Rabbi Trust Example
Description
How to fill out Nonqualified Deferred Compensation Trust For The Benefit Of Executive Employees - A Rabbi Trust?
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FAQ
Similarly, the parent corporation will be treated as the grantor and owner of assets other than Parent Stock that are contributed by the parent corporation to a rabbi trust if the assets are both subject to the claims of the creditors of the parent corporation and subject to the requirement that any such assets not ...
Rabbi trusts allow employees' assets to grow without them having to pay tax on any gains until they withdraw their money. In this sense, a rabbi trust is similar to a qualified retirement plan. A rabbi trust does not provide any tax benefits for companies that make its use limited compared to other types of trusts.
The first IRS letter approving this sort of trust involved a Rabbi, hence the name Rabbi Trust. The employer's contribution to the trust is tax-deductible, and the employee does not have to pay tax on that sum until he/she receives it from the trust.
How Do You Establish a Rabbi Trust? You as settler or grantor establish a rabbi trust by entering into a trust agreement with a trustee (usually a bank or trust company). The trustee then holds the NQDC plan contributions and investment earnings. A single rabbi trust can benefit more than one employee.
The Disadvantage of Rabbi Trusts If the founding company declares bankruptcy or otherwise becomes insolvent, its creditors will have unbridled access to the rabbi trust's funds?potentially depriving employees of their own earnings.