Did somebody say “rabbit” trust?

Let’s talk about an interesting type of trust – the “rabbi” trust. Named for their originator, a rabbi and his congregation, these trusts are occasionally used by employers to provide key employees with compensation in an irrevocable package.

In essence, rabbi trusts are a type of irrevocable trust. Contributions to this trust are not considered to be part of the employee’s wages, which can be beneficial to that employee from a tax perspective. The irrevocability of this trust type can also be a useful selling point, as it ensures that the employer cannot interfere with the funds placed into the employee’s compensation. Keep in mind, however, that these funds may still be accessed by the company’s creditors in the event of a bankruptcy.

I hope you’ve enjoyed this brief explanation! Trusts, as a type of entity, are highly flexible and exist in numerous variations— although Regina and I typically deal with revocable living trusts (RLTs) and special needs trusts (SNTs) for estate and legacy planning, we are familiar with a variety of different trust types that we can use to meet your individual needs. We’ll go through explanations of more unusual trusts in future posts, so stay tuned!