Who does not know your aliyah touched the trust? The trustees.
The moment you become an Israeli resident, a trust your relatives set up abroad can change tax character, even though nothing about the trust changed. Israel classifies trusts partly by where the beneficiaries live, so your landing can create Israeli reporting duties for trustees who have never heard of Israeli residency rules.
Nobody in the chain has a reason to notice. What reaches the trustee about your move is a change of address, not a change of tax status, and no adviser in that country is paid to watch the residence of a beneficiary two time zones away. The Israeli side reads the same facts entirely differently, and the first person the רשות המסים (Rashut HaMisim) can ask about it is you.
General information, not advice
How does Israel sort trusts, and where does a new-resident beneficiary sit?
Israel sorts a trust largely by where the people attached to it live, the settlor who funded it and the beneficiaries who can receive from it, rather than by where the deed was signed or where the trustee holds the assets9. That is the whole reason your move matters: you are one of the inputs to the classification, and you just changed value.
The Income Tax Ordinance names the categories in Hebrew, and they are what an Israeli accountant will say out loud in your first meeting. Where everyone is a foreign resident, the trust is a נאמנות תושבי חוץ (ne'emanut toshavei chutz), a foreign residents trust, and Israel taxes only its Israeli-source income. Where the settlor is a foreign resident and at least one beneficiary is an Israeli resident, it is a נאמנות נהנה תושב ישראל (ne'emanut neheneh toshav Yisrael), an Israeli-resident-beneficiary trust, and that is almost certainly the category your family stumbled into the day you landed. A trust created under a will is a נאמנות לפי צוואה (ne'emanut lefi tsava'a), and where the settlor is a close relative there is a further sub-category, נאמנות קרובים (ne'emanut krovim), a relatives trust, with an elective regime the trustee chooses rather than you.
Which box your trust falls into is a question of fact about the deed and the residence of each party, and Israeli practice settles it with the tax authority in advance rather than arguing afterwards9. The table is a map, not a determination.
| Trust profile | Likely Israeli classification | Who has to report | Does new-resident relief help | US-person consequence |
|---|---|---|---|---|
| Settlor alive abroad, you are one of several discretionary beneficiaries | Israeli-resident-beneficiary trust | Trustee for the trust position; you for what reaches you, on your דוח שנתי (Doch Shnati) | Yes for the foreign-source element attributable to you, inside the 120-month window10 | Form 3520 Part III on any distribution2 |
| Settlor alive abroad, you are the sole beneficiary with a fixed entitlement | Same category, but much harder to argue the income is not economically yours as it arises | Trustee and you; a fixed interest is looked through more readily than a discretionary one | Yes, foreign-source only; Israeli-source income sits outside it | Form 3520 Part III, plus a real chance of grantor-trust status pulling in Form 3520-A3 |
| Settlor has died, the trust continues under the will | Testamentary trust; with an Israeli-resident beneficiary it moves closer to an Israeli-residents trust | Trustee, on income rather than only on what is handed out | Partly, and this is where the answer most often disappoints people | Form 3520 for distributions; an outright bequest is a separate question above $100,00017 |
| Settlor is your parent or grandparent, alive abroad | Relatives trust, an elective regime rather than one answer | The trustee makes the election; you live with the track chosen | The election interacts with the window, so the sequencing has to be deliberate | Unchanged: US reporting follows your citizenship, not the Israeli election6 |
Israeli treatment: what the new-resident window covers, in months from your landing
Your new-resident relief runs 120 months, ten years, from the day you became an Israeli resident, and it covers foreign-source income and gains10. Month 1 is your aliyah date, not the date of your first Israeli salary and not the date on your תעודת עולה (Teudat Oleh) if the two differ, so write the date down and count from it.
What the window does not do matters more here. It does not cover Israeli-source income, so if the trust holds an Israeli asset the exemption is irrelevant to that slice. It does not extinguish the trustee's own Israeli position. It does nothing at all to your home country. And since 1 January 2026 the exemption is report-but-not-tax for affected years: the foreign income stays free of Israeli tax for the decade, and it now has to appear on the return rather than stay invisible1011.
Assume the information arrives with or without you. Israel participates in automatic exchange of financial account information, so an account abroad that lists you as a beneficiary can surface here through the reporting channel rather than through your return12. A quiet trust is not a hidden trust.
Home-country treatment: what changes where the trust actually sits
In the country the trust lives in, your emigration usually changes your position and not the trust's, with one very large exception. Read your own row, and do not borrow the American warnings if you are not American.
United States: Form 3520, and a penalty that can exceed the tax
A US person who receives a distribution from a foreign trust reports it on Form 3520, Part III, and the instructions are blunt about who that is: anyone who received, directly or indirectly, a distribution from a foreign trust during the tax year2. Indirectly is doing real work there. A loan from the trust, or living rent-free in a property the trust owns, is treated as a distribution, which is exactly the informal arrangement families make when a child moves abroad and needs help with a first Israeli rental.
The penalty structure is the part worth memorising. Under section 6677 the initial penalty for failing to report a distribution is the greater of $10,000 or 35% of the gross value of the distribution received, with 35% also applying to unreported transfers into a trust and 5% applying where a US owner's trust fails to file Form 3520-A on time2. Form 3520 is generally due with your return, by the fifteenth day of the fourth month after your tax year ends, extendable to the fifteenth day of the tenth month3. Because the floor is a flat $10,000, a modest family distribution can carry a penalty several times any tax that was ever at stake.
One more mechanical trap: if the trustee does not give you a beneficiary statement, the Form 3520 instructions push you onto a default method for working out the taxable portion of what you received2. That default is rarely kind, and asking for the statement is a two-line email.
The treaty: what it settles here, and what it will not touch
The US-Israel income tax convention allocates taxing rights and relieves double taxation, and it does not switch off either country's reporting machinery. Two provisions bear directly on a trust. Article 3 (Fiscal Residence) treats a trust as a resident of a contracting state only to the extent its income is taxed there as a resident's income, "either in the hands of the respective entity or of its partners or beneficiaries"7. A trust is not automatically a treaty person; it borrows residence from how its income is actually taxed.
The second is the one people hope is not there. Article 6(3) provides that notwithstanding any provision of the convention except paragraph 4, a contracting state may tax its residents and its citizens "as if this Convention had not come into effect"7. Paragraph 4 preserves certain benefits, among them Article 26 (Relief From Double Taxation), the credit mechanism7. So the treaty can stop the same income being taxed twice. It cannot stop the United States taxing its own citizen in Tel Aviv, and it was never a reporting exemption8.
| Question | Israeli treatment | Home-country treatment | What the treaty does |
|---|---|---|---|
| Is the money taxed? | Foreign-source income and gains exempt inside the 120-month window10 | Continuing for US persons; generally narrowing for UK, Canadian and South African leavers6 | Allocates taxing rights, credit against double taxation under Article 267 |
| Does it have to be reported? | Yes since 1 January 2026, even while exempt10 | Yes for US persons, on Form 35201 | Nothing. Reporting sits outside the treaty |
| Who is the filer? | Trustee for the trust position, you for what you receive | You for Form 3520; the trust for Form 3520-A where a US owner exists3 | Article 3 decides whether the trust is a treaty resident at all7 |
| Does a pooled fund inside change things? | Not by itself; Israel taxes the income, not the wrapper | For US persons, yes: PFIC and Form 86214 | Nothing. The saving clause preserves the US rules |
PFIC: how pooled funds reach you through, and after, a family trust
If you hold US citizenship or a green card, pooled funds are live here in three ways, and only the first is about the trust itself. A US person treated under sections 671 through 679 as the owner of PFIC stock held in trust is treated as the shareholder and files Form 86215. Whether a beneficiary of a non-grantor trust also picks up that duty turns on the attribution rules, and it is the question to put to a cross-border adviser before the trustee acts, not after.
The other two routes are yours. If the trustee distributes fund units in kind and those units are a non-US pooled vehicle, you hold the PFIC directly from that day4. And the third catches olim who never think of themselves as investors: you receive cash, you want it to do something sensible, and the obvious Israeli move is a קרן נאמנות (Keren Ne'emanut) or another Israeli-domiciled fund. For a lifelong Israeli that is the correct, boring answer. For a US citizen it creates a PFIC, with an annual Form 8621 and a default regime applying a separate tax plus an interest charge to the gain5. Same money, same shelf, opposite answer.
With no US citizenship and no green card, PFIC does not reach you; read this as background on why an American sibling is being difficult about the same distribution. Meidahon covers the mechanics in the PFIC guide for olim.
A worked example: one distribution, two governments
Miriam made aliyah in March 2025 and holds US citizenship. Her grandparents, still living in Ohio, settled a family trust there years ago; her mother and her uncle are the other beneficiaries, the trustee is a US professional, and nobody involved has ever filed anything in Israel. In June 2027, month 28 after her aliyah, the trustee distributes $18,000 to her.
Israeli side. The distribution is foreign-source and Miriam is inside her 120-month window, which ends in March 2035, so the foreign-source element is not subject to Israeli income tax10. It is not invisible: since 1 January 2026 the exempt foreign income goes on her Israeli return10. She converts at the Bank of Israel representative rate for the date of the distribution rather than at the rate on the day she files, and at an illustrative 3.6 shekels to the dollar the $18,000 is roughly ILS 64,800. Separately, the trust's own Israeli classification is now a live question, because from March 2025 it has had an Israeli-resident beneficiary.
US side. Miriam files Form 3520, Part III, with her US return2. If she does not, the section 6677 penalty is the greater of $10,000 or 35% of the distribution; 35% of $18,000 is $6,300, so the penalty is the $10,000 floor, which is more than half of what she actually received2. Had the distribution been $60,000, the 35% figure of $21,000 would have been the greater and the penalty would have scaled with it. Neither number is tax. They are the price of a missing form.
Where the two meet. Nothing in the Israeli exemption reduces the US obligation, and nothing in the treaty removes the reporting7. If Miriam later invests the $18,000 in an Israeli pooled fund, she adds an annual Form 8621 to her file4. The distribution was the easy part. The next decision is the one that compounds.
What newcomers get wrong
- Assuming the trustees have been told. They have your new address, not your new tax residence, and no professional in that country is monitoring it. The notification has to come from you.
- Reading the ten-year window as a ten-year silence. Exempt and unreported stopped being the same thing on 1 January 2026. The income is still free of Israeli tax for the decade; it now has to appear10.
- Treating "I only get money occasionally" as meaning nothing has happened. Classification can turn on the existence of an Israeli-resident beneficiary, not on whether that beneficiary has been paid yet.
- Missing the informal distribution. A loan from the trust, or the rent-free use of a trust-owned property, is treated as a distribution for US reporting2, and helping a child settle in Israel is exactly when families do this.
- Investing the distribution the sensible Israeli way. An Israeli pooled fund is the ordinary local answer and a PFIC for a US person4. Decide before the money moves, not after.
- Expecting the treaty to be a shield. The saving clause lets each state tax its own citizens as if the convention had not come into effect7.
What to get in writing before your first Israeli return
The decision procedure is short, and it is mostly document collection rather than analysis. Do it before your first Israeli filing, because the cheapest version of this conversation is the one that happens in advance.
- Ask the trustee for the trust deed and for a written statement of the trustee's own tax residence and the trust's classification in its home country. Both facts are inputs to the Israeli category9.
- Write down your aliyah date and count 120 months from it. Every timing question in this article is answered off that one date11.
- Ask whether you are discretionary or fixed-interest, and whether the settlor is alive. Those two answers move you between rows of the table above.
- Ask for a schedule of anything you have already received, including loans and any use of trust property, with dates and amounts in the original currency.
- Ask what the trust holds. If any of it is a non-US pooled fund and you are a US person, raise it with a cross-border adviser before the next distribution4.
- Take the file to an Israeli adviser who handles trusts, and if you are a US person, one who also handles US-person clients. Israeli practice settles classification with the Israel Tax Authority in advance rather than in dispute9.
If a relative abroad has died and you are receiving assets outright rather than through a continuing trust, that is a different set of rules with a different answer on the Israeli side. Read Inheriting From Abroad as an Oleh next.
A trust settled abroad by relatives who never left can change its Israeli tax character the day one beneficiary becomes an Israeli resident, because Israel classifies trusts partly by where the settlor and beneficiaries live rather than by where the deed was signed. A foreign-settled trust with at least one Israeli-resident beneficiary falls into its own Israeli category, the trustee acquires an Israeli filing position, and you report what actually reaches you. Your new-resident relief runs 120 months from your aliyah date and covers foreign-source income and gains, and since 1 January 2026 that exempt income must be reported rather than omitted. For a US citizen or green-card holder none of this reduces the US side: a distribution from a foreign trust goes on Form 3520, where the failure-to-file penalty is the greater of $10,000 or 35% of the distribution, and any non-US pooled fund inside the trust, distributed in kind, or bought with the proceeds is a PFIC requiring Form 8621.
It can change how Israel classifies it, yes. Israeli trust classification depends partly on where the settlor and the beneficiaries are resident, so a trust settled by a foreign resident that now has an Israeli-resident beneficiary sits in a different category than it did before you landed. The deed, the trustee and the assets never moved, which is exactly why nobody abroad notices.
Both sides have work. On the Israeli side the trustee generally carries the trust-level filing position while you report what actually reaches you, so a trustee abroad who has never filed in Israel may now have a duty they know nothing about. Practically, you are the only person in the chain with a reason to raise it, so the first move is asking them in writing for the deed and their tax residence.
It covers foreign-source income and gains for 120 months from the day you became an Israeli resident, so the foreign-source element attributable to you generally falls inside it. It does not cover Israeli-source income, it does not remove the trustee’s own Israeli position, and since 1 January 2026 exempt foreign income has to be reported on your Israeli return rather than left off it.
A US person who receives a distribution from a foreign trust reports it on Form 3520, Part III, generally with the annual return. Indirect distributions count, including loans from the trust and rent-free use of trust property. If the trust is treated as owned by a US person under the grantor-trust rules, Form 3520-A applies to the trust as well, on its own earlier deadline.
The section 6677 penalty for failing to report a distribution is the greater of $10,000 or 35% of the gross value of the distribution. Because the floor is flat, a modest family distribution can carry a penalty worth more than half of what you received, and it is charged whether or not any tax was ever due. Additional penalties apply if non-compliance continues after IRS notice.
For US persons, yes, through three routes. A US person treated as the owner of PFIC stock held in trust under sections 671 through 679 is the shareholder and files Form 8621. Fund units distributed to you in kind make you a direct holder. And investing a cash distribution into Israeli pooled funds creates a PFIC yourself, which is the trap, because that is the ordinary local advice. Non-US olim are outside the PFIC rules entirely.
It allocates taxing rights and provides a credit against double taxation, and it does not touch reporting. Article 3 treats a trust as a treaty resident only to the extent its income is taxed as a resident’s income in that state, in the entity’s hands or its beneficiaries’. Article 6(3), the saving clause, lets each state tax its citizens as if the convention had not come into effect.
Waiting is the common choice and it is the risky one, because Israeli classification can turn on the existence of an Israeli-resident beneficiary rather than on whether that beneficiary has been paid. Information also arrives independently through automatic exchange of financial account data. Collecting the deed and the trustee’s written details before your first Israeli return costs an email; reconstructing years later costs considerably more.