Many United States citizens or residents have children, grandchildren or other beneficiaries who live in Israel. When estate planning for these clients, care must be taken to ensure Israeli income tax is not unnecessarily triggered under Israel’s wide reaching trust taxation law that took effect in 2014. Although the law was enacted by Israel to curb a perceived abuse of Israelis using trusts to shelter income, its broad reach can cause an Israeli income tax for trusts created by US residents where the only connection to Israel is the residency of one beneficiary. This includes trusts that are “grantor trusts” for US income tax purposes. Unfortunately, the US/Israeli Tax Treaty does not always serve to mitigate against this double taxation. As such, care must be taken whenever a client creates a trust with an Israeli resident (an “Israeli”) as a potential beneficiary.
In an article published in Steve Leimberg’s International Tax Planning Newsletter Mary P. O’Reilly, Co-Chair of Meltzer Lippe’s Trusts & Estates practice group provides members with commentary that examines the issues that should be considered when doing trust planning on behalf of US citizens or residents who have children, grandchildren or other beneficiaries who live in Israel.