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.
Keywords: Wyoming, nonqualified deferred compensation trust, executive employees, Rabbi trusts A Wyoming Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, commonly known as a Rabbi Trust, is a specific type of trust established in the state of Wyoming to provide deferred compensation benefits for executive employees. This trust is designed to ensure that the funds set aside for deferred compensation are securely held and are available to the employees in the future. A Rabbi trust acts as an irrevocable granter trust, meaning that once the trust is established, the employer no longer has control over the funds contributed to the trust. The trust is established by the employer for the exclusive benefit of executive employees, allowing them to defer a portion of their compensation or additional benefits to a future specified date, usually after retirement. The Wyoming Nonqualified Deferred Compensation Trust allows executive employees to defer a significant portion of their income, allowing them to receive the deferred compensation at a later date. This offers attractive tax advantages as the deferred compensation is not subject to income tax until it is distributed from the trust. Additionally, the trust safeguards the deferred compensation from any potential creditors of the employer, providing added security to the executive employees. Different types of Wyoming Nonqualified Deferred Compensation Trusts for the Benefit of Executive Employees include: 1. Defined Contribution Rabbi Trust: This type of trust operates similarly to a traditional 401(k) plan, where the executive employee and the employer make contributions to the trust, which then invests the funds on behalf of the employee. The benefit amount is determined based on the performance of the investments. 2. Defined Benefit Rabbi Trust: In this type of trust, the employer promises to pay a specific benefit amount to the executive employee at retirement or another specified future date. The employer is responsible for funding the trust adequately to fulfill the promised retirement benefits. This type of trust provides a predictable income stream for the employee in retirement. 3. Supplemental Executive Retirement Plan (SERP) Trust: A SERP is a nonqualified retirement plan offered by the employer to supplement the employee's qualified retirement plan benefits. The SERP Trust can be structured as a Rabbi Trust to ensure the deferred compensation is securely held and available when the employee retires. Overall, the Wyoming Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust, is a powerful tool for executive employees in Wyoming to defer a portion of their compensation for the future. It offers tax advantages and added security for executives, allowing them to plan their retirement benefits more effectively.
