One step at a time. Since there were no beneficiaries named for the IRA, the estate is the taxable recipient of the IRA. I don't think this part is right, <<the custodian created an "inherited IRA" for the estate>>, but the end result should still be that the estate is the taxable recipient.

The estate should be the one issuing checks to the benes, not the custodian, but again, that is probably okay.

Since the estate is the beneficiary, it pays tax, if any. It depends on the terms in the will whether or not the estate distributes the money, resulting in zero tax to the estate and income (and possible tax) to the benes.

I hope the custodian didn't withhold any income tax on the IRA distributions. then it will get messy.

You are correct about line 8 of the 1041 and line 5 of the K-1s.