Postmortem Estate Planning: Making Adjustments After a Loved One Passes Away

Estate planning usually focuses on what people do before death—wills, trusts, and strategies to protect assets and provide for loved ones. But is it possible to make adjustments after someone passes away?

That’s where postmortem estate planning comes into play. It refers to the legal, financial, and practical decisions made after death to manage and distribute an estate effectively. Whether you’re an executor, trustee, or a beneficiary, understanding postmortem planning can help reduce stress, protect family harmony, and optimize the financial outcome for everyone involved.

1. Probate and Trust Administration

One of the first steps in postmortem planning is determining how the estate will be managed: through probate or trust administration.

Probate is a court-supervised process for validating the will and distributing assets. If there is no will (intestacy), the estate is divided according to state law.
Trust administration applies when the decedent established a living trust. This typically avoids probate and allows the trustee to manage distributions privately.

Both processes involve collecting assets, paying debts, and distributing what’s left. The complexity and timeline depend on state laws, the size of the estate, and the clarity of the estate plan.

2. Tax Planning After Death

Postmortem tax decisions can significantly impact the estate’s financial outcome. Executors and advisors must often navigate:

Estate taxes: Federal estate tax applies to estates exceeding the exemption amount ($13.61 million in 2024). Some states also have their own estate or inheritance taxes.
Income taxes: Estates may generate income (from investments or property sales) and must file fiduciary income tax returns (Form 1041).
Tax elections: Executors may choose alternate valuation dates, elect portability (to transfer unused estate tax exemption to a surviving spouse), or structure distributions to minimize tax burdens.

Many of these decisions are time-sensitive—often requiring action within 9 months of death—making prompt consultation with a CPA or estate attorney crucial.

3. Disclaimers and Strategic Renunciations

Sometimes, a beneficiary may wish to refuse (disclaim) part or all of an inheritance. This strategy is often used for tax or estate planning reasons, such as:

Passing assets to the next generation (e.g., grandchildren)
Reducing estate tax exposure
Preserving eligibility for needs-based benefits

To be valid under IRS rules, a disclaimer must:

Be in writing
Be made within 9 months of the decedent’s death
Occur before the beneficiary accepts any benefits
Be irrevocable

Assets disclaimed are treated as if the original beneficiary had never received them, allowing the estate to “skip” them without triggering gift taxes. This tool can be highly effective when used early and correctly.

4. A/B Trusts and the Clayton Election

An A/B Trust is a common estate planning tool used by married couples to minimize estate taxes. Upon the death of the first spouse, the trust splits into two (or Three) parts:

A Trust (Survivor’s Trust): This trust holds the surviving spouse’s share of the estate and remains revocable. The surviving spouse has control over this trust and can make changes as desired.
B Trust (Bypass or Family Trust): This trust holds the deceased spouse’s share of the estate, up to the federal estate tax exemption amount. The B Trust is irrevocable and typically benefits the couple’s children or other beneficiaries.
C Trust (Qualified Terminal Interest Property Trust): This Trust qualifies for the marital deduction, deferring the estate tax and using the spouse’s lifetime exemption. The income, and possibly the principal, are for the benefit of the surviving spouse, while the remaining assets are distributed to other beneficiaries, such as the decedent’s children.

The primary advantage of an A/B Trust is that it allows the deceased spouse’s estate tax exemption to be utilized, potentially reducing estate taxes upon the surviving spouse’s death. However, assets in the B Trust do not receive a step-up in basis upon the surviving spouse’s death, which can lead to higher capital gains taxes for beneficiaries when the assets are sold.

Depending on how the Trust was written, the division between the A Trust and the B Trust might be mandatory, or the Trust can be written so that all of the assets go to the A Trust, except that if the surviving spouse disclaims some of the assets, those assets go into the B Trust.

This allows postmortem adjustments to the estate plan based on current circumstances, and may preserve wealth for the next generation by shifting assets outside of the survivor’s estate. At the same time, it defers or avoids the need for funding a B Trust if tax benefits are unnecessary.

Alternatively, the Trust may include a “Clayton Election“, whereby all of the decedent’s assets go into the B Trust, but the Trustee may elect to have some of the assets go into the C Trust. The C Trust qualifies for the marital deduction, and the assets receive a step-up in basis upon the surviving spouse’s death. As an added bonus, the Clayton Election can be made up to 15 months after the decedent passes away.

In summary, A/B (and C) Trusts, spousal disclaimers, and the Clayton election all offer postmortem flexibility that can dramatically affect estate tax exposure and how family wealth is passed on. Choosing the right strategy depends on asset levels, family dynamics, and current tax laws—making professional guidance essential.

5. Gifting Between Beneficiaries to Adjust Distributions

Estate plans don’t always reflect evolving family circumstances or the decedent’s verbal wishes. Sometimes, a beneficiary chooses to gift part of their inheritance to another person—typically a fellow family member or another beneficiary—to realign the distribution.

Why Beneficiaries Might Gift Inheritance:

A sibling or relative was unintentionally left out
To support a family member in financial need
To reduce tension or correct perceived inequities
The deceased expressed informal intentions not documented legally

Important Considerations:

Gift tax rules apply: In 2024, individuals can give up to $18,000 per recipient per year without needing to file a gift tax return. Larger gifts require IRS Form 709 and may count against the giver’s lifetime exemption.
No legal change to the estate plan: This is a personal decision, not a revision of the will or trust.
Timing of Transfer: If the gift is made after probate or trust assets are distributed, no documentation is required, but a simple letter or acknowledgement may avoid confusion. However, if the gift is made directly from a Trust or from the estate during probate, then additional documentation is required.
Tax impact: The recipient receives the gift with the giver’s cost basis, which may affect future capital gains taxes.

This approach provides flexibility after distribution but should be made with tax and legal advice to avoid unintended consequences.

6. Charitable Giving and Legacy Goals

Even if charitable gifts weren’t formally planned before death, families can still explore ways to honor the decedent’s values posthumously. Common options include:

Making gifts from the estate to a qualified charity
Creating a donor-advised fund (DAF) in the decedent’s name
Funding a scholarship, memorial fund, or religious organization
Donating appreciated assets to minimize taxes

These decisions can carry both emotional value and tax advantages for the estate or beneficiaries. However, charitable gifts must be structured properly to qualify for deductions and avoid complications.

Final Thoughts

Postmortem estate planning helps ensure that what happens after death reflects both the legal and personal intentions of the deceased—and that the process is fair, efficient, and respectful.

Even the best-laid estate plans can benefit from thoughtful adjustments once real-world family, financial, and tax considerations come into play. Whether you’re an executor, trustee, or a concerned family member, professional guidance can make a profound difference.