Be wary of seeking advice on such a complicated legal matter online. I assure you that estate and gift tax law is riddled with hidden pitfalls.
To answer your question, both parties are liable for the tax. The giver is supposed to file a gift tax return and pay it. However, the IRS may seek out and collect from the recipient if this is not done. Note that certain transfers are exempt from tax and filing requirements. For instance, transfers to a spouse are generally tax free (problematic if spouse is not a U.S. citizen, though). Also certain educational and health care expenditures paid directly to the provider may be tax exempt. Basically, I would advise you to consult a lawyer or accountant for really significant transfers, particularly those that might get noticed.
There is a lifetime exemption on Estate and gift taxes up to a certain amount. There is an automatic yearly increase written into the code for this amount (I think it will be a million in 2006). When you give a gift exceeding $10K you probably won't pay any tax; you will merely erode this lifetime exemption by the amount of the gift over 10K. Basically, it may increase the amount of tax paid by your heirs.
Generation skipping is NOT an effective way of avoiding the tax. On the contrary, if a taxable gift or bequest is made to a person a specified amount younger than yourself, the money will be taxed as if it had been transferred twice. Note that there is a separate exemption for Generation Skipping tax that complicates matters.
The famous $10k yearly exemption only applies to transfers of present interests. This means that trusts must be prepared carefully to allow the recipient a right to immediately withdraw the money. If you want a trust, see a lawyer.
Also trusts can be used to aggregate the lifetime exemptions of two spouses. This is useful since spouses usually die at different times and the decedent wants the spouse to be able to use the funds while still gaining the exemption when the spouse dies.
The rules on ownership of life insurance are complex and REALLY easy to screw up. Please use a lawyer before trying this approach.
On a final note, gifts an bequests are generally not taxable as INCOME to the recipients. The income tax code exempts from income most purely donative gifts. I suspect that CA law is similar, but I'm not sure.
My advice to you is not to treat any advice (including mine) as gospel. If you are facing a really significant tax issue, you might want to contact an attorney.
To answer your second post, I would probably need more info. A death benefit would probably not be income though. Note that estates must pay income tax on money accrued after death.