• Business continuity without splitting ownership among disagreeing heirs
• Protecting a beneficiary with special needs
• Preventing disputes among children and new spouses

When a family business passes between generations

A familiar example: a family business owner wants to hand control to the children, but worries that splitting shares between them will create friction, particularly once the children's spouses become stakeholders in the business. A common solution is a trust holding the company shares for all the children, alongside an independent external director who helps bridge disagreements. This keeps family ownership unified and shields the business from disputes rooted in the heirs' marital relationships.

Trust vs foundation: not every structure fits every family

Families with assets outside Israel often face two main alternatives: a trust, recognized mainly in common-law jurisdictions such as the US, the UK and Canada, and a foundation, more common in civil-law jurisdictions such as Liechtenstein and Panama. The key difference: a trust is not a separate legal entity but a set of relationships between the settlor, trustee and beneficiaries, while a foundation is a full corporate body with separate legal personality that owns its own assets.

A point many miss: real estate and trusts

Unlike financial assets, transferring Israeli real estate into a trust is not as simple as it looks. Section 69 of the Real Estate Taxation Law grants a tax exemption only on the transfer from trustee to beneficiary, not on the initial transfer from settlor to trustee. In practice, moving existing real estate into a trust can trigger purchase tax and betterment tax liability, so the structure and timing of a trust holding real estate need careful planning.

Cross-border aspects: US citizens and assets abroad

Families with a US connection, whether through a family member's US citizenship or assets located in the US, need to pay attention to US estate and gift tax. The exemption available to non-citizen, non-resident foreigners is significantly lower relative to US-situs assets. In these cases, a properly structured trust can help reduce exposure to US estate tax alongside parallel Israeli tax planning.