My Father-in-law just died. My wife and her brother are the beneficiaries. Are the procedes from his annuity taxable income for them. Once his house is sold his total estate is worth about $ 400,000.00. He lived and died in NY and we live in Connecticut.

1. The estate is far less than the exemption amount, so there is no estate tax.
2. There is no federal tax on inheritances. Most of the states do not tax inheritances. For your state, check at the state web site.
3. The annuity may be taxable in the hands of beneficiaries. It receives the same treatment as it would have received in hands of the deceased.
4. For the property (house) the cost basis of the beneficiaries is the fair market value at the date of death. If you sell house at a later date and have a profit, then you must report it.
Your U.S. Tax Return: Tax on Inheritances (http://taxipay.blogspot.com/2008/02/tax-on-inheritances.html)