Estate planning in Israel: what is in scope, which tools exist, and in what order
Estate planning is not a will. The will is one of the tools, and sometimes not the most important. A substantial part of a person's property passes entirely outside the will, and anyone unaware of that is planning half a picture.
"The most common gap is between what a person thinks they have left and what will actually pass. Most of it comes to light only when they are no longer here."
Adv. and Notary Igal Mor · Estate planning and wills
What it is, and what it is not
Estate planning is the set of decisions a person makes during their lifetime about what will happen to their property and their affairs when they can no longer decide, or when they are no longer here. It also covers the period between the two, in which a person is alive but unable to manage their own affairs.
What it is not:
- It is not only a will. A will deals with what happens after death, and only with assets that pass through it.
- It is not a product for the wealthy. A family with one flat and a pension fund needs planning no less, and sometimes more, than someone with a portfolio of assets.
- It is not a one-off. Documents drawn up a decade ago usually no longer reflect the position today.
Three questions organise the whole field: who will decide for me if I cannot; what will pass, to whom and on what terms; and how a dispute between those left behind is avoided.
What passes outside the will
This is the point that surprises most, and the source of most of the gaps we see. Some property does not enter the estate at all, and the will therefore does not touch it.
- Provident funds, pension funds and life insurance with a named beneficiary. The money passes to the beneficiary registered with the managing institution. A provision in a will does not override that registration, which makes an out-of-date beneficiary one of the most common failures we encounter.
- A joint bank account with a survivorship clause. The wording of the agreement with the bank has to be checked, because it affects what happens on death.
- An asset registered in joint ownership may behave differently from one held solely.
- Gifts made during life. What was transferred during life is not in the estate. It is a legitimate planning tool, and also a source of claims by other heirs.
The first task in any planning file is mapping: a list of the assets, and beside each of them the question of how it passes. Only then are documents written.
The toolkit
No single instrument answers everything. Good planning combines several documents that speak the same language.
- A will. Determines who inherits what. See wills and inheritance.
- Mutual wills. For spouses, with special revocation rules best understood in advance.
- A durable power of attorney. Covers the period in which a person is alive but unable to decide. See durable power of attorney.
- Advance medical directives. Set a position in advance on questions of treatment.
- A trust. Allows assets to pass on conditions and over time rather than all at once. See trusts.
- Lifetime transfers. A gift, a transfer without consideration, or the registration of a right of residence.
- Updating beneficiaries. The cheapest and quickest step, and usually the one forgotten.
- A marital property agreement. Affects what counts as each spouse's property. See marital property agreement.
The family situations
Planning follows from the family picture, not from the size of the estate. These are the situations that call for particular attention.
- A second marriage and children from more than one relationship. The most complex situation. Without planning, the current spouse and the children of an earlier relationship can find themselves co-owners of the same flat.
- A child with special needs. A direct inheritance may affect entitlement to benefits and place the burden of managing money on them. A trust is usually the right instrument.
- Minors. A minor's inheritance is managed under supervision until the age of 18, and then passes to them in full. A trust can provide otherwise.
- Recognised cohabiting partners. They do not inherit as married spouses, so a will here is not a luxury. See common-law partners.
- An estranged child. It is possible to leave them less, but it must be drafted to withstand the objection that is likely to follow.
- An elderly parent who is supported. The planning should not cut off an existing source of support.
A family business
Where the estate includes a working business, planning concerns not only who receives shares but whether the business will still function the day after.
- Separating ownership from management. Not every heir needs to manage. Ownership can pass to all of them while management is arranged separately.
- An exit mechanism. An heir who does not want to be a partner needs a way out that does not dismantle the business. An agreed valuation mechanism and a right of first refusal solve most cases.
- Articles and founders' agreements. The company's documents sometimes prevail over the will. They must be checked and reconciled with it.
- Operational continuity. Bank signatures, authorised signatories and access to systems. A durable power of attorney covers incapacity, but not death.
- Insurance. A policy that funds the purchase of an heir's share where they do not wish to remain is often the simplest solution.
The principle: the company documents, the will and the power of attorney must say the same thing. A contradiction between them surfaces at precisely the wrong moment.
Tax aspects
Israel has no estate tax. It was abolished in 1981, and receiving an asset by inheritance is not a taxable event. That is a convenient starting point, but not the end of the story.
- The tax is deferred, not cancelled. An heir who sells real property steps into the deceased's shoes as to acquisition value and date. Gain accrued during the deceased's ownership may therefore be taxed in the heir's hands.
- Selling an inherited residential apartment. The statute recognises a dedicated exemption, subject to cumulative conditions: the deceased owned only one apartment, would have been entitled to an exemption had they sold it themselves, and the heir is a spouse, a descendant, or a descendant's spouse. Checking those conditions before a sale saves substantial sums.
- Division between heirs. The division of estate assets between heirs is not treated as a sale, provided the equalising consideration comes from within the estate. See agreements between heirs.
- A lifetime transfer is not automatically exempt. A transfer without consideration to a relative is reportable and sometimes attracts reduced purchase tax. Each step has to be examined separately.
The conclusion: tax planning is not separate from family planning. Two divisions that look identical can differ greatly in what they cost.
Assets and residence abroad
The moment there is an asset outside Israel, or one of the parties is not solely an Israeli resident, the picture becomes more complex and calls for separate examination.
- Which law applies. Private international law may point to the law of the country where the asset is located, and many countries have mandatory succession provisions.
- Foreign tax. Other countries do levy estate or inheritance tax, sometimes on the assets of people who are not resident there. American citizenship or assets in the United States are the common example.
- One will or several. It is sometimes better to make a separate will for each jurisdiction, drafted so that they do not revoke one another.
- Parallel proceedings. An order made in Israel is not always enough to deal with a bank or a registry in another country.
This is not an area to estimate. Where there is an international element, a tax adviser and local counsel should be involved at the planning stage rather than after the death.
How the process works
Estate planning is not a single meeting ending in a signed will. It is a short but orderly process, and that is why it works.
- Mapping. A list of the assets, debts and rights, and beside each the way it passes. This is where out-of-date beneficiaries come to light.
- A conversation about aims. What actually matters: equality between the children, continuity of the business, protecting a spouse, or keeping an asset in the family. Usually not all of them can be achieved in full.
- Choosing the instruments. Which documents are needed, and what each of them deals with.
- Drafting and signature. Including the choice of the appropriate form of will.
- Implementation. Updating beneficiaries with the financial institutions, depositing the durable power of attorney, and registering whatever requires registration. Without this stage one is left with a handsome folder.
- Periodic review. Every few years, and on every life event: marriage, divorce, a birth, a death, the sale of a significant asset, or a move to another country.
In summary
Estate planning is what prevents most inheritance disputes, and it costs materially less than they do.
- The will is one instrument. A substantial part of the property passes outside it, chiefly funds with a named beneficiary.
- Mapping comes before drafting. Without it one plans half a picture.
- The family picture dictates the instruments, not the size of the estate.
- There is no estate tax in Israel, but the tax is deferred rather than cancelled, and the division carries tax consequences.
- An international element requires separate examination, not an estimate.
- Implementation matters as much as drafting, and periodic review is part of the work.
We guide families through estate planning end to end: mapping, choice of instruments, drafting, implementation with the institutions, and periodic review. An initial diagnostic conversation establishes what your picture requires.
What people ask most often
What is the difference between a will and estate planning?
Which assets do not pass under a will?
What if the beneficiary named on a fund is not the person named in the will?
Is there estate tax in Israel?
Is there an exemption on selling an inherited apartment?
When is a trust needed rather than just a will?
How is a second spouse protected against children from an earlier marriage?
What happens to a minor's inheritance?
I have assets abroad. Does that change things?
How often should the planning be updated?
Can assets be transferred during life instead of by inheritance?
Is the planning effective if the banks and institutions are not updated?
All pages in the Family and Inheritance department
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Prenuptial agreementSame sex prenuptial agreementSame-sex marriageNotarised prenuptial agreementDissolution of joint ownershipCareer assets and goodwillSelling the apartment on divorceCommon law partnersInheritance and estate planning
Wills and inheritanceInheritance between same-sex partnersEstate planningWills in estate planningIntergenerational transfer in estate planningTrustsDynasty trustSpecial needs trustProbate orderAgreements between heirsContesting a willNo-contest clause in a willStart with the mapping, not the drafting
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