DEFINITION of Decedent
A decedent is a legal term the tax, estate planning and law arenas primarily use for a deceased person. When a decedent is a legitimate taxpayer, all of his possessions become part of his estate, and he becomes denoted as a decedent, or deceased. Though decedents have died, they still have legal power over financial transactions and other estate preparations if they conducted estate planning before they died.
BREAKING DOWN Decedent
From a financial perspective, a decedent does not cease to exist after they die because almost everyone leaves behind various assets in an estate. Attorneys and trustees carry out decedents' wishes after their deaths with the execution of their wills and trusts. Decedents must also file a final tax return for the year they died, and the estate must pay any outstanding taxes.
Example of a Decedent and the Role of a Trust
The idea behind a decedent is straightforward. When a person dies, he becomes a decedent, and his will and trust remains to give directions for handling 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 a final tax return that lists the entire estate.
Establishing a trust prior to death is important because it allows a person to transfer the legal rights of his assets to another person before he dies, which often reduces estate taxes. 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 the estate does not have to pay court fees.
Protecting and Distributing a Decedent's Assets
Many financial advisors recommend that their clients create a trust to protect their assets. The flow of a trust is a relatively straightforward: The trustor transfers legal ownership of his assets to a person or institute named as the trustee. It is the trustee's job to manage the assets on behalf of any beneficiaries named in the trust.
All trusts create what's called a fiduciary duty for the trustee, which means the trustee is legally responsible for the best interests of the beneficiaries outlined in the trust. This provides peace of mind that a decedent's assets are allocated correctly. The beneficiaries of the trust receive some or all of the benefits in the trust when the trustor becomes a decedent upon his death.