Rabbi Trust - Holding Co and Subsidiaries

[Guest pez vela]

Can a single rabbi trust be used when the execs of two or more companies in a control group are participating in the nqdc plan? For example, assume the plan is sponsored by a holding company, and 2 first tier subs have executives that are participating. Holding company sets up the rabbi trust, but the subsidiaries make the contributions and make the benefit payments. Assets are subject to claims of holding company's creditors, but not to claims of creditors of the subsidiaries.

[Guest LeeNunn]

Yes, but the trust assets have to be available to the claims of the subsidiaries'creditors, or you have current taxation under the economic benefit doctrine. Here's an except from IRS Notice 2000-56:

Rev. Proc. 92-64, 1992-2 C.B. 422, contains a model grantor trust for use in nonqualified executive compensation arrangements that are popularly referred to as "rabbi trust" arrangements. Under that revenue procedure, the Service will not rule on unfunded deferred compensation arrangements that use a trust other than the model trust, except in rare and unusual circumstances. Section 1(d) of the model trust document states that "Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein." In the case of a trust that provides benefits to employees of a subsidiary, it is the Service's position that Section 1(d) will not be satisfied unless the assets held by the trust are subject to the claims of the subsidiary's creditors (whether or not those assets are also subject to the claims of the parent's creditors). In this case, it has been the Service's position that the subsidiary is treated as the grantor and owner of the rabbi trust>

[GBurns]

What is the perceived benefit of this arrangement ?