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Rabbi Trust


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#1 Randy Watson

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Posted 11 February 2009 - 12:02 PM

An "irrevocable" rabbi trust is in place for a NQDC plan. What would be the ramifications of amending the trust to make it revocable? I don't believe that this would do anything to create a taxable event on the participants; if anything, it appears that there would be an even greater risk of forfeiture. I also don't see any 409A issues as there is no acceleration of distributions or suspension/termination of deferrals.

#2 J Simmons

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Posted 11 February 2009 - 12:13 PM

So the timing of payment of promised plan benefits would not be altered, just that the funding source, a rabbi trust (aka a sieve), would be capable of being revoked after the change from irrevocable to revocable. Is that correct? That would not appear to be, off the top, something that would run afoul of 409A. As you noted, the increase of risk ought not be a problem from an income tax timing perspective.

I'm curious what you have left if a rabbi trust is made revocable?

A regular trust places the fund off limits to the grantor and its creditors.

An "irrevocable" rabbi trust places the fund off limits to the grantor but not its creditors.

A "revocable" rabbi trust would place the fund off limits from neither the grantor nor its creditors. That sounds like just an account held in the name of the grantor, period. No trust about it.

One other note. In my state at least, you have to get court approval to change an irrevocable trust. You might want to check out the procedure in the state where the trust is located.[Edit in light of QDROphile's subsequent post: in my state, you have to show that the original purpose of the trust would be thwarted, but for the change that the petitioner seeks the court to approve--and as a practical matter, always the approval of any impacted beneficiary.]

Edited by J Simmons, 11 February 2009 - 01:49 PM.

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Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

#3 QDROphile

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Posted 11 February 2009 - 01:39 PM

If the plan provided for an irrevocable trust, you would have a breach of contract unless the participants consent to the amendment. Other than reversing the amendment, one wonders what the practical remedy is for the breach.

#4 vebaguru

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Posted 14 February 2009 - 02:52 PM

Rather than "amending" the trust from irrevocable to revocable, it may be necessary to establish a new revocable rabbi trust for the plan, and then to transfer the benefits from the irrevocable trust (assuming document provisions, as amended, permit transfer to a successor trust.