1099-R for 1041 and K-1 Income

[ktWinks]

I was trying to find out about the income reported on an estate's K-1 and the tax ramifications it has on the beneficiaries.  The estate is closed, but after closing it received a 1099-R for a death benefit from a retirement fund (the administrator was informed this was a life insurance policy and therefore not taxable, but this was misinformation).  Regardless, the 1041 is being amended along with the accompanying K-1's, but the death benefit was already taxed prior to being sent to the estate, and when it's reported on the 1041 and the resulting K-1's, it's creating a very large tax owed for the beneficiaries.  I thought that inheritance to beneficiaries, even when it comes from an estate, isn't considered taxable income.  Is this incorrect? 

[MarilynG1]

Income report on Schedule K-1 from an estate is taxable income. 

As the trust or estate beneficiary, you must include the amounts reported on your K-1 on your personal income tax return. Your K-1 will report each type, or character, of income you receive in various boxes of the form. For example, box 2a shows the amount of your income from ordinary dividends, and box 2b has the amount of box 2a that is qualified dividends.

When you report these amounts on your 1040, you’re able to take advantage of the lower rates of tax that apply to qualified dividends for the amounts reported in box 2b. Some of the other income categories reported on the K-1 include interest earnings, long-term and short-term capital gains, ordinary business income, and rental real estate income.

Click this link for more info on Schedule K-1.