First, investment income DEPOSITED after death is reported on Form 1041 not Form 1040. (Doesn't matter that the instruments were in place and generating income before death, it's when they were deposited, received by the estate).
The life insurance policies (death benefit
proceeds from those policies paid to a beneficiary) are not taxable.
It sounds like some of the proceeds are return of principal,(CDs, Checking Accounts,etc.
Also the value of the assets and form 706 are estate (transfer) tax issues.
But the investment INCOME (not the CD principal, for example, but the Income from it (If earned by the estate and not the individual ...in other words, after death, but before the estate was closed) is what we're talking about here.
Its this issue that caused the probate court tot ell you that you needed a 1041, and an EIN ... because they saw enough income that they felt that there was estate income above the $600 number.
What I wold do is go to them and get them to define for you what they consider estate income, then if there is $600+, do the 1041 (and be sure to deduct it off the 1040)
I'm sorry for your loss, (and this doesn't make things easier, I know) but it appears that they have picked up on how many income producing instruments he had and are either guessing (and you may be able to prove them wrong) that there was more than 600 of interest that was credited after death.
Sorry for taking so long to get back. I was out on family business myself today./
Let me know if you have more questions.