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 Nebraska Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, commonly known as a Rabbi Trust, is a specialized type of trust established by employers to provide additional benefits and compensation to key executives. This trust is specifically designed to defer a portion of executive employees' income and provide them with flexibility, tax advantages, and security for their future financial needs. A Nebraska Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees (Rabbi Trust) operates under the regulations outlined in Internal Revenue Code Section 402(b). It allows executives to defer a portion of their income, including salary, bonuses, and other forms of compensation, into the trust, thereby deferring immediate taxation on this income until it is distributed to them in the future. By participating in a Nebraska Nonqualified Deferred Compensation Trust, executive employees can effectively reduce their current tax liability and potentially benefit from a lower tax rate upon distribution. This allows them to defer a larger portion of their income to a later date when their tax bracket may be lower, such as during retirement. The trust also offers protection against the employer's bankruptcy or financial instability, ensuring that the deferred compensation remains secure. There are various types of Nebraska Nonqualified Deferred Compensation Trusts for the Benefit of Executive Employees — Rabbi Trusts, which can be customized to meet specific employer needs and executive preferences. These variations may include: 1. Defined Contribution Rabbi Trust: This type of trust allows executives to contribute a specific percentage or dollar amount of their income into the trust. The employer may choose to match a certain portion of the executive's contribution, further enhancing the benefits. 2. Indexed Return Rabbi Trust: In this trust, the deferred compensation is invested in various financial instruments such as stocks, bonds, or mutual funds. The returns on these investments are tied to a specified index, providing the executive with the possibility of earning a higher rate of return on their deferred compensation. 3. Graded Payout Rabbi Trust: This trust offers executives the flexibility to structure the timing and amounts of their payout upon distribution. Executives can choose to receive their deferred compensation in installments or in a lump sum based on their individual financial goals and needs. 4. Offshore Rabbi Trust: This type of trust is established in a foreign jurisdiction, offering potential tax advantages and asset protection benefits for executive employees. It is important for employers and executive employees to consult with legal and financial professionals familiar with nonqualified deferred compensation regulations to determine the most suitable type of Nebraska Nonqualified Deferred Compensation Trust — Rabbi Trust, considering their specific objectives, tax situations, and risk tolerance. By utilizing these trusts, employers can attract and retain top executive talent while providing executives with valuable benefits and long-term financial security.
