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Rabbi Trusts: Benefits, Features, And Key Considerations

Your company’s promise to pay nonqualified deferred compensation may be a contract right, but if the funds aren’t there or your company changes its mind, you may end up with expensive litigation and an uncollectible judgment. The use of a rabbi trust can provide some security for your NQDC against company insolvency or a corporate change of heart.



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Key Points in This Article
A rabbi trust can protect NQDC against a corporate insolvency or change of mind. A company can create one rabbi trust to cover all participants in one or more NQDC plans.
An irrevocable trust offers the most protection of NQDC assets. Rabbi trusts can be customized to a limited extent.
Criteria for selecting a trustee include financial stability, experience with changes of corporate control, expertise with funding vehicles, and a situation free from conflicts of interest.