When receiving payments from a pension plan, the distribution will be taxable to the extent that it would have been taxable to the decedent. For example, if the funds are from pre-tax contributions that would have become taxable income for the decedent, they will be taxable to the recipient. If they were from post-tax contributions (or "Roth" contributions) then they generally will not be.
Most pension or other retirement plans offer the option to set up an Inherited IRA (also called a Beneficiary IRA) and allow the beneficiaries to receive the funds into a properly titled Inherited IRA account. This can allow for the tax burden to be spread over a number of years.
Since there is generally no way to correct a transfer like this if it is not handled properly from the start, it is important to find out what the plan allows before you submit your beneficiary claim. Since there are so many variables when it comes to pension plans, I would reach out to a qualified financial planner/advisor or accountant in your area - or at the very least speak to someone on the pension plan administration team to see if your situation allows for the Inherited IRA/Beneficiary IRA option.
If the funds are distributed to an Inherited IRA, you will also need to determine under which rules you fall for Required Minimum Distributions (RMDs) so that you don't miss those important deadlines. A local accountant or financial advisor can also help you determine your requirements for these distributions, which are currently expected to change in early 2023, with those changes affecting accounts inherited after 2019.
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