What is a rabbi trust?

A rabbi trust is a company-owned trust that can provide benefits to key employees. While rabbi trusts can help workers defer taxes, they can be a risky undertaking for smaller businesses.

Understanding Rabbi Trusts

Contrary to what many people believe, rabbi trusts have little to do with religion. While the first rabbi trust was established by a Jewish congregation that wanted to support its rabbi after he retired, these trusts are almost always established by businesses.

Rabbi trusts are often used to provide additional security to high-level executives and top-tier employees. When a company establishes a rabbi trust, they place deferred compensation into a separate trust. Since the compensation is administered by a third-party trustee, the business cannot recover deposited funds for future use.

Under most circumstances, rabbi trusts provide security for employees seeking to minimize their compensation to save money on taxes.

The Benefits of Rabbi Trusts

Companies are responsible for creating rabbi trusts. So long as the founding company is financially stable, a rabbi trust can keep deferred compensation and benefits safe from the Internal Revenue Service and creditors.

While employees must eventually pay tax on rabbi trust funds—when they retire or when they make a withdrawal—their money will typically remain protected until they begin receiving disbursements.

Free Estate Planning Seminars

We Believe An Educated Consumer Makes For An Empowered Consumer

Estate Planning Newsletters

Subscribe to our free newsletter! Stay up to date on legal guidance, free resources, local news and so much more!

Read Our Current Newsletter

The Disadvantage of Rabbi Trusts

Rabbi trusts can help higher-earning employees minimize their tax burden. However, rabbi trusts have a significant disadvantage: while rabbi trust funds may be held by a third-party entity, the trust itself is not protected from creditor claims.

If the founding company declares bankruptcy or otherwise becomes insolvent, its creditors will have unbridled access to the rabbi trust’s funds—potentially depriving employees of their own earnings.

Related links:

Do You Need To Speak With A Trust & Estate Administration Attorney?

If you need to speak with an experienced California trust and estate administration lawyer please contact us online or call us directly at 800.756.5596 to first register for one of our free, informative seminars. Your attendance will qualify you for a special discount for our estate planning services should you decide to make a free appointment at the conclusion of the seminar and choose to proceed with us. Our trust and administration law firm proudly serve clients throughout California from our main office in Torrance, as well as those in Redondo Beach, Manhattan Beach, Hermosa Beach, Segundo, San Pedro, and Rancho Palos Verdes.

Do You Need To Speak With A Trust & Estate Administration Attorney?

Philip J. Kavesh

Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.

Excellent Living Trust and Will review with Peter Keon. I learned a lot more on both my Living trust and Will and I know how I will proceed for my updates. Thank you very much for providing the time to discuss and answer my questions and concerns. Gerald B.

I highly recommend Kavesh, Minor & Otis to anyone who wants to create a living trust or have a living trust that may need updating. Tracy Wilson

Jane Lee provided important specific information for my 3-year Free Trust Review! I feel confident that my trust is up-to-date and appreciate Jane’s knowledge and personable guidance. Thank you! G. Kaneshiro

They helped me put my Dad's estate in order, after his death. I recommend them for trust and estate planning. Jess Caldejon

“My father passed away in February of 2008, and I can only tell you that I was and am so thankful for the trust document he had your firm do. I couldn’t have gotten through all of this without the expert guidance of your firm.” Corinne L.

When You Want the Very Best for Your Loved Ones, Choose Us.

Experience and Expertise. Estate planning and post-death administration are all we do. Our attorneys have over 70 years of combined expertise in the field, and three of our attorneys have passed an additional Bar examination and peer review process to become State Bar Certified Specialists in Estate Planning, Trust and Probate Law. Two of our attorneys also have Master’s Degrees in Tax Law, giving us unique insight into how estate tax and income tax will affect your family’s inheritance.
Customization and Attention to Detail. Before we create or update your estate plan, we get to know you, your goals, and what matters to you most. We take the time to listen to your concerns and attend to each of your unique needs and desires as if they were our own. When we complete your plan, we perform a detailed quality control process to help ensure your objectives are met. We also provide you with a personalized Owner’s Manual containing all of your important documents, and your Successor Trustee with a Manual containing helpful, plain-English checklists and easy-to-follow procedures.
Lifetime Relationship. All of our estate plans include a free ongoing service package. We take phone calls any time you have questions, perform free estate planning checkups every three years, and keep you abreast of changes in the law and planning strategies with our complimentary newsletters and educational seminars. And, when the time comes, we will be there to help your trustee and loved ones.

Free Book Offers

Free Report: Why Can't I Speak With My Parent's Attorney About His or Her Estate Plan?

In this free report, experienced CA Estate Planning Lawyer Phil Kavesh explains why children can't speak to their parent's lawyer about their estate plan.

Get Your Copy