Who was the check made out to?

The 1099 was issued to the estate and direct deposited in the Estate bank account.

The estate

Did the estate hold on to the money or did it distribute the money to the beneficiaries?  If it did distribute the money, a K-1 would get generated from the 1041 and the income would flow to the beneficiary.

It has not been distributed.  But income tax was withheld.  Is it necessary to pay Estate tax at 40%  on amount of K1?  

THANK YOU SO MUCH FOR THE HELP

If it wasn't distributed it would be taxed at the fiduciary income tax rates.

Since the beneficiary would be inheriting the money, I assume no tax would be paid.  Is that correct?

Thank you.

You betcha!

If it didn't get distributed it's not on the K-1.

40% seems high, but entirely possible (income tax + NIIT). Are you talking 1041 or 706?

Form 1041