What is a Trust?

A trust is a legal arrangement in which a person holds assets for the benefit of another person.

What are the roles in the trust?

“The creator of the trust” – also called the “truster” – the person who transferred the funds or assets.

The “trustee” – the person who actually owns and manages the assets until it is time for them to pass to the “beneficiary”,

“The beneficiary” – the person for whom the trust was created and will benefit from what is held in it.

The trust is usually governed by the “trust deed” in which the creator of the trust instructs the trustee how to manage the trust, how to invest the funds, under what circumstances it is possible or necessary to release funds to the beneficiaries, etc. There is no defined format for such documents, although most countries around the world have laws which regulate some of the basic rules and responsibilities.

A trust is an extremely popular and effective way to manage wealth on an intergenerational level and also has useful tax and legal implications. In addition, it is an excellent option through which you can take care of the financial future of people with mental disabilities.

So what links a Trust to taxation?

Taxation of trusts is a complex issue and there are potential tax pitfalls that can occur. Therefore, when a trust is in the process of being set up and drafted, it is very important to receive advice and guidance from an accountant who is an expert in the field. An expert CPA will make sure that the trust is structured in the most optimal way and that the tax consequences do not negate the overall purpose that led to its creation.

What are the complexities that may arise in the context of Trust taxation in Israel?

The base policy of the Israel Tax Authority is to tax the income of the trust, in every trust where there is at least one creator or beneficiary who is a resident of Israel (with an exception). The imposition of taxation by the tax authorities in Israel must be integrated with the basic principle of the international tax rules which says that you do not pay tax twice on the same income. Therefore, if Israel wants to tax a person for dividend income accumulated abroad, a credit will be given for the tax paid abroad against the tax collected on the same income in Israel, all in accordance with the treaties signed between the countries. In some countries (e.g. USA, UK), income from a trust that is distributed to a beneficiary, obligates only the beneficiary to pay tax, and not the trust.

Our experts, under the direction of CPA Binyamin Radomsky – Aboulafia Partner and manager of the Israeli taxation department, are among the leaders in the field in Israel and have professionally accompanied dozens of trusts over the years. They offer tax consulting services, both from the Israeli side and from the US and UK sides, oversee opening tax files, preparing reports and reporting, and also engage in ongoing work with the trustee or lawyer who manages the trust.

Comprehensive information on the taxation of trusts can be found in a series of blogs written by CPA Benjamin Radomsky.

To contact us, and get details about the Abolafia CPA office, you can visit the office’s website.

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