regarding: If the property were distributed from the estate to the surviving spouse - even for a nano-second before the close of escrow, making the surviving spouse the seller,  would Sec 121(b)(4) apply?  

I need to clarify a couple points.  When someone died without a will, the state law determines who gets the goodies.  Years ago, I was involved in a trust where a beneficiary died without a will.  I remember the distribution from the trust went 50% to the spouse (widow) and 50% to the mother.   I don't know if that's still the CA law.  I rely on the attorney and strictly go by the rule of "don't play lawyer"...

Regarding @rbynaker 's suggestion, a practical problem could be that, with the other assets, the estate might not be ready to close by 11/2023. 

One possibility is to do a retrospective appraisal to ascertain the "true"

FMV.  But then, was a 706 filed?