DEFINITION of 'Decedent'
A decedent is a person who is no longer living. When a person is a legitimate taxpayer and dies, all of his possessions become part of his estate, and he becomes denoted as a decedent. Decedents still have the legal power to effect financial transactions and other preparations of their estates through proper estate planning.
BREAKING DOWN 'Decedent'
Even though a decedent is a deceased person, from a financial perspective, decedents do not cease to exist after they die. This is because almost everyone leaves behind various assets in the form of an estate. The term "decedent" is used chiefly in the tax, estate planning and law arenas. Attorneys and trustees carry out the wishes of decedents after their deaths with the proper execution of their wills and trusts. A final tax return must also be filed for a decedent in the year of his death.
Example of a Decedent and the Reason for a Trust
The idea behind a decedent is straightforward. When a person dies, he becomes a decedent, and his will or trust remains to give directions regarding his money and other assets. The legal process of executing a will or trust always refers to the deceased as a decedent and requires filing of a final tax return that lists the entire estate.
Establishing a trust prior to dying is important because it often reduces estate taxes. This is because it allows a person to transfer the legal rights of his assets to another person before he dies. In addition, it grants the trustee, the person acting on behalf of the decedent, the immediate authority to distribute assets upon death. Finally, no courts are involved, so there are no court fees.
Creating a Trust
The establishment of a trust must occur before a person becomes a decedent. Many financial advisors suggest that their clients have a trust.
Creating a trust is fairly easy. A property owner, referred to as the trustor, transfers legal ownership of his assets to a person or institution, known as a trustee. It is the trustee's job to manage the assets on behalf of the beneficiaries outlined in the trust. Beneficiaries represent all the people who receive some or all of the benefit of the trust upon death of the trustor.
All trusts create what's called a fiduciary duty for the trustee. This means that the trustee is legally responsible for the best interests of the beneficiaries outlined in the trust. This provides peace of mind that a person's assets are allocated correctly when he becomes a decedent.