Just based on the facts as presented I'm not quite sure exactly how this was structured. Was this a life insurance that paid out in the form of an annuity? Or was it an annuity set up with the insurance company by your father-in-law which your husband now inherits?

Life insurance proceeds generally aren't taxable, so if this was a payout that is simply in the form of an annuity I would think it wasn't taxable. If it's an annuity that your father had, the taxes may vary depending on whether it was funded with pre-tax or after-tax dollars. Unfortunately, you may have to consult with an attorney or accountant regarding tax treatment, depending on the other relevant facts.

You cannot know the answer to this question without more information. An annuity usually has a "basis" -- the cost of purchasing the annuity. That cost wouldn't be taxable to the recipient.

For example, if the annuity had been purchased for $50,000 and you are now receiving $81,000, then only $31,000 would be taxable to you. It would be added to your other income. The company will normally allow you to request federal income tax withholding.

The other complicating factor is whether the annuity was part of a tax-deferred retirement plan. Sometimes annuities are purchased with IRA money, or rolled over from a pre-tax 401(k). In that case the whole amount would be taxable to you.

The company that is releasing the funds to your husband should be able to tell you more about the account and the cost of purchase.