Life insurance proceeds are not taxable. Estate taxes are paid by the state, not the person who inherits the money. However, some states tax inheritances received.
Generally, the trust/estate is taxed and the beneficiary receives its payments tax-free. That said, a trust or decedent's estate may elect to allocate tax to the beneficiary under IRC 643(g).
Life insurance payments are not taxable income for those who receive it, if they are the heirs. It is taxable income if the policy payments are to an investor.
