A testamentary trust is one whereby the trust comes into existence as a result of the will of an Isrseli resident upon the death of the settlor.
Such a trust is taxed based on the residence of the beneficiaries.
If none of the beneficiaries are Israeli resident, the trust is deemed non-resident and hence exempt from Israeli taxation on income earned outside ISRAEL.
If however, there is one beneficiary who is an Isrseli resident, the entire trust is taxable. A noticeable exception will apply if the Isrseli resident beneficiaries are all within their ten-year exemption period – assuming of course that all income is earned outside Israel.
In a case where there is a single beneficiary, who is an Israeli resident, the beneficiary can elect to have the income of the trust taxed in their own hands, rather than at the trust level.