Will he have to pay inheritance taxes or IRs taxes or is there a better way of handle his inheritance?

While there will not be any estate tax if your estate is under $5,000,000.00, there will be income tax when he receives distributions from the IRA.

The estate tax has an exemption of $5,450,000 in 2016. (If Felony gets elected, her goal of more middle classes taxes promises to eliminate this exemption, so estate taxes will be a heavy burden for the little guy). At least for now, you don't have to worry about your grandson being hit with an estate tax. Distributions from IRAs are subject to income tax (unless it's a Roth IRA - which are currently not taxable but Felony has her eye on this as a possible source of taxes on the middle class). Generally, the first question is, "Are you making any gifts to charity in your will?" Because charities are tax free (charities are very rich and completely tax free but Felony doesn't want to tax them), if you give a charity your IRA there is no income tax. So if you want to give a charity $10,000 and you have $10,000 in the bank and a $10,000 IRS. Give the IRA to the charity and the bank account to your grandson.