Are beneficiaries taxed on this?

Question

Story goes like this:

1.) Spouse dies

2.) Life Insurance is put in a money market (similar to a checking account) for surviving spouse. Surviving spouse pays no tax - except on interest.

3.) Surviving spouse dies.

4.) Checks are sent out to beneficiaries

Question:

Do beneficiaries pay tax on the checks?

Answer 1

yes they will. but mostly, it would have been deducted before the checks will be sent to the beneficiaries.

Answer 2

The funds would be added to the value of the estate and taxed as inheritance.  IF the estate isn't large enough for inheritance tax, then there would be no tax.