US estate tax, inheritance and family planning

When building an investment portfolio or planning your family's financial future, most people focus on familiar variables: returnThe profit (or loss) from an investment over a certain period, usually expressed as a percentage of the original amount invested. potential, risk level, geographic diversification and management fees. For US citizens living in Israel—and, to a large extent, for "ordinary" Israeli investors who hold US assets—there is another critical variable that is often forgotten: US estate tax.

Israel is one of the few countries in the Western world that currently has no inheritance tax or estate tax. When a person dies in Israel, their assets pass to the next generation without a tax eventAn action in an investment portfolio (such as selling at a profit) that triggers an immediate tax payment to the state., apart from possible future consequences involving Mas Shevach (מס שבח)A tax imposed on the seller on the gain created by the increase in the property’s value between purchase and sale., or betterment tax, or capital gains when the heirs sell the assets. In the United States, the picture is entirely different: the US government treats death as a tax event and imposes substantial tax obligations on assets transferred to heirs.

This means that the types of assets you choose to buy during your lifetime, and even the way your bank or brokerage account is registered, may determine whether your children will have to give up a significant portion of their inheritance to the IRS. This page explains how the mechanism works, who is at risk and how sound family planning can protect your family's wealth.