At the Federal level, if you receive less than $1 Million, then you will not be subject to any inheritance taxes.

You will be taxed on the gain and then it is split between your brothers and sisters.

You will be taxed on the entire lump sum amount. Annuities are tax deferred which means when your father created the account, he did it without paying taxes on the money that went into it. Now that the money is coming out, it will be taxed. Its not that you inherited the money. Its because the money was never taxed in the past and is subject to taxation now.

If you had taken a longer distribution, the taxes over time would be the same, but taking a lump sum means you will owe taxes on the full amount for the tax year. You can pay these taxes when you normally pay your other taxes. It would be filed with your regular income as IRD income or income "in respect of the decedent" (your father).

If you're the kind of person who spends money quickly, reserve at least 30% of that inherited income to make sure you have enough to cover federal taxes. You need to check with your state and local taxing bureaus to find out if additional taxes will also come out of that annuity in addition to the federal taxes.