I'm in Canada and buying an apartment in Israel. Can I send the money to my lawyer's trust account instead of opening an Israeli bank account?

A Toronto buyer signs on a Ra'anana apartment in March with a July completion, then discovers that the Israeli bank account they assumed would take three weeks to open is still in compliance review in June. This is the most common way Canadian purchases run into trouble, and the fix is usually to stop trying to open a personal account for the purchase at all.

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Detailed Answer

An Israeli lawyer's trust account (cheshbon ne'emanut) is a bank account opened by the lawyer at an Israeli bank, in the lawyer's name but designated as held in trust for a named beneficiary and a defined purpose. It is not the lawyer's money and it does not form part of their estate or their creditors' pool. The lawyer holds it under written trust instructions (kitvei hora'ot le-ne'eman) signed by both sides, and may apply it only as those instructions permit. Because the account is opened by a regulated Israeli professional the bank already knows, it typically goes live in one to three weeks rather than the three to six months a first-time non-resident personal account takes, and the reasons for that gap are set out in our answer on whether opening an Israeli account requires visiting Israel.

In a purchase, this account is doing real work rather than just parking money. Section 15(b) of the Real Estate Taxation Law 1963 makes the buyer responsible for withholding an advance against the seller's betterment tax (mas shevach) and remitting it to the Israel Tax Authority, at 7.5% of the price where the seller acquired the property after 7 November 2001 and 15% where they acquired it earlier, unless the seller produces an exemption or reduced-withholding certificate. Separately, the final tranche of the price is held back until the seller delivers the tax clearance certificates and the municipal certificate the Land Registry (Tabu) requires for registration. Both sums sit in the trust account, which is precisely why buyers who intended to move money "straight to the seller" end up needing one anyway.

In Practice: Under Section 15(b) of the Real Estate Taxation Law 1963 the buyer withholds an advance against the seller's mas shevach and pays it to the Israel Tax Authority (Rashut HaMisim). On a NIS 3,500,000 apartment bought from a seller who acquired after 7 November 2001 that advance is NIS 262,500, and it is normally held in the lawyer's trust account until the assessing office issues its certificate, which runs 3 to 8 weeks. Handling client funds for a real estate transaction also brings the lawyer within the Prohibition on Money Laundering Order (Business Service Providers) 2014, in force since September 2015, so the identification file on you is built before the first shekel arrives, not after.

The compliance work does not disappear because a lawyer is holding the funds. Proper Conduct of Banking Business Directive 411 requires the Israeli bank to identify the beneficial owner of trust money and to satisfy itself about the source of an incoming wire of this size, so plan on producing Canadian bank statements covering the accumulation period, the source document for the funds (a property sale closing statement, a business sale agreement, an estate distribution), your Notice of Assessment, and a signed declaration of source of funds. English is fine and no Hebrew translation is needed for these. Two Canadian-side points are worth settling in advance. Your Canadian bank will report the outbound transfer to FINTRAC automatically at CAD 10,000 and above, which is routine and requires nothing from you, but a poorly explained transfer will still trigger an internal hold, so tell your branch what is coming before it goes. And once you own the apartment, form T1135 depends on use rather than value: real property held purely for personal use and enjoyment is excluded from specified foreign property, while an apartment you rent out is reportable once its cost amount exceeds CAD 100,000, a distinction explored in our answer on reporting Israeli rental property on T1135. Convert your Canadian dollars deliberately rather than by default, because the Israeli bank's retail spread on a CAD to ILS conversion of this size can cost more than the entire legal fee.

When to Consult a Lawyer

• The trust instructions are drafted by the seller's lawyer and you are asked to sign without separate representation. In Israel one lawyer sometimes acts for both sides on a purchase, and the release conditions on your money are exactly where that arrangement stops serving you.
• Your funds come from more than one source, from a corporation, or from a family member. Directive 411 treats each strand separately, and a gift from a parent needs its own documented trail or the bank will freeze the whole transfer.
• The seller is a non-resident or the property is inherited. Withholding, clearance certificates and the registration route all change, and the money you are holding back may need to be considerably larger than the standard formula suggests.

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Speak With an Israeli Attorney

Getting the funds route right at the start is what keeps a Canadian purchase on its completion date. We open and operate the trust account, draft the trust instructions so releases are tied to registration rather than to promises, and prepare the source-of-funds file the Israeli bank will ask for before your money lands.

Contact us for a confidential initial consultation.