ISRAEL Law and Practice Contributed by: Yaron Mehulal, Nataly Davidai and Shalom Hershkovitz, FISCHER (FBC & Co.)
of their children. These trusts, although discretionary and irrevocable, are often set up for a limited period of time, until the child has reached maturity and is able to cope with large amounts of funds. 2.2 International Planning The Israeli Inheritance Law, 5725-1965 attempts to meet the increasing global challenges of international planning. It contains important rules on international private law issues that balance the competing claims of Israeli and foreign laws over succession, by provid - ing that Israeli courts have jurisdiction to deal with the inheritance of any person who was a resident of Israel at the time of their death, or whose estate includes assets (one or more) situated in Israel. The succession rules that are applied by the courts are those in force in the country of residence of the deceased at the time of their death. When examining a will, the person’s capacity to be testate is deter - mined by the laws of their country of residence at the time the will was made and, as to the requirements for certain form and formal features of a valid will, Israeli law is flexible and recognises the validity of the will if it meets the formal requirements of any of the follow - ing countries: • Israel; • the country where the will was made; • the country of residence, usual abode or citizen - ship of the deceased, either upon their death or when the will was made; or • the country where the real estate is situated, when real estate is involved. Even when an estate is in place, the rules that are applied are those in force in the deceased’s country of residence at the time of their death, regardless of where the will was drawn up. It is important to note that, since 2015, European Union residents who hold Israeli citizenship can choose, as part of their will, which law should govern their estate, and for that matter pick the Israeli law. In practice, families putting in place succession plans using trusts or similar vehicles should be aware of the complex and strict taxation rules of trusts in Israel,
which, inter alia, subject the trust’s worldwide income to full Israeli taxation if there is even one Israeli tax resident beneficiary. Such taxation exists even where the trust’s settlor has not been an Israeli tax resident since the settlement of the trust, or has passed away, regardless of the settlor’s tax residency, the situs of the trust’s assets, the trust’s revocability, the number of foreign beneficiaries and the beneficiaries’ right to claim a distribution. Also, as in most European jurisdictions, families with US persons, companies with US shareholders and trusts with US beneficiaries, settlors and/or protec - tors encounter various difficulties in opening bank and financial accounts in Israel, and sometimes even in conducting ordinary bank transactions such as send - ing or receiving transfers of funds. 2.3 Forced Heirship Laws There are no forced heirship laws in Israel. In the absence of a valid will, the following default heirship rules apply: • If the deceased is survived by children and a spouse, the deceased’s spouse receives all joint household belongings (the family’s car, furniture, housewares, electrical appliances, etc) and half of the estate, while the remaining half is divided among the children, equally. • If there are children but no spouse, the deceased’s children share, equally, the entire estate. • If there are no children and grandchildren, but the deceased is survived by a spouse and parents, the spouse receives all joint household belongings (the family’s car, furniture, housewares, electrical appli - ances, etc) and half of the estate, while the remain - ing half is inherited by the deceased’s parents. • If there are no children and grandchildren, and the deceased’s parents are not alive, but there is a spouse, the spouse receives all joint household belongings (the family’s car, furniture, housewares, electrical appliances, etc) and two-thirds of the estate, while the remaining third is inherited by the deceased’s siblings (or if there are no sib - lings, then the deceased’s grandparents and their offspring); in addition, if the spouse was married to the deceased for at least three years and has lived
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