Change In Rabbi Trust Rules

Author:Mr Wayne Luepker
Profession:Mayer, Brown, Rowe & Maw LLP
Patent Company Stock Held For Benefit Of Subsidiary Employees

Many employers maintain one or more so-called "rabbi trusts" to set aside funds for non-qualified deferred compensation plans maintained for management employees. Generally, a "rabbi trust" is a trust that is used to provide funding for non-qualified deferred compensation arrangements. To satisfy tax law" requirements, a rabbi trust must be subject to the claims of creditors of the employer.

Recently, in regulations issued under section 1032 of the tax code, and in IRS Notice 2000-56, the IRS indicated that a rabbi trust which holds parent company stock to be used to provide benefits for employees of a subsidiary company would generally not result in adverse tax consequences to the parent or the subsidiary, but only if the trust assets are subject to the claims of creditors of both the parent company and the subsidiary company.

As a result of the guidance,...

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