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South Dakota Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust

Category:
Trusts - Rabbi
State:
Multi-State
Control #:
US-01178BG
Format:
Word; 
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Description

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.

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  • Preview Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust
  • Preview Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust
  • Preview Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust
  • Preview Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust
  • Preview Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust
  • Preview Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust
  • Preview Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust

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FAQ

Unfunded nonqualified deferred compensation refers to a type of compensation plan that allows employers to promise future payments to employees, usually executives, without setting aside funds in advance. In the context of the South Dakota Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust, these promises are backed by the trust, but the assets are not segregated or protected from creditors. This means that the funds are only available when the employee meets certain conditions, such as retirement. Utilizing this structure can provide valuable tax advantages for both the employer and the employee.

The South Dakota Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust serves to protect and manage deferred compensation for key employees. It secures assets for the future while providing tax advantages for both the employer and the employee. By utilizing this trust, companies can offer executive employees a reliable way to accumulate benefits without the immediate tax burden. This structure enhances employee retention and encourages long-term commitment to the organization.

The primary point of a rabbi trust is to provide a secure method for employers to offer deferred compensation to their valuable executives. By utilizing the South Dakota Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust, organizations can ensure that promises of future payments are upheld while also providing tax advantages. This trust structure promotes financial planning and security for both employees and employers alike. Overall, it highlights a commitment to invest in top talent.

One disadvantage of a rabbi trust is the risk associated with the employer's financial stability. Since a South Dakota Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust is an unfunded arrangement, employees may face uncertainty if the employer faces bankruptcy or financial troubles. It's essential to weigh this risk when considering the overall benefits of a rabbi trust. Consulting with a financial advisor can provide valuable insights on managing these risks.

A South Dakota Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust offers several benefits. It provides executives with a secure way to store deferred compensation, ensuring that funds are set aside for future payouts. Additionally, rabbi trusts shield assets from creditors, enhancing financial protection for employees and their families. By utilizing a rabbi trust, employers can also attract and retain top talent through competitive compensation packages.

Rabbi trusts allow employees' assets to grow without them having to pay tax on any gains until they withdraw their money. In this sense, a rabbi trust is similar to a qualified retirement plan. A rabbi trust does not provide any tax benefits for companies that make its use limited compared to other types of trusts.

The Rabbi Trust is a non-qualified deferred compensation plan in which funds are invested in an irrevocable trust and held for the benefit of employees for retirement purposes.

Rabbi trusts allow employees' assets to grow without them having to pay tax on any gains until they withdraw their money. In this sense, a rabbi trust is similar to a qualified retirement plan. A rabbi trust does not provide any tax benefits for companies that make its use limited compared to other types of trusts.

NQDC plans (sometimes known as deferred compensation programs, or DCPs, or elective deferral programs, or EDPs) allow executives to defer a much larger portion of their compensation and to defer taxes on the money until the deferral is paid.

A rabbi trust is exempt from most of the Employee Retirement Income Security Act of 1974 (ERISA) as long as it is a top hat plan, which, according to section 201 of ERISA, is an unfunded plan maintained by an employer to provide deferred compensation to a select group of management or highly compensated employees.

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