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 New Jersey Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, commonly known as a Rabbi Trust, is a specific type of trust established to provide nonqualified deferred compensation benefits to executive employees in the state of New Jersey. This trust is governed by the New Jersey Uniform Trust Code and offers various benefits and advantages for both employers and employees. A Rabbi Trust is a form of nonqualified deferred compensation that allows employers to set aside funds for specific executive employees' retirement or other long-term financial goals. The trust is established as a separate legal entity under the trust laws of New Jersey and provides protection and security for the deferred compensation funds until the designated distribution dates. One of the key features of a Rabbi Trust is its irrevocable nature, meaning that once the funds have been contributed to the trust, they cannot be accessed or withdrawn by the employer. This ensures that the deferred compensation is held in trust for the benefit of the executive employees, reducing the risk of the funds being misused or lost due to corporate activities or financial difficulties. Furthermore, a Rabbi Trust offers tax advantages for both the employer and the executive employees. The employer can deduct the contributions made to the trust as a business expense, reducing their taxable income. On the other hand, the executive employees can defer income taxes on the compensation until the funds are distributed, potentially allowing for tax-efficient growth of the assets. However, it's important to note that any funds contributed to a Rabbi Trust are subject to income tax and employment tax withholding when distributed to the executive employees. There are different types of New Jersey Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust, based on the specific needs and parameters established by each employer. These variations might include multiple distribution options, vesting schedules, or specific conditions for accessing the funds. Employers may also choose to customize the trust to align with their overall compensation strategy or cater to the unique needs of their executive employees. In summary, the New Jersey Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is a specialized trust that allows employers in New Jersey to provide nonqualified deferred compensation benefits to their executive employees while ensuring the funds are safeguarded and tax-efficiently managed. The trust offers tax advantages, flexibility in designing the plan, and protection against employer insolvency or misappropriation of funds.
