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 Minnesota Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, also known as a Rabbi Trust, is a legal instrument that provides a means for employers to defer compensation payments to executive employees. It is designed to offer additional financial flexibility and incentives to key individuals within an organization. A Rabbi Trust is commonly established by employers looking to reward and retain top-level executives by allowing them to defer a portion of their compensation until a future date, typically upon retirement or other specified events. By deferring the compensation, executives can potentially benefit from tax advantages and optimize their income. One type of Minnesota Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees is the "Stock Appreciation Rights (SARS) Rabbi Trust." This trust is specifically structured to hold employer-issued SARS, which grant the executive the right to receive the appreciation in value of the employer's stock over a particular period of time. By utilizing this type of trust, executives have the opportunity to delay the realization of income and potentially benefit from future stock appreciation. Another variation is the "Restricted Stock Unit (RSU) Rabbi Trust." This trust is created to hold RSS awarded to executives. RSS represents an offer to receive company shares at a future date, typically when certain vesting conditions are met. Through a RSU Rabbi Trust, executives can defer the taxation on these units until they are actually distributed, potentially gaining tax benefits depending on their income levels and future tax rates. The Minnesota Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust allows executives to defer a portion of their compensation, either in the form of SARS or RSS, until predetermined events occur. It offers an attractive incentive for key employees, as it provides tax advantages and financial flexibility. Employers can tailor the trust to meet their specific compensation goals and align them with the overall business objectives.
