A method of deferring compensation for executives is the use of a rabbi trust. The instrument was named - rabbit trust - because it was first used to provide deferred compensation for a rabbi. Generally, the Internal Revenue Service (IRS) requires that the funds in a rabbi trust must be subject to the claims of the employer's creditors.
This information is current as of December, 2007, but is subject to change if tax laws or IRS regulations change. Current tax laws should be consulted at the time of the preparation of such a trust.
The Iowa Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, commonly known as a Rabbi Trust, is a specialized type of trust established in the state of Iowa. This trust is designed to provide executive employees with a deferred compensation arrangement that offers certain tax advantages. It acts as a separate entity from the employer, ensuring that the assets are protected and held for the exclusive benefit of the executive employees. Key Features: 1. Tax Advantages: One of the primary benefits of the Iowa Nonqualified Deferred Compensation Trust is the ability to defer income taxes. By directing a portion of their compensation into the trust, executive employees can postpone paying taxes on this income until a later date when they will likely be in a lower tax bracket. 2. Asset Protection: The trust structure provides protection against the claims of the employer's creditors. This means that even if the employer faces financial instability or bankruptcy, the assets held in the trust will be preserved for the benefit of the executive employees. 3. Independent Management: The trust is managed separately from the employer's business operations. This ensures that the assets held within the trust are professionally managed and invested with the goal of generating growth and providing for the future needs of the executive employees. Types of Iowa Nonqualified Deferred Compensation Trusts: While the Iowa Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is a specific type of trust, there may be variations or other types of nonqualified deferred compensation trusts used by employers in Iowa. Some possible types or variations may include: 1. Granter Trust: A trust in which the employer retains ownership and control over the assets held within the trust. This type of trust may provide additional tax benefits to the employer. 2. Secular Trust: A nonreligious variation of the Rabbi Trust, which offers similar benefits and features but does not include any religious connotations. 3. Multiple Employer Trust: A trust established by multiple employers, allowing them to pool their resources to collectively provide deferred compensation benefits to participating executive employees. In conclusion, the Iowa Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is a specialized trust that offers tax advantages and asset protection to executive employees. This trust is managed independently, safeguarding the assets held within it for the benefit of these employees. There may also be variations or other types of nonqualified deferred compensation trusts used by employers in Iowa based on their specific needs and circumstances.
