Thanks. Let me clarify how it actually works and I'll edit my answer below. All income received after the date of death is income to the estate if it is taxable income.
If there is a state tax refund that would have had to be included as "taxable income" on the decedent's tax return, then it should be included on the estate tax return if received after the date of death. So, assuming the person itemized deductions on Schedule A on the 2015 tax return, that refund would be taxable income. If the person who passed did not itemize deductions on Schedule A, then it does not need to be included. This is rare if a 1099-G is issued.
Therefore, if you prepare a Form 1041 for the 2016 tax year (due in 2017) and a 1099-G is received, it is likely taxable income. This is true only if the decedent's final return had itemized deductions and a benefit for state income taxes paid were included on the Schedule A for that tax return. I hope this helps to clarify it for you.
