Public Assets and Inheritance in Israel — Professional Legal Advice | Attorney Rozil Amir

What Are Public Assets and How Do They Impact the Inheritance Process?

Public assets are properties identified in the name of an individual or their business entity, such as businesses, commercial real estate, shares in public companies, copyrights, trademarks, and business goodwill. When a person with such assets leaves an inheritance, the process extends far beyond simple division of funds and apartments — it requires meticulous planning, management of complex assets, and a variety of legal, tax, and business management considerations.

Owners of substantial public assets face unique challenges: maintaining business continuity, reducing tax liabilities, protecting new owners' rights, managing ownership disputes among heirs, and addressing legal claims that may arise from third parties. In this field, legal expertise and strategic thinking are critical.

Why Does Inheritance of Public Assets Require Specialized Legal Counsel?

Regular inheritance typically involves the distribution of liquid assets, apartments, and savings. However, when dealing with public assets — active businesses, asset division, investment funds, commercial real estate assets, or intellectual property rights — the matter becomes significantly more complex. The inheritance does not merely distribute assets; it impacts business continuity, employees, legal obligations, inheritance tax, and capital gains tax, and the heirs' ability to continue or sell the business under the best possible terms.

Additionally, publicly known assets may be exposed to claims from creditors, former employees, business partners, or third parties who have claims against the asset or business itself. This adds an additional layer of complexity that requires delicate legal management and advance planning.

Steps in the Inheritance Process for Public Assets

• Obtaining an Inheritance Order: Like all inheritances, an inheritance order from the family court is required. For public assets, the process requires additional documents to prove the value of assets, liabilities, and existing rights.
• Asset Valuation: Businesses, commercial real estate, and intellectual property rights require professional appraisal. Typically, experienced appraisers, financial consultants, and business valuation experts are used.
• Capital Gains Tax Calculation: Capital gains tax is paid on the profit generated between the value of the asset at the time of the owner's death and its value when transferred to the heir. For public assets, this calculation can be extremely complex, especially if the asset has grown significantly over the years.
• Liability Management: Any existing liabilities on the asset must be identified and settled, including mortgages, business loans, tax debts, or unpaid employee wages.
• Legal Transfer of Rights: For businesses, formal transfer of ownership is required, including adjustment of regulatory licenses and changes to shareholders in relevant registration records.
• Tax Planning: Different heirs may be in different tax situations. Specialized tax advice helps minimize tax impact and plan smart asset transfer.

Legal and Financial Challenges in the Inheritance of Public Figures

1. Capital Gains Tax — The Most Important Consideration

Capital gains tax is a tax paid on the profit generated by an increase in the value of an asset. For public figures, this typically involves substantial amounts. The law stipulates that capital gains tax is paid by the heir upon receipt of the asset; however, there are reliefs and exemptions for certain types of assets, such as the deceased's primary residence or assets transferred to a spouse or close family members.

For businesses and commercial real estate, the calculation of capital gains tax can be complex. For example, if a business has grown in value over 20 years, the difference between the initial and final value can be enormous. Additionally, consideration must be given to whether the asset was used for business purposes (which may reduce the tax rate) or for personal use.

2. Active Businesses — Continuity and Management

When the asset is an active business, inheritance does not merely transfer legal ownership — it affects the continuation of operations. New heirs may lack experience in managing the business, which could lead to declining revenues, loss of customers, or employee issues. Typically, advance planning is necessary: will the business continue under an heir's management, will it be sold, or will an external manager be appointed?

Additionally, if there are partners in the business or other shareholders, existing partnership agreements, ownership rights, and the transfer of ownership must be addressed in accordance with agreed-upon terms.

3. Commercial Real Estate and Mortgage Obligations

Commercial real estate (offices, shops, hotels, etc.) requires special handling in inheritance. If the property is subject to a mortgage or loan, heirs may be obligated to continue payments or repay the loan. Furthermore, if the property is leased to tenants, tenant relationships must be managed, lease agreements must be completed, and income streams must be established for the heirs.

4. Intellectual Property Rights and Business Goodwill

Business owners, creators, or professionals with public recognition may hold intellectual property rights: trademarks, copyrights, patents, trade names, or personal goodwill. The transfer of these rights to heirs requires delicate legal handling. For example, a trademark cannot be preserved if no one continues the business activities associated with it. Copyrights, on the other hand, can be preserved and continue to generate income under certain conditions even after the creator's death.

5. Disputes Among Heirs

Owners of substantial assets often leave an inheritance to multiple heirs. If there is no clear agreement on the division of assets, disagreements may arise. For example, if one heir wishes to continue the business and another wishes to sell, or if one heir claims entitlement to a larger share due to past contributions to the business, this could lead to prolonged family and legal conflict.

In such cases, legal mediation and professional advisors can help reach an agreement that preserves family relationships and ensures fair distribution of assets.

Comparison Table — Different Scenarios in the Inheritance of Public Figures

The table above represents typical scenarios. Actual duration depends on asset complexity, number of heirs, their agreement, and court workload.

Advance Planning — The Best Way to Reduce Risks

Asset owners with significant public holdings can take advance steps to facilitate the inheritance process and reduce legal and tax risks. These steps include:

• Updated and Clear Will: A will that clearly specifies how assets will be distributed, who will serve as guardian for minors (if applicable), and who will manage the estate. A clear will prevents future disputes and legal shortcuts.
• Financial Agreements: Asset owners can prepare financial agreements that specify how assets will be distributed upon their death, thereby reducing the need for lengthy legal proceedings.
• Trusts or Special Holding Companies: Business owners can establish trusts or special holding companies to hold assets, which facilitates transfer to heirs and reduces capital gains tax.
• Durable Power of Attorney: A durable power of attorney allows a pre-selected person (such as a spouse, child, or legal advisor) to manage assets in case the asset owner loses the capacity to make decisions.
• Tax Planning: Specialized tax planning can help plan asset transfers in a way that minimizes capital gains tax and other taxes.