Trusts for US Citizens Living in Israel: Should You Open One?
For American expats living in Israel, estate and financial planning can be complicated. One key question many face is whether to open and maintain a trust in the US. Trusts can offer significant advantages for asset protection, tax efficiency, and estate planning, but they also come with legal and tax obligations under both US and Israeli law.
In this guide for 2025, MasAmerica explores whether a US-based trust is the right move for you and what tax considerations you need to be aware of.
1. What Is a Trust, and How Can It Help Expats?
A trust is a legal entity that holds and manages assets for the benefit of designated beneficiaries. It can help US expats in Israel with:
✅ Asset Protection: Keeps assets secure from creditors, lawsuits, or financial mismanagement.
✅ Estate Planning: Helps avoid probate, ensuring assets pass smoothly to heirs.
✅ Tax Efficiency: Reduces estate tax exposure and may provide income tax benefits.
✅ Control Over Distribution: Allows you to set rules for when and how heirs receive their inheritance.
2. US Trusts vs. Israeli Trusts: Key Differences
Before deciding to open a trust, it’s important to understand the differences between US and Israeli trust structures.
| Feature | US Trusts | Israeli Trusts |
| Taxation | Subject to US federal income and estate taxes | Taxed under Israeli trust laws, with special rules for foreign trusts |
| Control | US-based trustee manages assets | Israeli trustee may be required for Israeli assets |
| Estate Tax Impact | Can reduce US estate taxes for beneficiaries | No estate tax in Israel, but income distributions may be taxed |
| Reporting Requirements | IRS reporting required (Form 3520, Form 1041) | Must comply with Israeli tax authorities (Mas Hachnasa) |
For those who plan to leave assets in the US, a US trust may offer more flexibility and estate tax benefits. However, Israeli taxation on worldwide income can still impact trusts if beneficiaries are Israeli residents.
3. Types of Trusts for US Expats in Israel
If you decide to open a trust in the US, choosing the right type is crucial. Here are some common options:
Revocable Living Trust
- Best for: Avoiding probate and simplifying inheritance.
- Tax Implications: No immediate tax benefits—income remains taxable to the grantor.
Irrevocable Trust
- Best for: Estate tax reduction and asset protection.
- Tax Implications: The trust is a separate tax entity but may require US tax filings.
Foreign Grantor Trust
- Best for: US expats with Israeli beneficiaries.
- Tax Implications: Income may be taxed differently in the US and Israel, requiring careful planning.
For more details on US trust taxation, visit the IRS page: Foreign Trust Taxation.
4. Tax Considerations for US Expats with Trusts
When opening and maintaining a trust, tax compliance in both countries is critical.
US Tax Reporting Requirements
If a US citizen in Israel has a trust, they may need to file:
- Form 3520 & 3520-A: Reports foreign trust ownership and transactions.
- Form 1041: Required for US-based trusts with taxable income.
For IRS guidance on trust reporting, check Form 3520 instructions.
Israeli Tax Considerations
- Israeli tax law recognizes foreign trusts but taxes distributions to Israeli residents.
- Tax implications vary based on trust structure and whether the Israeli Tax Authority (ITA) views it as an Israeli resident trust.
Consult with an Israeli tax professional to avoid unexpected liabilities.
5. Should You Open a US Trust While Living in Israel?
✅ A US trust may be a good option if:
- You own significant assets in the US and want to keep them under US jurisdiction.
- You want to minimize US estate taxes for beneficiaries.
- Your heirs are also US citizens, reducing dual taxation issues.
❌ A US trust may NOT be the best option if:
- Your heirs are Israeli residents, as distributions may be subject to Israeli taxes.
- You plan to move all assets to Israel and no longer have US financial ties.
6. Alternatives to Trusts for Expats
If a trust isn’t the right solution, consider:
- Beneficiary Designations: Use “payable on death” (POD) or “transfer on death” (TOD) accounts.
- Joint Ownership with Rights of Survivorship: Avoids probate without the complexity of a trust.
- Gifting Strategies: The annual gift tax exclusion allows $18,000 per recipient in 2024 (IRS Gift Tax Rules).
Final Thoughts: Is a US Trust Right for You?
For US citizens living in Israel, setting up a trust in the US can be a smart estate planning move—but it requires careful tax and legal consideration. Understanding how US and Israeli tax authorities treat trusts is essential to avoiding compliance issues and maximizing financial benefits.
At MasAmerica, we specialize in helping US expats in Israel navigate estate planning, tax strategies, and trust management. Contact us today to explore the best options for your financial future.