Rabbi trust
Certified Financial Planner glossary · Certified Financial Planner
Definition
A grantor trust holding deferred compensation assets that remain subject to the employer’s creditors, preserving deferral.
Rabbi trust in plain English
An executive wants deferred compensation assets set aside so the company cannot casually raid them, yet still needs the deferral to stay intact for tax purposes. A rabbi trust is a grantor trust holding those deferred assets while leaving them subject to the employer's creditors, which is what preserves the deferral. Restate it: grantor trust, deferred-comp assets, still reachable by employer creditors, deferral preserved. It is not an irrevocable, creditor-proof pocket; bankruptcy risk remains the tradeoff.
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