My MIL passed away this year, she was in a MC facility. She passed in July of this year, she had an annuity and an insurance policy, part used for burial.

I remember I had to file my Dad's income taxes twice after he passed as he was getting dividends from stock until Probate was finalized two years later. It all depends on the amount as there is a minimum amount where one needs to pay income taxes. Thankfully, Dad's CPA helped me with these tax filings.

He was beneficiary of her insurance policy. If any taxes are to be paid, thats on your husband. But I don't think insurance policies are taxable.

Yes, he will need to file taxes depending on Moms income. Was she pulling from that annuity for her room and board? If so, that is now income that is taxable.

I would not worry too much about taxes right now. Not much you can do until all the tax info is in. I would not spend any of her money until you know what her tax debt will be. You may want to talk to a tax preparer versed in estates.

Its nice that your husband used the insurance money for Moms funeral but a beneficiary is not obligated to do this. The money is theirs. Does not need to be used on the holders debts.

Get expert legal advice.

As you need the answer to this regarding both state and federal taxes and the answer as regards your state's inheritance taxes, and the answer as to whether these funds represent an elder's estate or not, you really have yourself a legal question here that is individual to your state. You can't be "mistaken" or led astray by the opinions of Forums.
Sorry, but part of the inheritance here has to go to an hour of attorney time. Good luck. Hope you will update us as to what you find out.