How to Prepare for a Spouse's Passing

9/25/2025 - By Julie Edwards, CPA & David Uslan

When it comes to financial planning, few topics are more sensitive, yet more crucial than preparing for life after the loss of a spouse. While it’s uncomfortable to think about, failing to plan can leave the surviving partner facing not only emotional turmoil, but financial confusion and costly missteps. That’s why tax planning isn’t just a solo endeavor; it’s a shared responsibility.

This blog explores key strategies that every couple should know now because thoughtful tax planning isn’t just about numbers. 

Here are some key considerations to help guide you through the process: 

Build Relationships with Trusted Professionals

To ease the complexity of post-death financial obligations, both spouses should establish connections with:

  • A certified public accountant (CPA)
  • A family attorney
  • A financial advisor

We suggest that you introduce these professionals to each other in advance, establishing an advisory team that will work together to facilitate the sharing of information and streamline their support.  While it is typical in a marriage for one spouse to do heavy lifting when it comes to finances, we also recommend that both spouses attend at least one annual meeting with their advisory team to gain insight into the household's financial plans and objectives.

 These professionals will guide you through legal filings, financial decisions, tax returns and filing requirements, and estate matters when the time comes.  

Key Documents to Gather

Prior to a spouse’s passing, the other spouse should know how to access the following documents: 

  • Last Will and Testament
  • Trust agreements and amendments
  • Copies of past returns:
    • Individual income tax returns
    • Trust tax returns
    • Gift tax returns
    • Estate tax returns (generated by a prior marriage)
  • An up-to-date list of all major personal and financial assets (description, location, account numbers, and contact information)

Individual Income Tax Return Requirements

  • Year of Death

The surviving spouse is considered married for the entire calendar year and will therefore either file Married Filing Joint or Married Filing Separate. This return will report the decedent’s income from January 1 through their date of death. 

 

  • Subsequent Years 

Beginning the year after death, the surviving spouse typically files as Single. However, for up to two years following the year of death, a surviving spouse with a dependent child may qualify to file as a Qualifying Surviving Spouse; this allows use of married filing joint return tax rates and the highest standard deduction (if not itemizing).

Other Tax Returns and Elections

  • Trust Income Tax Return (Form 1041)

If a deceased individual has a Revocable Living Trust, the trust may be required to file a separate income tax return, Form 1041, if post-death gross income is greater than $600.

Key points:

    • Income will need to be allocated between Form 1040 and the initial Form 1041.
    • Form 1041 reports income earned by the trust from the date of death through the end of the calendar year, e.g. interest, dividends, rents, and capital gains.
    • If the trust made distributions to beneficiaries, each recipient will receive a Schedule K-1, which outlines income, deductions, and tax credits. These amounts must be reported on the beneficiary’s personal income tax return.
    • The trust is responsible for paying income tax on any undistributed income retained within the trust. 
  • Estate Income Tax Return (Form 1041)

If a deceased individual left behind assets that were outside of the trust, and continued to generate income after death, the estate may be required to file Form 1041 if post-death gross income is greater than $600.

Key points:

    • Income will need to be allocated between Form 1040 and the initial Form 1041.
    • Form 1041 reports income earned by the estate from the date of death through the selected fiscal year-end, e.g. interest, dividends, rents, and capital gains.
    • If the trust made distributions to beneficiaries, each recipient will receive a Schedule K-1, which outlines income, deductions, and tax credits. These amounts must be reported on the beneficiary’s personal income tax return.
    • The estate is responsible for paying income tax on any undistributed income retained within the estate. 
  • Section 645 Election
    • If both an estate income tax return and a trust tax return are otherwise required, the surviving spouse may choose to make a Section 645 election. This allows for the filing of a single consolidated Form 1041 using a fiscal year-end, helping to streamline and simplify the overall tax reporting process. This is something to consider if assets are expected to be distributed within one year of the date of death.
  • United States Estate Tax Return (Form 706)
    • Form 706 – is typically required in the following situations:
      • Estate Value Exceeds the Federal Exemption – This form must be filed if the gross estate, plus adjusted taxable gifts and applicable exemptions, exceeds the federal estate tax exemption for the year of death.
      • For deaths occurring in 2025, the exemption is $13.99 million.
      • For 2026, it increases to $15 million.
  • Electing Portability
    • If the estate is below the exemption amount, Form 706 may still be filed to elect portability — allowing the surviving spouse to claim any unused portion of the decedent’s exemption.
    • Portability is not automatic. A Form 706 must be filed to elect portability.

Required Minimum Distribution (RMD)

  • If the deceased was of the required age and had not yet taken their required minimum distribution (RMD) for the year, the beneficiary must ensure the distribution is made by year-end.
  • If the spouse is the designated beneficiary, remaining RMDs are distributed based on the spouse’s life expectancy, allowing for a longer payout period and potentially lower annual distribution requirements.

Selling Primary Residence

  • If a primary residence is sold within two years of a spouse’s death, the surviving spouse may qualify for a $500,000 capital gain exclusion, assuming the home meets ownership and use requirements.
  • If the home is sold after two years, the standard exclusion amount drops to $250,000, the standard amount for single filers.
  • For jointly held real estate, the surviving spouse receives a partial step-up basis, which is calculated as:
    • One-half of the fair market value (FMV) at the date of death plus one-half of the cost basis. 

While death and taxes may be unavoidable, navigating them doesn’t need to be overwhelming. With thoughtful planning and guidance from trusted professionals, families can safeguard their loved ones, preserve legacies all while avoiding costly surprises. The most vital step? Don’t delay. Begin conversations with your spouse and family now, so you’re prepared when it matters most.

 

 

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