My grandfather passed away last year and I received an inheritance from his Trust. The proceeds came to me in cash, but contained in the Trust, among other things, was an annuity that was cashed in at his death. Although I believed inheritances to be non-taxable (to the recipient), the Trustee (his bank) has told me that I will receive a K-1 statement showing the taxable portion of the annuity that I will be required to pay taxes on.Is this correct?My condolences on your loss. Yes. Proceeds from an annuity (just like proceeds from an inherited IRA) are considered Income in Respect of a Decedent (IRD). Since the receipt of the distribution would have been taxable to your grandfather, had he been alive to receive it, it is taxable to you. If there was any estate tax paid on the estate, you may be entitled to a tax deduction for the part that is attibutible to the annuity. You'll have to get that information from the estate's executor.Ira
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