01 June 2013 Issue 5 Alon Kaplan, Jennifer Palmer-Violet

Israel and beyond

As STEP Israel celebrates its 15th anniversary, Branch Founder Alon Kaplan tells Jennifer Palmer-Violet about the early days and where he think the trusts industry is going

What modern industry trends do you see?

New legislation relating to reporting, taxes and anti-money laundering is having a dramatic impact on the industry. France currently has the strictest legislation in this regard, while

Israel and the UK have more moderate regimes. More responsibility will be placed on trustees by new due diligence regulations and legal reporting requirements. In Israel under the new regulations trustees must file reports with the Israel Tax Authority, so they will need to become much more knowledgeable about the rules because if they break them, while they will not go to prison, they may be sued by beneficiaries for breach of trust.

Many trustees are unaware of the new regulations and are unprepared for them. If I carry out business in the US, I would call a STEP member and ask for an update on US reporting requirements. That’s the advantage of STEP: you have an international network. Trustees should seek proper legal advice. Many practitioners do not understand that when you become a trustee, you are responsible for the assets of the trust. So if something goes wrong it is their responsibility.

We may see a reduction in the use of trusts for aggressive tax-planning purposes due to the new reporting requirements, though we expect to see an increase in the use of trusts for legitimate purposes, such as for new immigrants, estate planning and preserving family assets. Israel has introduced a new law giving a ten-year tax holiday to new immigrants and former Israeli residents (see ‘Deal of the Decade’ in the December 2012/ January 2013 issue of the STEP Journal, page 45). If a new immigrant to Israel dies after two years, the tax holiday ends. But if he has established a trust, and has placed his assets in the trust, the trust will survive him for the next eight years.

There is also a dramatic change in the exchange of regulation agreements between governments. These agreements allow one government to call another government and ask for information about its citizens. Established practice with regard to freedom of information has been shattered.

What is the future for trusts?

I think we will see a return to the classic aims of the trust: planning for the coming generations, taking care of incapacitated people and avoiding fights about testaments and wills among the heirs.

The industry is striving, first of all, for good estate planning. We have a case in Israel where a multi-billionaire with a son and a daughter decided to make a proper will. He instructed a lawyer, a physician and a psychologist to ensure that everything was OK. He took everything into consideration except one thing: the animosity between his son and daughter. His children started to fight the moment the estate went through probate proceedings. Had someone advised him to establish a proper trust, it wouldn’t have happened.

Trusts will also be used more often for taking care of elderly people and incapacitated persons. If you have an autistic child who may live 60 or more years and you pass away, who will take care of them? Trusts are used for this more and more in the US and Switzerland, but not so much in Israel. We are, however, aware of this issue and try to prepare the appropriate trust structure when approached to do so. And then there’s the use of charitable trusts.

Tell me about the charity, Impact!, of which you are a founder and a director

The Impact! Scholarship Programme is for combat soldiers who have completed their military service and who are from a disadvantaged socioeconomic background. The charity provides students with a scholarship of USD16,000 over the course of their studies. The donor knows that whatever money he donates goes directly to the student without any administration fees. The donor receives a letter from the student and gets to know him; sometimes they meet. One donor invited the student he was sponsoring to his home in the US and the student ended up marrying his donor’s daughter! The charity has supported 2,000 graduates through their studies, spending over USD37 million. At the moment we have 3,000 students in university.

How would you sell the trusts concept?

It’s the best way to prepare for future generations while planning for your old age. There are so many situations in which a trust can provide a solution – not always, but in many cases. When people come to me and ask me what I think about trusts, I say it’s a legitimate instrument for taking care of family needs. Sometimes people abuse a trust, but most are legitimate users: I believe that 80 or 90 per cent of trusts have nothing to do with illegal or improper activity.

How did you establish STEP in Israel?

To answer this question I would like to quote the Bible. When Joshua came to the Land of Canaan, he sent two spies to find out what was going on. Two ‘spies’ came from England: Richard Citron, who was at the time very active in STEP, and Tim Bennett, who had a very important position in the International Committee. They said: ‘Why don’t you help us establish a branch in Israel?’ At the time, there were only two members of STEP in Israel. We went to the Israel Bar Association and they told us we had to do this on our own. We needed ten members to make a branch, so I called some colleagues. One of the banks in Israel gave us a meeting room, ten people got together, a speaker from Liechtenstein came to give a lecture, and by the end of the meeting we were a branch.

How did you promote the branch further?

We had a great idea, which still hasn’t been followed in other STEP jurisdictions. I took the initiative to create a STEP Israel yearbook that contained a directory of members. This became a marketing tool for us to promote STEP and for members to give to clients. Each member had a stack of yearbooks in their waiting room. Coutts bank sponsored us for five or six years.

People started to join. Then we established three chapters: one in Tel Aviv, one in Haifa and one in Jerusalem.

How did you get more involved with STEP?

It was when I was asked to join STEP Council. This was the boost that got me more involved in STEP activities in Israel and other jurisdictions. Next, I became involved in establishing branches in other countries. Together with Richard Pease, Chairman of the Development Committee, we promoted the Cyprus branch and then I took the initiative and went to Germany, where I had an office, and helped establish the Frankfurt branch.

I then helped establish branches in Austria and in Cape Town; now I’m working on establishing a Budapest branch. I also became Deputy Chairman of the Development Committee. Nobody asked me to do it; I just saw an opportunity. The work I undertook on behalf of the Development Committee paid off, as Germany is a big branch now; Cyprus is also big. Development of these branches had a knock-on effect in Israel because when Israeli practitioners saw the international potential of being a STEP member, more and more people joined. Today, we still believe the number of members, at 135, is too low, and we have an imaginary target of 500 people. We won’t see this number in the near future, but it’s good to dream!

Did anything in particular give the branch a big push?

The government recognised the importance of STEP and asked current STEP Israel Chairman Meir Linzen and me to join a committee advising the government on drafting a law for the taxation of trusts. We brought in STEP experts from overseas to make presentations to the committee. Richard Citron talked about English trusts and David Faust from New York talked about American trusts. A professor from New Zealand also advised on the trust system in that country. We converted these submissions into a proposal for the new law. So STEP was very much involved in the development of trust legislation in Israel.

And I shouldn’t forget a very important person who adopted Israel as his baby: Geoffrey Shindler. Geoffrey is in charge of the education, in English, of the Israeli students, and visits the country every year; he has attended every conference we have had in Israel. I established a diploma course in the CLT programme, which is a unique arrangement. There are four modules: two in Hebrew and two in English. Israeli students attend two courses at Tel Aviv University, and when they’ve finished they attend the two courses in English, coached by Geoffrey. We have become good friends; his enthusiasm for branch development is palpable. Actually, when the CLT education programme started in 2000 it gave me the idea for a book. My book, Trusts in Prime Jurisdictions, discusses 19 jurisdictions and is now in its third edition.

How did you hear about STEP?

In 1994, I was invited to a meeting with Dr Andreas Froriep, a Swiss lawyer, who asked me about trusts in Israel. He suggested I join STEP. I said: ‘What is STEP?’ When I returned to Israel I discovered one other person was already a member: George Rosenberg. We were the only STEP members between 1994 and 1998. For four years, there was almost no connection to STEP. It was just personal referral, person to person. I must ask Richard Citron and Tim Bennett what induced them to go to Israel and ask me to found STEP Israel.

How are you celebrating the branch’s 15th anniversary?

We should have about 300 people at our two-day conference on 18–19 June this year. Upwards of 75 people will attend from abroad, including the UK, the US, Switzerland, Gibraltar, Panama, Canada, South Africa, Cyprus and Liechtenstein. 


Alon Kaplan, Jennifer Palmer-Violet