Who can serve as Trustee of Rabbi Trust?

[mariemonroe]

It is my understanding that if a taxpayer adopts the model rabbi trust and wants to obtain a ruling on the tax consequences of the underlying nonqualified deferred compensation plan, then the taxpayer must follow the guidelines of Rev Proc 92-65 which require, among other things, that the trustee be an independent third party that may be granted corporate trustee powers under state law, such as a bank trust department.

Is there any other rule or requirement out there regarding who can or can not serve as Trustee of such a trust?

What has people's experience been as to who is actually serving as trustee of rabbi trusts? I am particularly curious as to small employers where there are only one or two participants in the deferred comp plan.

[QDROphile]

Back up a bit to ask the right questions. Q: Why do you want a rabbit trust? A: Because you are afraid that you are, or will be, dealing with an employer that will not keep its promises about the benefits. Now ask the question, "Who do you want to be the trustee?" After you answer that question, and if the answer is not a financial institution that is permitted to conduct trust business under state law, you may still want to ask the question you posted.

[Guest Sieve]

And don't let the rabbi know that QDROphile has turned him/her into a rabbit, or you'll never get your money . . .

[QDROphile]

I get all my information from Emily Latella.

[Lori Friedman]

I've always trusted rabbits. They're nonviolent and vegetarian, two traits that I truly admire.

[Guest Sieve]

Does it make a difference if it's Bugs or Roger?

[Lori Friedman]

Preferably Roger. Bugs can be a bit edgy at times.

[Guest DIY]

I have the same issue with a proposed rabbi trust for a one-employee 457 plan. Does anyone know of a bank/corporate trustee willing to serve as a rabbi trustee for such a small plan? The employer had originally thought they would finance the 457 plan by investing in mutual funds purchased through a brokerage account. Is there some way that the rabbi trustee will work with the broker? The broker says his firm "does not do rabbi trusts", and now the employer is scrambling to get the plan going. TIA.

[John Feldt ERPA CPC QPA]

Well, the Rabbi of course!

(okay, clearly 409A/457(f) is not for me).

[Ron Snyder]

Skipping over the banter and back to the original issue. I work with a trust company that is the trustee of a Rabbi Trust. While they offer good trustee and investment services, they do not allow me to work with my broker of choice nor brokerage firm of choice. Like most corporate trustees, they make money from investment management.

The model rabbi trust does not contain adequate protections for corporate trustees and they will not accept them.

One of my reservations in working with a corporate trustee is that they might be out of the loop when a change of control or other material change takes effect, and therefore may not invoke their powers and perform their duties specified in the trust agreement.

Our attorney has advised us that most purported Rabbi Trusts don't do everything they are legally required to do and are therefore ineffective as a Rabbi Trust. After consideration of the alternatives, we are in process of changing our model from using a Rabbi Trust to using a Delaware Statutory Trust.

[QDROphile]

If your Delaware Statory Trust is not a rabbi trust, the deferred compensation will be taxable. "Rabbi trust" is just a name, with a historical reference, to a grantor trust. I agree that the trustees often do not pay pay attention to their contractual duties, but who can you really count on to do a job properly anyway?

[J Simmons]

... trustees often do not pay pay attention to their contractual duties, but who can you really count on to do a job properly anyway?

Why a rabbi, of course (sorry, couldn't pass up that home run pitch in the banter category).

[QDROphile]

It is nice to know someone can see a slow high hanging curve ball when it is served up.

[GBurns]

What is the benefit of a Delaware Statutory Trust over a grantor trust (rabbi or not) ? What about a Nevada Statutory Trust or the trust of some other trust/corporation etc friendly state ?

[Guest mjb]

Skipping over the banter and back to the original issue. I work with a trust company that is the trustee of a Rabbi Trust. While they offer good trustee and investment services, they do not allow me to work with my broker of choice nor brokerage firm of choice. Like most corporate trustees, they make money from investment management.

The model rabbi trust does not contain adequate protections for corporate trustees and they will not accept them.

One of my reservations in working with a corporate trustee is that they might be out of the loop when a change of control or other material change takes effect, and therefore may not invoke their powers and perform their duties specified in the trust agreement.

Our attorney has advised us that most purported Rabbi Trusts don't do everything they are legally required to do and are therefore ineffective as a Rabbi Trust. After consideration of the alternatives, we are in process of changing our model from using a Rabbi Trust to using a Delaware Statutory Trust.

1. What is the difference between a Del. stautory trust and and a RabbiTrust.

2. How does a Del statutory trust qualfiy as a Rabbi Trust under Rev. Rul 92-64 since IRS will no longer issue PLRs on trust arrangements for NQDC that do not use the model Rabbi Trust in rev Rul 92-64?

[Ron Snyder]

QDRO: If your Delaware Statory Trust is not a rabbi trust, the deferred compensation will be taxable.

The trust is taxable, but to the owner/grantor, not to the participant who has no vested rights to the deferred compensation.

What is the benefit of a Delaware Statutory Trust over a grantor trust (rabbi or not) ? What about a Nevada Statutory Trust or the trust of some other trust/corporation etc friendly state?

A Delaware Statutory Trust is a form of business entity that uses a Delaware resident trustee. Nevada doesn't have a similar provision in its laws.

1. What is the difference between a Del. stautory trust and and a RabbiTrust.

Delaware law provides protections for the employer/sponsor and its creditors. Rabbi Trusts provide protections for participants.

2. How does a Del statutory trust qualfiy as a Rabbi Trust under Rev. Rul 92-64 since IRS will no longer issue PLRs on trust arrangements for NQDC that do not use the model Rabbi Trust in rev Rul 92-64?

It does not, and no PLR will be sought.

[QDROphile]

If deferred compensation is secured by amount held in a trust, the deferred compensation is taxable. We were not limiting the discussion to deferred compensation that is subject to a risk of forfeiture. The trust arrangements are of greater interest to vested deferred compensation.

[401 Chaos]

Can we revisit the original question? I'll acknowledge that a rabbi trust should ideally have an independent third party bank or trust company serving as trustee. What about a situation where: (1) the rabbi trust is small with few participants, (2) there never was intention to submit for a ruling on the trust so never focused on exact compliance with 92-64, and (3) the trust originally had a presumably independent third-party attorney named as trustee who recently died. Is it safe to name some other independent third-party individual to serve as trustee. If not, are there usual suspects in the trust company business that would serve as trustee without enormous fees?

[Ron Snyder]

The question of whether a trust is a Rabbi Trust is important when there is a change in control. What will the trustee do when there is a change in control? Listen to the employer's new officers and act as they desire? Listen to the employer's former officers and do as they desire?

The trust company we use as a trustee charges $1,000 per year to be the trustee of such a trust, and it will do as the documents require upon a change in control. Is that an "enormous" fee?

[401 Chaos]

Vebaguru,

Thanks for your post. I'm sorry for the delay in replying--I missed the original posting.

$1,000 does seem reasonable to me and seems to be a good bit lower than what we were being quoted by others. Would you mind sharing the identity of your trustee. Thanks.

[Guest Sospel]

The question of whether a trust is a Rabbi Trust is important when there is a change in control. What will the trustee do when there is a change in control? Listen to the employer's new officers and act as they desire? Listen to the employer's former officers and do as they desire?

The trust company we use as a trustee charges $1,000 per year to be the trustee of such a trust, and it will do as the documents require upon a change in control. Is that an "enormous" fee?

Vebaguru:

Would you mind sharing your trustee with me as well? I have an odd grantor trust that needs an out of the box trustee. Thank you.

[Guest rjones5335@aol.com]

The question of whether a trust is a Rabbi Trust is important when there is a change in control. What will the trustee do when there is a change in control? Listen to the employer's new officers and act as they desire? Listen to the employer's former officers and do as they desire?

The trust company we use as a trustee charges $1,000 per year to be the trustee of such a trust, and it will do as the documents require upon a change in control. Is that an "enormous" fee?

Wonder if you can share the name of the Trustee that you use ?

Thanks--

Document Hound