Post-death estate planning starts the moment a client dies — and the CPA is often the first professional the family calls. Not the attorney. Not the financial advisor. The accountant who handled the returns, knew the numbers, and understood the financial picture. What happens in the weeks and months that follow involves a series of decisions that materially affect taxes, cash flow, and what beneficiaries ultimately receive.
The Clock Starts Immediately
Several deadlines begin running from the date of death, and missing them is expensive or irreversible.
A final individual income tax return (Form 1040) covers January 1 through the date of death. It’s due April 15 of the following year (or October 15 with an extension), and it captures all income earned through the moment of death. Separately, if the estate generates income after the date of death, a fiduciary income tax return (Form 1041) becomes necessary. The estate becomes its own taxpayer on the day the decedent dies (IRS Publication 559).
For estates that meet the filing threshold ($15 million in combined gross estate and adjusted taxable gifts for 2026 deaths), the estate tax return (Form 706) is due nine months after the date of death. An automatic six-month extension is available through Form 4768, but the extension only extends the filing deadline, not the payment deadline (Form 706 instructions).
The Portability Decision
For married decedents, the portability election is one of the highest-stakes post-death decisions. It allows the surviving spouse to claim the deceased spouse’s unused estate and gift tax exemption (the DSUE amount). For 2026, the exemption is $15 million per individual, making the combined potential for a married couple $30 million.
The catch: portability doesn’t happen automatically. The executor files a complete Form 706 and makes the election on the return, even if the estate is below the filing threshold and owes no tax. Missing the deadline forfeits the unused exemption permanently.
Revenue Procedure 2022-32 provides some relief. Estates that weren’t otherwise required to file can submit a late portability election within five years of the date of death. But relying on the late election window is a gamble. The five-year clock runs from date of death, not date of discovery, and there’s no guarantee the surviving spouse’s circumstances won’t change in ways that make the DSUE critical before the late filing happens.
Income in Respect of a Decedent
IRD is one of the most misunderstood concepts in estate administration. It refers to income the decedent earned before death but hadn’t yet received: unpaid wages, accrued interest, retirement account balances, installment sale proceeds. This income doesn’t appear on the final Form 1040. Instead, whoever receives it (the estate or a beneficiary) reports it as income in the year received.
Here’s the part that surprises practitioners who don’t handle estates regularly. IRD items do not receive a step-up in basis at death. That’s a significant exception to the general rule that inherited property takes a fair market value basis as of the date of death. A $500,000 IRA is still $500,000 of ordinary income to whoever takes the distribution, step-up or no step-up.
Section 691(c) provides a partial offset: if the estate paid estate tax attributable to IRD items, the recipient can claim an income tax deduction for the estate tax allocable to that income. The mechanics of calculating the Section 691(c) deduction are detailed but the concept is straightforward (IRS Publication 559).
Liquidity and Funding the Estate’s Obligations
Estates have bills. Administrative expenses, final medical costs, outstanding debts, and (for larger estates) estate tax liability all require cash. The assets in the estate don’t always cooperate. A client’s wealth concentrated in real estate, closely held business interests, or illiquid investments creates a gap between what the estate owes and what it can readily pay.
Life insurance is the most common liquidity tool. If the decedent held policies outside the estate (typically in an ILIT), the death benefit provides cash without increasing the taxable estate. For estates with interests in closely held businesses that make up more than 35% of the adjusted gross estate, Section 6166 allows estate tax to be paid in installments over up to 14 years, with only interest due for the first four years.
Timing of asset sales also factors in. Selling estate assets within the first six months opens the door to the alternate valuation date election under Section 2032, which values the entire gross estate at the six-month mark (or the date of disposition, whichever comes first) rather than the date of death. If asset values declined after death, alternate valuation reduces the estate tax liability.
Coordinating the Returns
The interaction between the final Form 1040, Form 1041, and Form 706 creates coordination issues that practitioners trained primarily on individual returns may not anticipate.
The fiscal year election is one. Estates (unlike trusts) can elect a fiscal year for their first Form 1041, which creates opportunities to defer income recognition to beneficiaries. The estate’s distributable net income determines how much of the income flows through to beneficiaries via Schedule K-1 versus how much stays (and is taxed) at the estate level, where the compressed brackets push rates to the top marginal rate at a low threshold.
Medical expenses present an either/or choice. They can be deducted on the decedent’s final Form 1040 (as an itemized deduction) or on the estate tax return as an administration expense. Not both. The right answer depends on the decedent’s final-year income, the estate’s size, and the marginal rates at play in each context.
Surgent CPE’s Post-death Planning and Estate Administration Strategies (PDP2) covers the full scope of post-mortem decisions, including liquidity planning, asset sales, valuation elections, portability, and the coordination between estate tax and income tax filings. Details at surgentcpe.com/cpe-courses/PDP2.