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.
A Tennessee Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, also known as a Rabbi Trust, is a type of trust established for the purpose of providing additional compensation and retirement benefits to executive employees. The primary goal of this trust is to defer a portion of an executive's compensation, allowing them to receive these funds at a later date, typically upon retirement or termination of employment. This trust is governed by the laws of Tennessee and is designed to meet the specific needs and requirements of executive employees. It allows employers to contribute additional funds on behalf of executives, which are then held in the trust and invested to potentially grow over time. The trust works as a supplemental retirement plan, offering tax advantages and flexibility for both employers and employees. Some important features of a Tennessee Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust include: 1. Deferred Compensation: This trust enables executives to defer a portion of their regular income, typically before taxes are withheld. By deferring their compensation, executives can reduce their current tax liability and potentially benefit from tax deferral until the funds are distributed. 2. Investment Growth: The funds contributed to the trust are invested according to the investment options offered by the trust. Executives may have the opportunity to choose from various investment strategies to grow their deferred compensation over time. 3. Vesting Period: The trust may have a vesting period, during which the deferred compensation is subject to forfeiture if the executive terminates their employment before a certain period. This encourages executives to remain with the company and contribute to its long-term success. 4. Distribution Options: Upon retirement or termination, executives can receive their deferred compensation in various forms, such as a lump sum payment, periodic installments, or annuity payments. The distribution options can be tailored to the individual's financial needs and goals. It's worth mentioning that there may not be different types of Tennessee Nonqualified Deferred Compensation Trusts for the Benefit of Executive Employees — Rabbi Trust. However, variations and customized provisions can be included in the trust agreement to suit the unique circumstances and goals of the employer and executives participating in the plan.
