Israel to Tax Many U.S. Trusts

Effective January 1, 2014, the new Israeli tax reform law will subject many previously tax-exempt trusts to significant income tax liability.

For years, Israel hasn’t taxed its residents on any distributions received from trusts created by a U.S. resident with a U.S. trustee unrelated to beneficiaries.  Israelis receiving money from such trusts weren’t even required to report distributions. 

Under the new law, any trust with foreign settlors and at least one Israeli resident beneficiary will now be taxed.  In situations where the settlor is related to the beneficiary, known as a Relatives Trust, trustees must choose between the Deferred Tax Regime and the Alternative Regime.

See Julie D. Goldstein, Israel Changes Its Tax Law to Include the Taxation of Many U.S. Trusts, Mondaq, Nov. 16, 2013.