Is a rabbi trust irrevocable?

A rabbi trust is a type of trust used by companies to provide non-qualified benefits to key employees. Most rabbi trusts are irrevocable, meaning a company can't take the assets out once they've been put in. Employees can defer taxes on contributions made to a rabbi trust, but employers can't do so.

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San Bernardino California Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust

Name: San Bernardino California Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust
Brand: US Legal Forms
Rating: 4.87 (381 reviews)

Category:

Trusts - Rabbi

State:

Multi-State

County:

San Bernardino

Control #:

US-01178BG

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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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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.

Your employer is treated as the owner of the trust and is responsible for paying all taxes and reporting all income in the trust. For example, suppose your salary is $150,000 a year, and the company you work for puts an additional $1,500 a month in a rabbi trust for you as a benefit.

Rabbi trusts are so named because the first such trust approved by the IRS in 1980 was established for the benefit of a rabbi. benefits might not be paid when his service to the congregation ended. The congregation proposed to place assets in a trust and restrict their use to the payment of such benefits.

A significant drawback of rabbi trusts is that they don't protect against creditors. If a company becomes insolvent or goes bankrupt, both the beneficiaries and the company's creditors have access to the trust's assets.

Because the creditors of an employer have access to rabbi trust assets, placing assets in such a trust will not trigger these adverse results. Thus, the use of rabbi trusts has become widespread, and these trusts are the vehicle of choice for informally funding deferred compensation plans.

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.

Rabbi trust is a grantor trust Because the assets of a rabbi trust are subject to an employer's creditors, the trust will be treated as a grantor trust.6 This means that the assets of the trust are treated as assets of the employer for tax purposes.

A rabbi trust is a type of trust used by companies to provide non-qualified benefits to key employees. Most rabbi trusts are irrevocable, meaning a company can't take the assets out once they've been put in. Employees can defer taxes on contributions made to a rabbi trust, but employers can't do so.

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.

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The impact from our investments in marketable securities held to fund our deferred compensation plans through rabbi trusts was recorded on the.

San Bernardino California Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees - a Rabbi Trust

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