If this is a substantial estate, or if there are any questions about how to deal with it, go directly to an accountant.

In the case of spouses, with a small estate, and without the myriad issues that estates cause, the second person inherited from the first person.  Most of that, except in the case of investments cashed in by mistake, would be tax free.

You will need to split the returns, and do the carry forwards and pension splitting, if any, manually.

The death benefit from the first individual would go to the second person.  The death benefit from the second person, as well as the estate go to the beneficiaries of the second person.