Can a Gift Be Revoked in Israel?What Is Important to Know Before Transferring Property or Money to a Family Member

Guiding Principles for Making a Gift in Israel

How to Transfer a Gift Properly and Efficiently from a Legal and Tax Perspective

Introduction

For most individuals, a gift is perceived as a simple and emotional gesture, given out of genuine goodwill and a sincere desire to benefit another person.

However, from a legal perspective, a gift is a transaction with significant and, in some cases, irreversible consequences, requiring careful consideration, advance planning, and precise drafting.

For example, in a case adjudicated by the Israeli Supreme Court, it was held that a woman who had received land as a gift from her parents prior to her marriage was unable to exclude the gifted asset from the marital property pool upon divorce.

Among the factors considered was the lack of prior understanding and advance planning regarding the status of the gift within the spouses’ relationship.

Questions to Consider Before Making a Gift

Before transferring property or money as a gift, it is advisable to consider in advance:

• What will happen in the event of the recipient’s divorce?

• Will it be possible to revoke the gift if the donor’s financial condition deteriorates?

• Will the recipient be permitted to sell or mortgage the asset?

• What will happen if the asset becomes subject to liens or creditor claims?

• Is gifting preferable to inheritance?

• What is the most tax-efficient alternative?

In many cases, donors rely on a “thin” and minimal agreement and sometimes avoid preparing any agreement at all, without taking into account possible future scenarios.

Key Principles of Gift Law in Israel

1. Definition of a Gift

A gift is the transfer of a right or asset without consideration. Any asset of value may be transferred as a gift, including real estate, money, vehicles, contractual rights, and movable property.

2. No Value Limitation

Israeli law does not impose any limitation on the value of a gift, provided that it is a genuine gift and not a disguised transaction.

3. Exception – Public Officials

As a general rule, public officials are restricted in receiving gifts in order to prevent conflicts of interest and preserve public integrity.

However, gifts given within personal relationships may be permissible, depending on the circumstances and applicable legal provisions.

A well-known example concerning the examination of the nature of the relationship and the nature of the gift is Case 1000 in Israel, involving Prime Minister Benjamin Netanyahu and Arnon Milchan.

4. Taxation of Gifts in Real Estate

The transfer of movable property or money between individuals is generally not subject to tax.

Special tax rules apply to the transfer of real estate by way of gift:

• Transfers between certain family members may qualify for capital gains tax exemption, subject to statutory conditions.

• Transfers between siblings generally do not qualify for such exemption, except in specific circumstances provided by law, such as property received from a parent by inheritance or without consideration.

• The recipient of a gifted real estate asset is generally entitled to a two-thirds reduction in purchase tax, meaning that only one-third of the standard tax is effectively paid.

• In some cases, from an economic and tax planning perspective, it may be preferable to sell the real estate first and transfer the cash proceeds as a gift.

• In some cases, estate planning arrangements (such as a will) may be preferable to making a lifetime gift.

Accordingly, each case should be examined in advance from a tax-planning perspective.

5. Can a Gift Be Revoked?

As a general rule, once a gift has been completed, the possibility of revocation is very limited.

However, in exceptional circumstances recognized under the Israeli Gift Law and relevant case law, it may be possible to withdraw from an undertaking to make a gift, even if no express cancellation clause was included, for example:

• where the gift has not yet been completed

• in the event of grossly offensive conduct by the recipient

• where there has been a significant deterioration in the donor’s financial condition

• where an express cancellation clause was included in the agreement

Therefore, it is highly important to establish in advance a clear revocation mechanism where preservation of this possibility is desired.

6. Advance Planning Before Making the Gift

Before signing a gift agreement, it is recommended to decide in advance the following issues:

1. Can the gift be revoked in the event of significant financial hardship?

2. Can it be revoked in the event of a breakdown in personal relations?

3. Will the gift remain separate property in the event of divorce?

4. Are there restrictions on sale, lease, or encumbrance?

5. Is protection against creditors required?

6. Would a cash transfer or inheritance arrangement be preferable?

7. Principles for Drafting a Gift Agreement

After reviewing all relevant scenarios and considerations, a detailed and comprehensive agreement should be drafted.

8. The Golden Rule: Anything Not Written May Not Be Enforceable

A properly drafted gift agreement should include, among other provisions:

• clear cancellation provisions

• definition of the asset’s status in the event of divorce

• restrictions on sale, lease, or encumbrance

• provisions regarding rental income or rights of residence

• creditor protection mechanisms

• explicit reference to tax implications

9. What Happens When the Terms Are Not Written?

Where a gift agreement does not address a specific scenario, the court will generally not imply terms that were not expressly included.

For example:

• if no provision was made regarding divorce, the gift may be treated as part of the marital property, depending on the circumstances

• if no cancellation clause was included, the ability to reclaim the asset is generally very limited

• if no restriction on sale was imposed, the recipient may sell the asset

• if no right to rental income was reserved, enforcing such a right later may be difficult

Case law shows that even an asset received as a gift prior to marriage is not automatically excluded from the balancing of marital assets; much depends on the circumstances and the wording of the agreement.

10. Practical Recommendations

1. Plan all terms of the gift in advance

2. Document every understanding in writing, even if it appears self-evident

3. Prefer a detailed agreement over a short and general one

4. Examine tax implications in advance

5. Consider alternatives such as cash transfers or inheritance planning

6. Consult an attorney, particularly where real estate is involved

Summary

The transfer of an apartment, land, or a significant sum of money by way of gift requires careful legal and tax planning.

Proper drafting of a gift agreement may prevent family disputes, tax exposure, and future litigation.

Before making any decision, it is advisable to consult an attorney specializing in real estate and gift law.

For legal advice regarding the transfer of assets by way of gift, you are welcome to contact our office.

Disclaimer

The information contained in this article is provided for general informational purposes only and does not constitute legal advice or a substitute for specific legal consultation.