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Rabbi Trust

Rabbi Trusts are arrangements for non-qualified deferred compensations. In business employment, it occurs because the business is trying to avoid taxation. The Rabbi trust in this situation is when a business creates large irrevocable trusts for employment compensation. By doing this, the taxation is deferred to the employee receiving the trust rather than the employer. The employee now not only has a deferred payment, but also will be charged with larger taxes. Rabbi trusts can also used in business transactions. When one business buys another business, a rabbi trust can be created as part of the deal.

Fast Facts

  • The name Rabbi Trust originated from the first use of this type of transaction, which was made to a Synagogue by the IRS.
  • Rabbi trusts are accessible to creditors if the employer that created the trust has a financial downfall.

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