Client (who is married) passed away with an annuity: cost basis 130k, cash value of 138k and death benefit of 164k

If we transfer the 164k death benefit out of the annuity to another annuity or managed account:

1. is the difference between the death benefit and cost basis taxable to the spouse’s bottom line income of $34,000?

or…

2. since she is the spouse, she can transfer the death benefit to either another annuity or managed account with out getting hit with the 34k of taxable income?

Thank you,
Douglas