The Essential Guide to Navigating U.S.–Israel Estate Tax Changes in 2026

The legal and tax landscape surrounding gifts and inheritances between the U.S. and Israel has undergone significant changes in recent years. New laws, international agreements, and legal rulings have created a more complex picture, but also new opportunities for families and family foundations to reduce their tax liability. In this comprehensive guide, we will review the key changes and provide detailed guidance for proper planning of gifts and inheritances between Israel and the U.S., ensuring the wise and efficient transfer of family wealth.

Increased U.S. Personal Gift and Estate Tax Exemption

Starting in 2018, the U.S. personal gift and estate tax exemption increased significantly to $12.06 million per person, with adjustments for inflation in subsequent years. This is approximately twice the previous exemption amount, opening up new possibilities for gift-giving and intergenerational wealth transfer, but also leading to the need for more detailed estate planning to fully utilize the available benefits.

The U.S.-Israel Tax Treaty

The tax treaty signed between Israel and the U.S. in 1975 and updated in 2017 regulates the division of the right to impose tax on inheritances and gifts between the two countries. According to the agreement:

• Assets in the U.S. are subject to tax in the U.S., according to U.S. laws.
• Assets in Israel are subject to tax in Israel, according to Israeli laws.
• To prevent double taxation, a credit is granted for taxes paid in one country against the tax liability in the other.

A deep understanding of the U.S.-Israel tax treaty and aligning estate planning accordingly is essential to maximize the available benefits.

Reporting Requirements on Foreign Assets

Another critical issue to consider in estate planning is the reporting of foreign assets, both to the U.S. and Israeli tax authorities.

FBAR (Foreign Bank Account Report)

Under Section 5314 of the law, U.S. citizens and residents are required to file an annual report on bank accounts and financial assets held abroad, if the average annual balance exceeds $10,000. The report is filed with FinCEN (the U.S. Financial Crimes Enforcement Network).

FATCA (Foreign Account Tax Compliance Act)

The FATCA law requires financial institutions worldwide to identify and report accounts held by U.S. citizens and residents. The information is transferred directly to the U.S. Internal Revenue Service (IRS).

Failure to comply with these reporting requirements can lead to heavy penalties, so it is important to ensure full compliance within the estate planning process.

Israeli Tax Benefits on Gifts and Inheritances

On the Israeli side, there are several tax incentives on gifts and inheritances that are important to consider:

• Exemption from capital gains tax on an asset transferred by inheritance to first-degree relatives.
• Income tax credit on gifts to family members up to 479,760 NIS per year.
• Exemption from inheritance tax on the transfer of assets between spouses.

Proper utilization of these benefits can result in significant tax savings for Israeli families.

Reporting Requirements in Israel on Foreign Assets

Similar to the U.S. requirements, Israel also has a reporting obligation on foreign assets:

• Form 1701 for reporting foreign assets – must be submitted annually by all Israeli residents with foreign assets exceeding 1.6 million NIS.
• Form 5471 for reporting controlled foreign corporations – required for Israeli residents with control of foreign companies.

Failure to comply with these reporting requirements can lead to significant penalties, so it is important to plan the estate while taking these obligations into account.

Examples of Estate Planning Strategies Between Israel and the U.S.

Here are several examples of estate planning strategies that combine the rules and rights existing between Israel and the U.S.:

1. Transfer of assets in the U.S. through gifts – Utilizing the high personal gift tax exemption in the U.S. to transfer assets to the next generation, while also taking advantage of the exemption from capital gains tax in Israel on assets transferred by inheritance.

1. Establishing a family trust in the U.S. – Establishing a family trust in the U.S. for the purpose of managing assets and transferring them between generations, while utilizing the exemptions and credits available in both countries.

1. Tax planning for American citizens in Israel – Utilizing the income tax exemption on gifts to relatives in Israel, combined with the high personal gift tax exemption in the U.S., for the purpose of intergenerational wealth transfer.

1. Utilizing the bilateral tax credits – In-depth understanding of the tax treaty between Israel and the U.S. to utilize the credits for taxes paid in one country against the tax liability in the other.

Early and comprehensive estate planning that combines the rules and rights existing between the two countries can lead to significant tax savings and ensure the transfer of family wealth to future generations.

Summary and Recommendations

The recent changes in the gift and estate tax laws between Israel and the U.S. have created new opportunities, but also additional complexities in estate planning. Here are the main recommendations:

• Familiarity with the relevant exemptions, credits, and reporting requirements in both countries.
• Early estate planning that combines the legal provisions in both countries.
• Professional advice from a lawyer or accountant specializing in this field to ensure maximum utilization of the available benefits.
• Regular updates to the plan, in accordance with changes in legislation and family circumstances.

In an era of rapid changes, more sophisticated estate planning has become more essential than ever for Israeli families with assets in the U.S. Contact the experts at tax4us.co.il to ensure your family’s financial legacy is protected.