What is a tax consequence attributed to an off-shore rabbi trust?

An off-shore rabbi trust is typically used to hold assets for the benefit of employees in a non-qualified deferred compensation arrangement. One of the significant tax implications of an off-shore rabbi trust is that there is no taxable event upon the transfer of assets into the trust. This means that when assets are moved into the trust, the participant does not incur immediate taxation. The trust is designed to provide benefits in the future, enabling participants to defer income tax until they actually receive distributions from the trust.

In addition, the earnings generated by the assets in the trust are generally not subject to tax until they are distributed to the participants. This characteristic allows individuals to benefit from tax deferral, enhancing the potential growth of the assets within the trust. Assets in the rabbi trust remain subject to the claims of the employer's creditors, which is another important aspect to be aware of, but it does not affect the immediate tax consequences of transferring those assets.

The other options reflect misunderstandings or inaccuracies regarding the tax implications of an off-shore rabbi trust, emphasizing the importance of understanding how such trusts operate within the framework of tax regulations.