An Overview Of 'Rabbi Trusts'

Law360, New York (June 21, 2012, 1:43 PM ET) -- Nonqualified deferred compensation arrangements are frequently used by employers as a benefit to keep valuable employees invested in the future success of the company.

In order to obtain the desired deferral of taxation for income tax purposes, a nonqualified deferred compensation arrangement must be unfunded — the tax code does not treat an unfunded promise to pay as “property” to which the income tax can apply.

Even though it is required for income tax purposes, the unfunded nature of a nonqualified deferred compensation arrangement presents the...
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