Many people confuse escrow and trusts (especially when the same word is used in Hebrew to describe both), but the differences between them are vast, and unlike an escrow, which does not change the status of proprietary rights or transfer ownership, the institution of classical (or proprietary) trusts is a powerful proprietary tool, which can provide a creative solution for many needs, including asset protection, preservation and management of property and obtaining tax benefits. However, due to the proprietary issues associated with it, it also creates a very large tax complexity that requires legal and accounting advice from professionals with experience in the field.
The escrow, in which deals most of the Israeli Trusts Law, does not change the status of proprietary rights or transfer ownership. Thus, for example, in a regular transaction of purchasing an apartment, a lawyer of one of the parties is usually appointed to hold the deeds of transfer of ownership in escrow until the full consideration is paid and all the necessary approvals are received for recording with the Land Registry. The sale transaction includes instructions to the trustee, but both parties can at any time give the trustee jointly (or one of them, if the agreement so provides) instructions and the trustee will act according to such. In contrast, a proprietary trust is a legal structure in which ownership of assets is transferred to a trust (and it should be emphasized: not to the trustee, who is the manager of the trust, but to the trust itself), gives the trust full independence in managing its assets, and eliminates any ability for the settlor (the creator of the trust) or its beneficiaries to give instructions to the trustee (and they do not have any rights in the trust assets), , so that the trustee is subject only to the provisions of the trust deed and the restrictions imposed on it in the trust deed, and therefore the high importance in drafting the deed by a lawyer with extensive experience in the field.
The regulation of the field of proprietary trusts in Israel was done only in 2005 by an amendment to the Israeli Income Tax Ordinance, in which the officers in the trust were defined and the manner of tax treatment in Israel for the transfer of assets or funds into the trust was set, as well as the tax treatment of the trust and the manner of treatment of transfers from the trust to the beneficiaries. In a matter that reached the Supreme Court in December 2022, it was held that the transfer of a real estate property to a trust is subject to real estate taxation, but in certain cases the delivery of the property to the beneficiary will be exempt from tax, as opposed to the transfer to a trust of non-real estate assets, which in some cases will be exempt from tax. In contrast, in a decision from March, 2025, the Jerusalem Planning and Building, Compensation and Betterment Levies Appeals Committee held that where documents were presented indicating a trust in which the settlor is the beneficiary, and also a trust agreement, a deed of trust and approvals from the Tax Authority, the transfer of the real estate from the settlor to the trust is not deemed a sale and therefore does not trigger betterment levy payment.
There are other complex tax issues in the interface between real estate taxation and trust taxation, and also because of these rulings and many other issues related to trusts, which have not yet reached the Israeli Courts, especially as the issue is not properly regulated under Israeli law and in practice most of the rules are still based on the Common Law, it is extremely important that the engagement in a trust related to Israel be executed after consulting with a lawyer who is knowledgeable in the field (and has a license in the United States of America or the United Kingdom) and an accountant with experience and expertise in the field, who will be able together to structure a trust without tax accidents.