what is rabbi trust 
a rabbi trust is a trust created to support the non qualified benefit obligations of employers to their employees a rabbi and his congregation first used this type of trust after an internal revenue service irs private letter ruling approved its use it has been referred to as a rabbi trust ever since in essence it is a non qualified employee trust created for the benefit of both the employer and employee understanding rabbi trusta rabbi trust creates security for employees because the assets within the trust are outside the control of employers they are typically set up to be irrevocable in other words once the employer makes contributions to a rabbi trust they cannot retrieve them a significant drawback of rabbi trusts is that they don t protect against creditors if a company becomes insolvent or goes bankrupt both the beneficiaries and the company s creditors have access to the trust s assets for example if a rabbi trust has 500 000 worth of stock and cash in it both the creditors and beneficiaries would go after those assets rabbi trust protectiona rabbi trust protects employees from a company that is experiencing financial hardship and wants to remove some of the trust s assets to meet its other obligations for example an employer cannot withdraw 50 000 from a rabbi trust to pay employee wages a rabbi trust s structure cannot be changed by the employer once it has been established giving further protection to its beneficiaries if a company is taken over the new company does not have the power to change the trust s terms only the beneficiaries of a rabbi trust have the power to change its details rabbi trust taxationa rabbi trust provides tax advantages for employees contributions made to the trust do not count as part of the employee s wages for example if an employee receives an annual income of 100 000 and his or her employer makes monthly contributions of 1 000 to the staff member s rabbi trust their taxable income is 100 000 they do not have to pay tax on the 12 000 of contribution payments rabbi trusts allow employees assets to grow without them having to pay tax on any gains until they withdraw their money in this sense a rabbi trust is similar to a qualified retirement plan a rabbi trust does not provide any tax benefits for companies that make its use limited compared to other types of trusts 