Ever have that uncomfortable feeling that your friend and passenger would never sue you for something that happened in the airplane but that their spouse / family absolutely would??

That's exactly how it goes.  Take for example the 2010 Cessna 310 crash in Palo Alto. See Aviation Law Monitor Blog for details.  Here's a very quick and simple explanation of how litigation goes when pursued on behalf of someone who has passed away:

1. Start with the Estate (Probate). An "estate" is opened on behalf of the decedent.  This is not the plaintiff v. defendant lawsuit yet, it's just the administrative case before the court to act on behalf of the decedent.  In California, and many other states, we call this a "probate" case.  If the decedent had a Will, it should nominate a person(s) to handle/settle the estate - also called the "executor".  I like to explain the "executor" as the person who has the court's authority to "execute" (fancy word for signature) and sign on behalf of the decedent.  As you can imagine, once someone passes away, they can't sign transfer documents for their assets, payments for their debts or... in this case, engagement letter of counsel to act on behalf of the estate and a complaint against a pilot, aviation companies, etc. who wronged the decedent.  These things are signed by the executor of the estate. If the decedent died without a Will, (this is called dying "intestate"), then the person settling the state is called the more generic term "personal representative" but the functions are very much the same. 

Court caption looks like this: In re: Estate of Bob Smith, decedent

Executor signs documents like this:

      Estate of Bob Smith

      By: ______________________

            Nancy Smith, Executor

I like to explain the basic function of the executor as (1) collect assets; (2) pay off debts; and (3) pay out the balance to the beneficiaries / heirs.  The key concept here is that, along with the person's house, car, etc., the case against the pilot / aviation companies is one of the assets of the estate.

2.  Estate Sues Defendants.  Once the estate is opened, the executor has power to retain a lawyer and, if appropriate, file a lawsuit against negligent parties that may have caused the decedent to die ("wrongful death lawsuit").  The lawyer or firm the executor retains is known as "special counsel" to the estate. I've represented the executor on one aviation-related and one class action case recently where my executor retained special counsel to act on behalf of the estate to pursue litigation.  In both cases, a different law firm worked, negotiated and settled the case on behalf of the estate. 

3.  Estate Obtains Funds.  Once settlement funds were received, they go to pay court costs, the fees of the special counsel, and the balance was paid to the estate, reported to the court, approved by the court, and ultimately, distributed out to the beneficiaries / heirs. It took awhile and kept the estate open for a considerable time.  I didn't end up having to do it, but I recall finding some authority in California law that, if you have a long term lawsuit, you don't necessarily need to hold the probate open for it and that the probate could actually, theoretically, be closed and the lawsuit effectively "distributed" out to the beneficiaries / heirs to pursue themselves.  That may be a viable option to get other assets administered timely.

There's a lot more to it, but in a nutshell, this is how it works on the estate side of things. Note that you can have an estate open for a passenger(s) and for the pilot.  The passenger(s) estate(s) may be suing the pilot's estate if there are some assets there.  The pilot's estate would then retain defense counsel.  If there is insurance involved, such as liability for a Part 135 or Part 121 carrier, the pilot should be covered by the employer's policy.  On small aircraft / charter, the aircraft property insurance may cover the pilot.  This is where you would want to meet the insurance minimums, obtain the requisite hours and training in make/model and be sure you are named insured on the aircraft policy.  

Bottom line, if you have been nominated as an executor of a pilot or someone who died in an aviation accident, you need to start by opening a probate estate, then, after consulting with your counsel for the estate, decide whether it's appropriate and who to engage as special counsel and pursue a case on behalf of the estate.