Was the son ever employed by the company?  This sounds like "key person life insurance" (f/k/a "key man") and it also sounds like a whole-life policy that pays out at a certain age whether the insured is living or not.  If the company was the owner and beneficiary, the taxable amount (proceeds in excess of premiums) would be taxed to it.  They can't escape taxation simply by writing a check to the owner's kids.