Israeli resident settlor: working with a trustee in Switzerland

If you are an Israeli resident settlor looking at a trustee in Switzerland, the first practical question is rarely about the trust deed. It is about people: who will talk to whom, what each of them needs, and in what order. A trust works when the settlor, the local advisers and the trustee share one set of facts and none of them is surprised by another's decision.

This page is about that working relationship. It sets out what a Swiss trustee asks of a settlor who lives in Israel, what it leaves to your Israeli advisers, and how the first year can be organised. Israeli law and tax are flagged, not answered: they belong to an adviser qualified in Israel.

What a trustee in Switzerland does for a settlor living in Israel

A trustee holds the trust assets in its own name but separately from its own estate, manages them for the beneficiaries or for the stated purpose, and accounts for what it does. That is the description in the Hague Convention on trusts, which Switzerland applies. Where the settlor lives changes none of this. It changes what the trustee must ask you, and how much of the surrounding legal and tax picture it must see before it acts.

For a settlor in Israel, the trustee's work sits at the junction of three things: the trust deed and its governing law, the Swiss regulatory duties of the trustee, and the position of the people connected to Israel. The trustee is responsible for the first two. For the third it relies on your Israeli adviser, and it says so openly rather than guessing.

The diagram shows the usual lines of communication.

What the trustee needs from you and your local advisers

A regulated trustee cannot accept a structure it does not understand. Expect questions about who you are, where the assets come from, who the beneficiaries are and where they live. These are not a sign of distrust. They are part of the anti-money-laundering duties the trustee carries, and they are also what lets it administer the trust properly.

Two points deserve emphasis. First, the trustee will want to hear from your Israeli adviser directly, or at least to read the adviser's written conclusions, rather than rely on your summary. Second, it is better to disclose a difficult fact at the start than to let the trustee find it in the file later. A trustee that discovers an omission is obliged to ask questions, and may decline to continue.

For the broader process of selecting a trustee before you reach this stage, see how to choose a trustee in Switzerland, and for the checks you can run on the trustee itself, due diligence on your trustee.

Who answers which question

The cleanest arrangement is a written division of responsibility. It stops the trustee advising on Israeli tax, which it should not do, and stops the local adviser deciding questions of trust administration, which belong to the trustee under the deed.

The Swiss trustee answers for:

• the trust deed's mechanics: powers, duties, appointment and removal clauses;
• administration of the assets it holds and the records it keeps;
• its own regulatory and reporting obligations in Switzerland;
• the information it will and will not share with you, which depends on the deed and the governing law (see what information your trustee must give you).

Your Israeli adviser answers for:

• whether, and how, Israeli authorities and courts treat the trust, the settlor and the beneficiaries;
• your personal filing and disclosure position as a person resident in Israel;
• how a transfer of assets to the trust, or a distribution from it, is viewed locally;
• whether any local rules on family property, inheritance or creditors could reach the structure.

Because those last points depend on your individual facts, no general page can settle them. What this page can do is give you the questions to put. Ask your Israeli adviser: how is a trust of this kind characterised locally; who is treated as owner of the assets for local purposes; what do I have to report, and when; what happens on a distribution to a beneficiary who lives in Israel; and what changes if I move residence later. If you may move, the situation is covered in settlor moving abroad: keep, change or add a trustee.

Recognition and governing law: what the sources say

Two separate questions are often blurred. One is whether Switzerland recognises a trust; the other is whether Israel does. The first has a clear answer from official sources. The second is for your local adviser.

On the Swiss side, Switzerland signed the Hague Convention on the law applicable to trusts and on their recognition on 3 April 2007, ratified it on 26 April 2007, and it entered into force for Switzerland on 1 July 2007. The Federal Office of Justice confirms that foreign trusts have been recognised in Switzerland since that date. Under Article 11 of the Convention, a trust validly created under the applicable law is recognised as a trust, which at a minimum means that the trust assets are kept apart from the trustee's personal estate and that the trustee can sue and be sued in that capacity.

Governing law is chosen by the settlor, expressly or by implication (Article 6). Failing a valid choice, the trust is governed by the law with which it has the closest connection, looking at the place of administration, the location of the assets, the trustee's residence and the purposes of the trust (Article 7). A trustee in Switzerland and counsel chosen for the governing law will settle this with you before the deed is signed.

Article 13 introduces a caution that matters for any cross-border family. A state is not bound to recognise a trust whose significant elements, other than the chosen law, the place of administration and the trustee's habitual residence, are connected essentially with states that do not know the trust. Whether this has any consequence for a settlor and beneficiaries based in Israel is a question for Israeli counsel. Article 15 adds that mandatory rules of the forum, such as those on succession rights, protection of creditors and the effects of marriage, continue to apply. These points explain why the local legal opinion is not optional paperwork.

Tax: flagged for your local adviser

This site does not state Israeli tax rules, and nothing here replaces advice from a tax adviser in Israel. What can be said is how the Swiss authorities classify trusts, because the type of trust you choose shapes the Swiss analysis.

According to the Swiss federal tax administration's circular on trusts, a revocable trust is looked through: the assets and their income remain taxable with the settlor where the settlor lives. For an irrevocable discretionary trust, the answer depends on where the settlor was domiciled when the trust was created; if the settlor was domiciled abroad at that moment, the assets are attributed neither to the settlor nor to the beneficiary. An irrevocable fixed interest trust is treated differently again, with the beneficiary taxed on the assets and income.

None of this tells you how Israel treats the same trust. The two analyses can differ, and the difference is exactly what your local adviser must examine. Ask for the answer in writing, and give the trustee a copy so that its reporting and its distribution decisions follow the same assumptions. The trustee's reporting side is described in compliance and reporting: what your trustee must do.

Example: a first-year calendar of contacts and reports

This is an illustration, not a template for your own case. Imagine a family established in Tel Aviv: a settlor, a spouse and adult children, with an Israeli lawyer and an accountant already advising them. They are setting up a discretionary trust with a trustee in Geneva. The calendar below shows how contacts could be sequenced.

The pattern to keep is simple: the local adviser sees what the trustee sends, the trustee sees what the local adviser concludes, and the settlor sits in the middle with a calendar both can follow. The yearly rhythm is explained further in the yearly compliance review by your trustee.

Keeping your own role clear

Settlors often assume that choosing a trustee in Switzerland means handing over every decision. In practice you may keep certain powers, and the Convention itself says that powers reserved by the settlor are not inconsistent with a trust. What you reserve, and how the trustee treats those powers, should be agreed with counsel and tested by your Israeli adviser, since reserved powers can change how a trust is characterised. See settlor reserved powers and the trustee relationship and working with a protector for the options.

If you already have a trust elsewhere and want it administered in Switzerland, moving a trust to a trustee in Switzerland describes the route. Fees depend on the structure and are indicated after the confidential assessment.