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 Kentucky Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, also known as a Rabbi Trust, is an important financial tool used by organizations to provide a long-term compensation plan for their executive employees. This trust is specifically designed to meet the needs of executives who desire additional security and tax advantages beyond traditional employee benefit plans. A Kentucky Nonqualified Deferred Compensation Trust operates by allowing executives to defer a portion of their compensation, such as bonuses or stock grants, into the trust fund. The trust is typically funded with a combination of employer contributions and the deferred compensation from the executive. The funds are then invested and grow tax-deferred until the executive reaches retirement age or a specified distribution event occurs. One key feature of a Rabbi Trust is that it offers protection to executive employees in the event of a change in control or financial instability of the organization. The assets in the trust generally remain outside the company's reach and are safeguarded for the executive's benefit, irrespective of the organization's financial situation. A Kentucky Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees can also offer flexibility in terms of how and when distributions are made. Executives may choose to receive their deferred compensation through periodic payments over a certain period or elect a lump sum payout upon retirement or termination. It's important to note that there can be variations of Kentucky Nonqualified Deferred Compensation Trusts for the Benefit of Executive Employees — Rabbi Trusts. Some organizations may opt for different investment strategies within the trust, such as a diversified portfolio or specific investment vehicles. However, the fundamental purpose and structure of the trust generally remain the same. In conclusion, a Kentucky Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is a powerful tool that provides executives with additional financial security and tax advantages. It allows them to defer a portion of their compensation while offering protection and flexibility in how and when the deferred funds are distributed. This trust helps organizations attract and retain top executive talent by providing an additional layer of benefits beyond traditional employee compensation plans.
