Israeli law defines holding assets in trust as “a relationship to property under which a trustee is obligated to hold or act upon it for the benefit of a beneficiary or for some other purpose.” The law does not require a specific procedure for registering holding assets in trust, and the only practical sanction is that holding the asset in trust does not bind anyone who did not know or should have known about it, as long as it is not registered in a public registry (for example, registration in the Land Registry or the Companies Registry, as holding an asset in trust). Moreover, a trust contract is not even required to be in writing, and trust relationships can be interpreted later based on the conduct of the parties .
When it comes to a real estate trust, the existence of the trust relationship can sometimes be interpreted later by virtue of the actual use of the real estate, but even then, in the absence of a written arrangement or evidence of the parties’ intent, matters may become complicated over the years, since the starting point in real estate law is that registration in a regulated real estate registry faithfully reflects the rights of the parties and constitutes conclusive evidence of its intent.
When it comes to holding shares in a trust, in many cases it is more difficult to provide external evidence to prove the existence of the trust in the absence of an express written agreement. For example, in 2006, Attorney Yigal Arnon initiated proceedings in the Tel Aviv-Yafo District Court against Mr. Shlomo Piotrkowski and Afshai Investments Ltd., in which he sought a declaration that half of the shares of Cellcom Israel Ltd. held by Piotrkowski, which constitute 1% of Cellcom shares, with all rights and dividends deriving from them, belonged to Arnon. The demand was based on a document whose authenticity was at the center of the proceedings, and the reason for the trust was that Arnon did not want the shares to be registered in his name, because at the relevant time he was in the midst of a separation from his wife, and he preferred not to involve the shares in this. Therefore, the behavior with the shares was as if they were not his. Despite the aforementioned, the court ultimately ruled that the shares were indeed held in trust . This case reinforces the need for a well-organized trust agreement that was signed in a way that would not be able to be attacked later, such as an agreement signed with a notary signature.
In addition to the above, holding shares in trust may also have tax implications. To the extent that it is not possible to prove to the Tax Authority that the shares were originally held in trust, the Tax Authority may view the transfer of the shares from the trustee back to the true shareholder as a sale transaction and tax it. For this reason, it is also important to have a dated and documented trust agreement, and the solution of a notarial signature may help. It is also important that the agreement be drafted by a notary with experience in the field of companies and trusts to prevent complex legal disputes later, as well as to obtain advice afterwards, including when opening a bank account, to prevent issues related to money laundering when opening the account. In addition, it is important that the trust agreement also address issues related to the operation of the shares, such as how to vote on them, the distribution of dividends, and more.
