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.
Keywords: Illinois Nonqualified Deferred Compensation Trust, Rabbi Trust, executive employees, benefits, types A Rabbi Trust is a type of irrevocable trust that acts as a safety mechanism for executive employees participating in nonqualified deferred compensation plans. In Illinois, the Illinois Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees (IL NDC Trust) is established specifically to provide benefits and serve the financial interests of executive employees. The IL NDC Trust is designed to ensure that executive employees receive their promised deferred compensation in the future, even if the employer faces financial difficulties, undergoes a change in control, or goes bankrupt. It creates a separate pool of funds that are set aside for the exclusive benefit of the executive employees. There are different types of IL NDC Trusts, each catering to specific needs and objectives: 1. Funded Rabbi Trust: This type of IL NDC Trust holds assets, such as securities, cash, or other investments, that are set aside by the employer to secure the deferred compensation obligations. These assets are typically held in a separate account managed by a trustee, who oversees their investment and distribution. 2. Unfunded Rabbi Trust: Unlike funded Rabbi Trusts, an unfunded IL NDC Trust does not hold any dedicated assets. Instead, it is solely dependent on the employer's general assets, creating a potential risk if the employer faces financial instability. 3. Separate-Entity Rabbi Trust: Some employers may choose to create an entirely separate legal entity to establish and manage the IL NDC Trust. This approach provides additional protection and separation between the trust assets and the employer's general finances. 4. Granter or Non-Grantor Trust: IL NDC Trusts can be structured as either granter trusts or non-grantor trusts. In a granter trust, the employer's contributions are taxable to the executive employees upon funding the trust, while in a non-grantor trust, the contributions are only taxed when the executive employees receive their deferred compensation. Each type of IL NDC Trust has its own advantages and considerations, depending on the employer's financial situation and the needs of the executive employees. It is essential for employers and executive employees to carefully consider their options and consult with legal and financial professionals to determine the most appropriate Illinois Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust structure.Keywords: Illinois Nonqualified Deferred Compensation Trust, Rabbi Trust, executive employees, benefits, types A Rabbi Trust is a type of irrevocable trust that acts as a safety mechanism for executive employees participating in nonqualified deferred compensation plans. In Illinois, the Illinois Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees (IL NDC Trust) is established specifically to provide benefits and serve the financial interests of executive employees. The IL NDC Trust is designed to ensure that executive employees receive their promised deferred compensation in the future, even if the employer faces financial difficulties, undergoes a change in control, or goes bankrupt. It creates a separate pool of funds that are set aside for the exclusive benefit of the executive employees. There are different types of IL NDC Trusts, each catering to specific needs and objectives: 1. Funded Rabbi Trust: This type of IL NDC Trust holds assets, such as securities, cash, or other investments, that are set aside by the employer to secure the deferred compensation obligations. These assets are typically held in a separate account managed by a trustee, who oversees their investment and distribution. 2. Unfunded Rabbi Trust: Unlike funded Rabbi Trusts, an unfunded IL NDC Trust does not hold any dedicated assets. Instead, it is solely dependent on the employer's general assets, creating a potential risk if the employer faces financial instability. 3. Separate-Entity Rabbi Trust: Some employers may choose to create an entirely separate legal entity to establish and manage the IL NDC Trust. This approach provides additional protection and separation between the trust assets and the employer's general finances. 4. Granter or Non-Grantor Trust: IL NDC Trusts can be structured as either granter trusts or non-grantor trusts. In a granter trust, the employer's contributions are taxable to the executive employees upon funding the trust, while in a non-grantor trust, the contributions are only taxed when the executive employees receive their deferred compensation. Each type of IL NDC Trust has its own advantages and considerations, depending on the employer's financial situation and the needs of the executive employees. It is essential for employers and executive employees to carefully consider their options and consult with legal and financial professionals to determine the most appropriate Illinois Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust structure.
