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 Washington Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is a specialized trust established in accordance with the laws of the state of Washington. This type of trust is utilized by businesses and organizations to provide specific benefits to their executive employees, typically in relation to deferred compensation plans. A Rabbi Trust is designed to enhance the security and attractiveness of nonqualified deferred compensation arrangements for executives by segregating and protecting the funds set aside for their benefits. It acts as an irrevocable granter trust, meaning that the employer's contributions to the trust are considered assets of the executive employees and are protected from the employer's creditors. One of the key benefits of a Washington Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is that it allows executives to defer a portion of their compensation, such as bonuses, stock options, or other performance-based incentives, to be received in the future. By deferring their compensation, executives may benefit from potential tax advantages by spreading their income over multiple years or until retirement. The trust holds the deferred compensation on behalf of the executive employees until the predetermined payment date or event, which is usually retirement, disability, or a specified period of time elapses. At that point, the executive employee receives the funds, which may have grown through investment earnings, subject to the tax regulations at the time. In addition to the general Washington Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust, there might be different variations or subcategories that are tailored to the specific needs of the organization or the preferences of the executive employees. These variations can include provisions for vesting schedules, distribution options, performance-based criteria for payout eligibility, or individualized investment options within the trust. Overall, the Washington Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is a valuable tool that allows businesses and organizations to attract and retain top executive talent while providing executives with a flexible and tax-efficient method to defer their compensation until a future date.
