Lucius Cadaver is the owner and president of Shady Rest Funeral Home, Inc. Shady
ID: 2451463 • Letter: L
Question
Lucius Cadaver is the owner and president of Shady Rest Funeral Home, Inc. Shady Rest set up a non-qualified benefit trust for Lucius and his brother as the officers of the company. The trust provisions include an agreement to pay Lucius and his brother, Portius, a fixed retirement benefit. The trust is funded, but there is nothing to prevent the creditors of Shady Rest from reaching the account balances to satisfy their claims. This is an example of what kind of non-qualified benefit plan? Why would Shady Rest set up such a plan and what tax consequences are associated with its setup?
Explanation / Answer
Basically these plans relates to security of key employees so that they get benifit at the time of their retirment. As per Employees Retirement Income Security Acy (ERISA) 1974 :
Qualified Benifit plan is that plan in which Employer must deduct a certialn allowed portion of employee salary & contribute in a particular fund & these contribution & earnings are tax deffered tilll withdrawal.
Non Qualified benifit Plan : These plans are not eligibal for tax deferral benifit there deducted contribution are taxed when income is recognised. Non qualified paln are often used to provide special type of compensation to their key executives.
As pe Question their is a fund which provide a fixed retirment benifit to company owner & his brother but not any kind of safety for company creditors but as per general market culture every company takes some plans to secure its key executives so that company will not suffer loss for leaving its key persons but as far as creditors are concerns normally their are not any fix policies relates to creditor so that they get their claims definately.
Normally there are two types of creditos ,
Secured Creditor are already secured as they have some kind of company assets hence they can take that asset at the time of non clearing of their claims by company but the other creditors is
Unsecured Creditors which dont have any kind of security,asset and if their is any problem for clearing their claims by company then they have only one option to go for legal procedings. However company clear their unsecured creditor claims after clearing therir secured oans/liability but before giving any money to their share holder, Owner.
hence unsecured creditor are claim their claims even after making a NON qualified benifit trust for their owner and brother of owner.
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