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.
Rhode Island Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is a specialized financial arrangement designed to provide executive employees with a nonqualified deferred compensation plan. This trust is established in Rhode Island and operates in compliance with state laws and regulations. The purpose of the Rhode Island Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is to allow employers to set aside funds to provide additional compensation to key executives in the future. It is an employer-funded trust that offers tax advantages for both the company and the executives involved. Key features of this trust include: 1. Tax Advantages: Contributions made to the trust are tax-deductible for the employer, as they are considered an expense. The executive employees, on the other hand, are not taxed on the contributed amount until it is distributed to them at a later date. This allows both parties to potentially defer tax payments and optimize their financial situation. 2. Deferred Compensation: The executive employees can defer a portion of their current compensation to the trust. This amount will be invested and grow over time until the agreed-upon distribution date, which is typically during retirement or when certain conditions are met. 3. Investment Options: The Rhode Island Nonqualified Deferred Compensation Trust offers a range of investment options to grow the funds within the trust. These options could include stocks, bonds, mutual funds, or other investment vehicles. The choice of investments depends on the goals and risk tolerance of the participants. 4. Distribution Flexibility: The trust provides flexibility in determining the distribution options. The executive employees can choose to receive a lump sum payment, periodic payments, or in some cases, a combination of both. The timing and method of distribution can be customized based on the individual's needs and preferences. In addition to the general Rhode Island Nonqualified Deferred Compensation Trust, there might be different types of trusts based on specific employer requirements or customization: 1. Rabbi Trust with Performance-Based Incentives: This type of trust includes performance-based incentives in addition to regular deferred compensation. The executives receive an additional payout based on achieving predetermined performance targets or milestones. 2. Rabbi Trust with Stock Options: In some cases, the trust may incorporate stock options as part of the deferred compensation plan. This allows executives to benefit from the company's stock performance and potentially increase their overall compensation. 3. Rabbi Trust with Vesting Schedule: A trust with a vesting schedule means that the executive employees will gradually become entitled to the deferred compensation amount based on their length of service or achievement of certain milestones. This ensures loyalty and commitment from these key employees. Overall, the Rhode Island Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is a valuable financial tool for employers looking to attract and retain top executive talent. It provides tax advantages, flexibility, and the potential for enhanced compensation, making it an attractive option for both employers and executives.
