Your sister handled the accrued vacation/sick pay payout from his employer correctly.
Per IRS Publication 559, when a taxpayer dies during the year, the income received on behalf of the taxpayer after his/her death would be paid to his/her estate.
The income earned by the taxpayer while the taxpayer was still alive in the year of death would be filed on his final individual income tax return.
The estate is responsible for the payment of the decedent's final expenses and debts.
If there was a will in effect that the wife was to inherit at death all the assets of the decedent after his death, then it is up to her to carry out the wishes of the decedent in the will.
Your sister also probably needs to contact Probate to carry out that part of the estate actions, too.
In this situation, the estate bank account only earned less than $100, but the estate also earned the 1099-MISC, which is considered income also, which is probably enough to require the decedent's estate to file an income tax return, form 1041 for the year.
