ISRAEL Law and Practice Contributed by: Yaron Mehulal, Nataly Davidai and Shalom Hershkovitz, FISCHER (FBC & Co.)
and responsibility at a later point, after having gone through the necessary business training and mentor - ing. More sophisticated families use trusts as a means for executing a measured and regulated transfer of wealth and control to younger generations. Some - times a trust is combined with strategies originating in the Israeli Companies Law, 5759-1999: mainly, the transferring owners would create a holding entity (company or partnership) distinguishing between property rights and control rights; while the property rights are settled into a trust, the controlling interests are either left with the transferring owners or granted to the more suitable next-generation member(s), thus retaining equality in the property rights. 4.3 Transfer of Partial Interest Property transferred as a tax-free gift among Israeli tax resident individuals, or upon inheritance, retains its original tax cost basis for purposes of the taxation of future sale as well as for purposes of depreciation, regardless of the portion actually transferred. How - ever, if an Israeli tax resident receives (whether as a gift or inheritance) a property from abroad, regard - less of whether partial or whole, a pre-ruling can be requested from the Israel Tax Authority allowing for a step-up of the original cost to the fair market value of the property transferred. The Israel Tax Authority would most likely impose certain conditions on the step-up, including by limiting the set-off of deprecia - tion, losses, and foreign gifts and inheritance taxes. Being a relatively young country, the Israeli judicial system does not see a great number of substantial wealth disputes (other than in the case of divorce proceedings or regarding wills’ validity, as further described below). There are hardly any known pub - lic disputes regarding trusts, foundations or similar entities conducted under Israeli law in Israeli courts. However, in recent years, as the country matures, the Israeli judicial system is seeing an increase in the num - ber of disputes that come before it, disputes that can be categorised into three kinds. 5. Wealth Disputes 5.1 Trends Driving Disputes
The first kind of dispute relates to the validity of wills: wills made at old age or by an unhealthy testator are sometimes attacked as being staged by interested parties while not representing the testator’s true will due to their unsound mind at such time, or as being affected by undue influence. In order to reduce interested party claims, the Israeli legislature strictly stated in the Inheritance Law, 5725- 1965 that any provision of a will that benefits a party who has been a witness to, or has participated in any way in the making of (including by mere co-ordination of travel arrangement), such will is null; hence, this provision of law is used as grounds for abundant dis - putes aiming to disqualify wills. The second kind of dispute deals with the issue of the scope of the estate’s assets. Recent years have seen an increase in claims by spouses and children of deceased claiming that property that is allegedly part of the estate does not in fact belong to the deceased’s estate. For that matter, spouses who are not the sole heirs would tend to claim they are entitled to half of the property under the “property equalisation” regime, while children and other interested third parties would argue that parts of the deceased’s property were given to them as a gift prior to the deceased’s death. The third kind of disputes focuses on international and cross-border inheritance disagreements, mainly due to the demise of wealthy Jews who held property both in Israel and abroad. 5.2 Mechanism for Compensation Under Israel’s Trust Law, if damage is caused to assets or beneficiaries of a trust as a result of an act, omis - sion or negligence of a trustee, the trustee is person - ally liable to monetarily compensate for the decrease in value of an asset, as well as for any lost profit (in the amount equalling the difference between the value of the asset at the day of compensation and the value of the asset had the trustee not breached their duty).
281 CHAMBERS.COM
Powered by FlippingBook