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.
Utah Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — A Rabbi Trust is a type of trust that is established in the state of Utah for the exclusive benefit of executive employees. It is commonly used as a tool for employers to provide supplemental retirement benefits to their key executives in a tax-efficient manner. This specific type of trust is referred to as a "Rabbi Trust" because it originated from the approval of the Internal Revenue Service (IRS) in a private ruling involving a CEO of a religious organization. The Utah Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — A Rabbi Trust allows employers to set aside funds on behalf of their executive employees, which are contributed by the company or funded through salary deferrals. These funds are then invested and grow on a tax-deferred basis until they are distributed to the executives at a later date, typically at retirement. One advantage of this trust is that it allows executives to defer a portion of their compensation and receive it in the form of future distributions, thus potentially reducing their current tax liability. Additionally, the trust provides some protection for the executives' deferred compensation by keeping the funds separate from the company's general assets. This safeguard ensures that the funds are available for distribution to the executives even in the event of the company's bankruptcy or change of ownership. There are different variations of the Utah Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — A Rabbi Trust, depending on the specific provisions and features included in the trust agreement. These variations may include options such as vesting schedules, distribution options, investment choices, and forfeiture provisions. The trust can also be designed to incorporate specific company policies or comply with legal requirements. In summary, the Utah Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — A Rabbi Trust is a specialized trust established to provide tax-efficient retirement benefits to executive employees. It offers advantages such as deferring taxation on compensation and securing deferred funds from potential company risks. The trust can be tailored to meet the specific needs and preferences of the employer and executives through various provisions and features.
