I'm not a tax attorney, but this is what I have tracked down about the annuity...
From IRS Publication 525
Life Insurance Proceeds
Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract.Later in the same publication, it indicates that any interest received added to the amount after the death IS TAXABLE. So it appears that the sooner we get this settled, the better. Installment plans are even more complicated, so I've decided to go with the lump sum. This also probably means that if you don't owe any taxes and you don't want to have to wait on a refund, you can probably not worry about the company withholding any funds. [Just remember I'm not a tax attorney and I don't play one on TV!]
Just, FYI, while we don't have to pay any additional income tax as a result of inheriting the house (though this may only apply to Russell, since I'm not sure how the will reads), when we sell the property, the income generated by the sale of the hosue IS TAXABLE. So keep that in mind as you plan next year's tax (assuming the house sells during the next tax year).