Rabbi Trust

Table of Contents

Rabbi Trust

Rabbi Trust means:
a form of irrevocable grantor trust named for the first person to obtain a letter ruling on it. The main advantage of a Rabbi trust is the assurance to employees that their nonqualified benefits will be paid to them by their employer (e.g., in case of a hostile takeover). The only situation in which a Rabbi trust cannot ensure payment of benefits occurs when the employer reaches insolvency or bankruptcy. In such cases, the trust assets must be available to the employer's general creditors. However, the trust can include a provision to freeze assets within the trust in the event of insolvency or bankruptcy.

A Rabbi trust should be set up so that there are subtrusts to a separate account for each participant. In addition, such a trust should have sufficient funding to ensure security, should be structured as an irrevocable trust with an independent corporate trustee, and should have a method for recovering excess assets after all benefits have been paid out.

See also other Tax Terms and Definitions in U.S.A.

secular trust.

Description and Definition of Rabbi Trust

A nonqualified deferred compensation plan in which an employer and employee agree to defer payment for the employee's services until a specified future date. The rabbi trust is an irrevocable grantor trust which is set up by the employer to hold the money set aside for the employee. Unfortunately, the trust is exposed to the claims of the employer's creditors.


See Also

Further Reading

Leave a Comment