Why so difficult to set up these accounts?

[austin3515]

Does anyone have any guidance on what to tell these compliance departments at the wire houses for which boxes to check regarding type of account?

We use a Rabbi Trusts. Of course there is no option for Rabbi Trust on the forms, not even a grantor trust. Should it be just a corporate account? Butt hat would seem to negate the purpose of the Rabbi Trust because then the corporation would control the accounts and not the Trustee...

[QDROphile]

Who is the trustee of the grantor trusts? Are you having trouble setting up the account under the name of the trustee?

[austin3515]

An individual? I've always said (based on an attorney;s advice) that the registration is John Doe, Trustee, FBO ABC Co 457(b) Plan.

[QDROphile]

Who is the individual relative to the organization? We are drfiting from your original question into some fundamentals that are often overlooked and not understood. A grantor trust is used for noqualifed deferred compensation, e.g. 457(b) plans of non-governmental nonprofit organizations, to prevent the organization from raiding the set-aside funds for organization purposes other than payment of the deferred compensation obligation. That is it. The organization still has the obligation to pay and the raid may be a breach, or set up a future breach, of the organization's obligation to pay (by being short of funds on the payment date). The participant will have to work hard to collect. A grantor trust is not good for any other purpose. It does not protect against creditors of the organization and the funds are funds of the organization. If the trustee is an organization employee or other agent, it is questionable if the trust even serves its limited purpose of preventing the organization from raiding the set-aside funds. If the organization wants to raid, what assurance is there that the interested trustee (employee of the organization) will not participate or facilitate? Who can you trust when the organization decides to act improperly? If one belives in the good faith of the organization, a grantor trust is unnecessary and the plan can be accommodated by a corporate account. If one is cynical, then one would go to a commercial trustee, who should be able to offer or arrange the appropriate accounts becuase that is the business of a commercial truatee. If you use an individual, interested or not, I think you should still be able to set up the account as a corporate account of the organization, but the individual would be the only authorized agent.

[austin3515]

The individual is the finance guy on the Board of directors? I think you did go off target, I'm down with everything you said. Our goal is to have this individual (Mr. Treasurer) be responsible for ensuring that the money is not diverted.

Any help on registering the account in this way?

[jpod]

I assume from your OP Austin that there is a block to check to say "Trust." A Rabbi Trust is a perfectly good trust, just one with special tax attributes. What is your concern about checking the "Trust" box?

[mbozek]

What are the choices that can be elected? A rabbi trust is considered to be an asset of the employer which is subject to the claims of the employers creditors. So the trustee of the Rabbi trust is administering a corporate asset with the restriction that the assets cannot be used to benefit the plan sponsor.

does the Rabbi trust have its own tax ID?

[austin3515]

OK, in this case, the options were pretty much everything but Grantor Trust. There was living trust, employee benefit plan trust (which I ruled as applicable to qualified plans), and "usurary" (not spelled right) trust. Nothing that seemed to fit.

Or should it just be a corporate account? But again it seems to me that it can't be a corporate account because then the corporation has control.

[QDROphile]

The corporation is in control as far as the account set-up, but under the account set-up, if authority is given only to the trustee as the corporate representative, then only the trustee can manipularte the account and the trustee is bound by the trust terms. I stil go back to, who do you trust?

[austin3515]

They trust the trustee. That's why the named him as the Trustee. I think it's actually where the word comes from . I know I'm being a smart-alek but I'm not following how it relates to setting up an account.

So are you saying it can be a corporate account??

[mbozek]

I agree with Q. while there is a trustee the Rabbi trust is still a corporate asset of the employer with an independent trustee who follows the terms of the trust. If the employer declares bankruptcy the trustee would be required to turn the assets over to the creditors of the employer.

[austin3515]

My understanding is that the assets are held in a trust separate from the employer. It only reverts to the employer in the event of liquidation. As such the account should probably be registered to a trust (or more specifically to the Trustee, FBO the Plan, just as it is in a qualified plan).

But I'll restate the question - are you guys suggesting that it should be a corporate account? And if it is a corporate account, how could the trustee prevent a diversion of assets?

[jpod]

I couldn't disagree more with the suggestion that it is a "corporate asset." While we all know how grantor trusts work for tax purposes and about what should happen upon bankruptcy/insolvency, neither the tax rules nor the treatment for financial accounting purposes changes the fact that it is a trust and needs to be recognized and respected as such.

FWIW, I happen to believe that Rabbi Trusts are almost always a complete waste of time and expense, but clients still want them.

[austin3515]

Would anyone like to comment on the original question which is how to get these darn accounts opened?

[QDROphile]

Corporate account; trustee is the only individual authorized to provide instructions; the account effectively becomes the custodial account for the trustee. That is how it looks to the provider, except that the provider does not know anything about the trust. This is a way to use typical provider products to achieve the investment arrangements for the grantor trust. It would be nice to be able to register the authorized individual by name with ", Trustee" after the name, but that might throw off the provider. The trust agreement will describe the legal relationships and operaton of the trust.

This arragnement can work. I do not recommend it. I am in jpod's camp about thei worth of grantor trusts. But if one just has to have a grantor trust, then get an institutional trustee that has a deferred compensation grantor trust product.

[XTitan]

I'm not a smart alec either, but is there a customer service number on the provider paperwork? If the provider can't answer the question, then maybe another provider can. My experience is limited to institutional trustees/custodians where their form has the information needed to open the account and then they worry about the fund houses. Of course, cost is always a consideration.

[austin3515]

Corporate account; trustee is the only individual authorized to provide instructions; the account effectively becomes the custodial account for the trustee.

But wouldn't the corporate account be registered to the corporation? And what would be preventing an authorized representative of the employer from diverting the assets? Perhaps the answer is you designate the trustee as the authorized party? But then again, the corporation as the controlling party on the account could simply act to remove the authorized party...

[mbozek]

Whose tax id # will be used to open the account? Will trustee get a tax id?

[Peter Gulia]

austin3515, as you consider the different suggestions, consider at least one more related point:

The way an application or other account-opening document describes the account holder might drive what a bank or broker-dealer asks in applying its know-your-customer and anti-money-laundering procedures.

Also, if (for whatever reason) the Employer/Taxpayer Identification Number furnished is not different than the employer's EIN, it might be too easy for a disappointed creditor of the employer to argue that the purported trust never was separate from the employer.

And an attempted provision that only the Treasurer has authority to direct the disposition of the corporation's money and other property or other exercise the corporation's rights might be legally unenforceable. A rabbi-trust intent might be defeated if a bank or broker-dealer believes that a corporation's president has inherent, delegated, or implied power to direct the disposition of the corporation's assets.

To return to jpod's question, is there a reason why it might be unwise to check the undifferentiated "Trust" box and truthfully answer whatever information about the trust or its trustee the application calls for?

[austin3515]

Whose tax id # will be used to open the account? Will trustee get a tax id?

I never thought about that before. Do I need to?

[austin3515]

To return to jpod's question, is there a reason why it might be unwise to check the undifferentiated "Trust" box and truthfully answer whatever information about the trust or its trustee the application calls for?

There was no "trust" box - it was only the list of particular kinds of trusts.

But come to think of it, the EIN really does need to be the corporate EIN for tax retporting purposes, doesn't it? My this is a conundrum. I'm all of a sudden realizing that I know how to run, jump hurdles and all the proper stretches, but have not learned how to tie my shoe!

Someone must have set up an account like this at a brokerage account who can tell me what to do. I hear a lot of wonderful technical advice and it all sounds brilliant. But I'm down here in the weeds with paperwork and boring practical stuff. What are other people doing (assuming no one wants to spend the big bucks for the specialized bank trust).

[jpod]

I am probably suggesting something that you already know and may not apply to the institution you are trying to hook up with, but it sounds like you are dealing with a person or unit that only deals with the regular "retail" customer. If there is a separate "wealth management" unit at that institution, that's where you should go. Otherwise, go to a different institution.

Notwithstanding Fiduciary Counsel's fair point, if the account is registered properly, in the name of the trust, or the trustee fbo the trust, I wouldn't be concerned about a creditor being able to tap the Rabbi Trust outside of bankruptcy/insolvency just because the employer's ein is used. You do have the option of getting a separate EIN trust for the trust, but I think in that case you would have to file an annual Form 1041 for the trust even though all of the tax attributes are then thrown off and back on to the employer's tax return.

[mbozek]

Its been a while since I checked but I thought that a grantor trust is considered to be the alter ego of the creator of the trust and for tax purposes all income is taxed to the grantor. There is no separate tax entity in a grantor trust.

[QDROphile]

Agree with mbozek, That is one of the elements that makes setting up the grantor trust account as a corpartae account of the employer (as far as the fund company is concened) feasible for tax purposes.

There are some state statutes that recognize grantor tursts as separate for certain corporate purposes to allow, among other odd things, grantor trusts to hold shares of company stock (usually for nonqualified deferred compensation plans). In those states, there is no such thing as treasury stock and were it not for the special separate identity, the stock would revert to authorized but unissued shares.