Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust
What this document covers
The Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, commonly known as a Rabbi Trust, is a legal document that allows companies to set aside funds for deferred compensation for their executives. Unlike qualified retirement plans, a Rabbi Trust does not provide tax benefits upfront, but it helps secure promised compensation while keeping funds accessible for creditors in case of insolvency. This form is specifically tailored for nonqualified deferred compensation plans, making it essential for businesses looking to offer such benefits to select employees.
What’s included in this form
- Establishment of Trust: Details the creation of the trust and the deposits made by the company.
- Payments to Plan Participants: Sets forth the payment schedule and tax withholding responsibilities.
- Trustee Responsibilities: Outlines the duties and authorities of the trustee managing the trust assets.
- Insolvency Conditions: Specifies the circumstances under which the company is deemed insolvent and impacts on trust payments.
- Amendments and Termination: Describes how the agreement can be amended or terminated, including asset return upon trust termination.
Situations where this form applies
This form is used when a company wants to establish a trust to provide deferred compensation to a select group of executives. It is particularly useful when the company aims to protect these assets from general creditors while ensuring that payment obligations are met upon the executives' retirement or after a specified period. Businesses facing potential financial difficulties but still seeking to honor employee compensation can also benefit from this structure.
Intended users of this form
- Employers offering nonqualified deferred compensation plans to selected employees.
- Businesses looking for a method to secure deferred compensation for their executives while maintaining compliance with IRS rules.
- Companies that want to protect their deferred compensation assets from creditors in case of insolvency.
- Trustees appointed to manage such trusts, ensuring all legal obligations are met.
Instructions for completing this form
- Identify the parties: Fill in the names of the company and trustee, along with their respective addresses.
- Specify the plan: Insert the name of the plan and the date of the trust agreement.
- Deposit amount: Indicate the initial amount deposited into the trust by the company.
- Outline the payment schedule: Prepare and deliver a detailed payment schedule for the plan participants.
- Sign and notarize: Ensure that all parties sign the agreement and have it notarized where necessary.
Notarization guidance
To make this form legally binding, it must be notarized. Our online notarization service, powered by Notarize, lets you verify and sign documents remotely through an encrypted video session.
Get your form ready online
Our built-in tools help you complete, sign, share, and store your documents in one place.
Make edits, fill in missing information, and update formatting in US Legal Forms—just like you would in MS Word.
Download a copy, print it, send it by email, or mail it via USPS—whatever works best for your next step.
Sign and collect signatures with our SignNow integration. Send to multiple recipients, set reminders, and more. Go Premium to unlock E-Sign.
If this form requires notarization, complete it online through a secure video call—no need to meet a notary in person or wait for an appointment.
We protect your documents and personal data by following strict security and privacy standards.
Make edits, fill in missing information, and update formatting in US Legal Forms—just like you would in MS Word.
Download a copy, print it, send it by email, or mail it via USPS—whatever works best for your next step.
Sign and collect signatures with our SignNow integration. Send to multiple recipients, set reminders, and more. Go Premium to unlock E-Sign.
If this form requires notarization, complete it online through a secure video call—no need to meet a notary in person or wait for an appointment.
We protect your documents and personal data by following strict security and privacy standards.
Common mistakes to avoid
- Failing to provide correct details for the parties involved, leading to ambiguity.
- Omitting the payment schedule, which can delay benefit payments.
- Not specifying the amount deposited, resulting in confusion over trust funding.
- Incomplete signatures or lack of notarization when required.
Advantages of online completion
- Instant access to a professionally drafted trust agreement, ensuring compliance with current laws.
- Editable templates allow for easy customization specific to your company's needs.
- Secure digital storage of completed documents for future reference.
- Convenience of completing the form from anywhere, reducing time and costs associated with in-person meetings.
Looking for another form?
Form popularity
FAQ
The rabbi trust is usually irrevocable, although it can be designed to be revocable until the happening of certain events such as a change in control.
Taxation of Rabbi Trusts A rabbi trust is considered a grantor trust for income tax purposes, resulting in trust income taxed to the employer. The trustee is required to file a fiduciary tax return. Contributions to the trust are not tax deductible by the employer.
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.
Rabbi trust is a grantor trust Because the assets of a rabbi trust are subject to an employer's creditors, the trust will be treated as a grantor trust.6 This means that the assets of the trust are treated as assets of the employer for tax purposes.
A rabbi trust is so called because the first such trust was established by a Jewish congregation for its rabbi. The congregation applied for and obtained a private letter ruling (PLR) from the Internal Revenue Service (IRS) which clarified the tax consequences of the establishment of the trust to the rabbi.
A rabbi trust is exempt from most of the Employee Retirement Income Security Act of 1974 (ERISA) as long as it is a top hat plan, which, according to section 201 of ERISA, is an unfunded plan maintained by an employer to provide deferred compensation to a select group of management or highly compensated employees.
A rabbi trust is a grantor trust established by an employer to hold assets to be used in connection with a deferred compensation arrangement. It can be established as a revocable trust or an irrevocable trust.
A rabbi trust protects employees from a company that is experiencing financial hardship and wants to remove some of the trust's assets to meet its other obligations. For example, an employer cannot withdraw $50,000 from a rabbi trust to pay employee wages.
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.
