I'm not a tax attorney, although for some strange reason that I can't understand, my highest grade in a class in law school was in federal income tax. And I hated that class.
The issue is federal (and in some cases, state) income tax. Since the person is dead, the money in tax deferred accounts can't be seen as income, but the government still wants its share. So it's treated as tax deferred, and the person inheriting it simply treats it as earned income.
However, if there is any inheritance tax, that is settled by the estate before the distributions. The estate is the entity that pays the inheritance tax.
The only reason that I'm aware of this is that when an uncle died, his estate went through this exact situation. Nearly his entire estate was made up of tax deferred savings, and those who inherited money had to pay taxes on it.
I'm not a tax attorney, although for some strange reason that I can't understand, my highest grade in a class in law school was in federal income tax. And I hated that class.
That's weird, isn't it? When I was in college, I was a computer science major, but one of the best grades I got one year was in the Marxist Economics class! And I really hated that class. LOL Go figure!
Mark