The Final Chapter of the Estate PlanAdministering the Estate After Both Parents Pass

12/9/2025 - By Julie Edwards, CPA & David Uslan

The passing of a second parent represents a pivotal moment in the administration of a family’s estate. For beneficiaries, often the children of the deceased, this event marks the beginning of a complex journey through legal, financial, and emotional responsibilities. Navigating these responsibilities is essential not only for honoring your parents’ legacy but also for ensuring legal and tax compliance.

In this post, we’ll explore the critical steps to take when managing a trust or estate in anticipation of a second parent’s passing. We’ll cover key planning strategies and compliance checkpoints to help families navigate this sensitive and important phase with confidence and care.

Assemble a Strategic Advisory Team

One of the most critical early steps in estate administration is establishing strong connections with the professionals who helped shape your parents’ estate plan. These individuals are not only familiar with the legal and financial framework of the estate, but they are also committed to honoring your parents’ intentions. Key professionals to engage with include:

  • Estate planning attorney – to interpret trust provisions and oversee legal filings
  • Certified Public Accountant (CPA) – to manage complex tax filings and elections
  • Financial advisor – to coordinate asset transfers, valuations, and liquidity planning

These trusted advisors serve as your support team, helping you avoid costly errors and make informed decisions during a time that can be both emotionally and administratively overwhelming.

Gather & Organize Key Documents

As a child anticipating the loss of a final surviving parent, one of the most important steps you can take is to ensure you know how to access the essential documents that will guide the estate administration process. Key documents to gather include:

  • 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 (filed by the deceased spouse, if any)
  • A current inventory of major personal and financial assets, including:
    • Login information such as usernames and passwords
    • Descriptions and locations
    • Account numbers
    • Contact information for institutions or advisors

Having these documents in place before your parent passes will allow you to act quickly and responsibly, ensuring that their estate is managed in accordance with their wishes.

Individual Income Tax Return Requirements

A final Form 1040 must be filed for the deceased parent, covering income earned from January 1 through date of death. This return is due by April 15 of the following year and will include deductions and credits the decedent had prior to passing.

Who Files the Final Form 1040?

The executor, administrator or personal representative of the estate is responsible for filing the final return. Additional IRS forms to consider:

  • Form 1310 is required if there is a refund on Form 1040. The form must be signed by the person claiming the refund before the IRS will process.
  • Form 56 is used to notify the IRS that someone has assumed financial responsibility – either as an executor, personal representative, or trustee. Filing Form 56 formally establishes the filer as the point of contact for all tax matters related to the estate.

Other Tax Returns & Elections

Trust Income Tax Return (Form 1041)

  • If the final parent to pass away had a revocable trust, the trust becomes irrevocable at the time of death and the trust may be required to file a separate income tax return, Form 1041.
  • Income will need to be allocated between the final form 1040 and the form 1041, depending on when it was earned.
  • If the trust distributed income to beneficiaries during the year, each beneficiary will receive a Schedule K-1. This document shows the beneficiary’s share of income, deductions, and credits and is used to report that income on their personal 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 the final parent to pass away left behind assets outside of a trust – such as bank accounts, investment portfolios, or rental properties – that continued to generate income after their passing, the estate may be required to file Form 1041. This applies if the estate earns more than $600 in gross income.

If the estate distributed income to beneficiaries during the year, each beneficiary would receive a Schedule K-1. This document shows the beneficiary’s share of income, deductions, and credits and is used to report that income on their personal tax return.

The estate is responsible for paying income tax on any undistributed income retained within the estate.

The sale of the primary residence often triggers the need to file an estate income tax return, particularly when the home is owned outside of the trust. If the property is sold before it is distributed to the beneficiaries, the transaction must be reported on the estate’s income tax return if the proceeds received exceed $600.

Section 645 Election

  • If both an estate income tax return and a trust tax return are otherwise required, a Section 645 election can be made to simplify the filing process. 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.

Estate Tax Return (Form 706)

  • If an estate tax return was filed following the death of the first spouse, a separate Form 706 must be filed upon the death of the surviving spouse. It’s essential to ensure that any unused portion of the first spouse’s estate tax exemption is properly transferred (ported) to the second spouse’s estate.
  • For deaths occurring in 2025, the exemption is $13.99 million.
  • For 2026, it increases to $15 million.

Inherited Retirement Accounts & Required Minimum Distribution (RMD)

  •  Most children who inherit an IRA from a parent are considered non-eligible designated beneficiaries and must fully withdraw the account within 10 years of the parent’s death.
  • In many cases a child who inherits an IRA is required to take annual required minimum distributions (RMDs) during the 10-year withdrawal period. However, there are some exceptions - if the beneficiary is a minor child, different rules apply until they reach the age of majority.

Sale of Primary Residence

  • If the last surviving parent lived in the home until their passing, and the property is inherited by a child or other beneficiary, the recipient receives a step-up in basis for tax purposes.
  • This means the property’s cost basis is adjusted to its fair market value (FMV) as of the date of the parent’s death.
  • When the beneficiary eventually sells the home, capital gains taxes are calculated based on the difference between the sale price and the stepped-up basis – often resulting in significantly lower taxable gains.
  • As stated above, the selling of a primary residence while still inside the estate will trigger the filing of an estate income tax return Form 1041.

Navigating the Transition with Confidence

Settling a trust or estate after the death of the last surviving parent is a deeply personal and legally complex process. Trustees and executors should also maintain open and consistent communication with beneficiaries. Keeping them informed, especially about timelines for distributions, tax filings, and asset valuations, builds trust, reduces confusion, and helps prevent misunderstandings as the estate is settled.

By understanding your responsibilities, from filing final tax returns to managing inherited assets, you can honor your parents’ legacy with care, clarity, and confidence. If you're unsure where to begin, start by connecting with your parents’ team of trusted advisors and reviewing the estate plan documents, they’ll be your compass in the months ahead. To learn more about Saltmarsh and how we can help maximize wealth succession, click here or contact us.

About the Authors

Julie Edwards, CPA

Julie is a supervisor in the Tax & Accounting Services practice of Saltmarsh. She works with a wide range of industries, including construction, manufacturing, and high-net-worth individuals. She began her tax career in 2016 as a staff accountant and also worked as a senior accountant for a Georgia-based firm.

David Uslan

David is a partner with experience across tax, accounting, and advisory services. He began his career in public accounting over 30 years ago, focusing on serving high-networth individuals and growth-oriented companies. His primary areas of experience include providing tax and advisory services to clients in the software, real estate, private equity, professional services, technology, and creative services industries.

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