Seller financing & capital gains

[Andrew Bosworth]

Let's assume Mr. Property Owner offers seller financing on, say, a 20 year term and he passes away 10 years into the term.  

Question: Upon death, do the capital gains zero out for the sellers family, or will they continue to be responsible for capital gains on the remaining balance?  

In other words, does anything change for the sellers family from a tax perspective when the seller dies after offering financing?  The family hasn't inherited the property (unless the buyer defaults and it returns to the family), but they are now benefiting financially via monthly payments from the buyer.  Will this now be viewed as ordinary income for the family?  If it is considered a capital gain for the surviving family, would it be viewed as a short-term or long-term gain?

These are questions for my accountant (as I clearly am not one!), but I would appreciate others' feedback as well.  

Have you run into a similar situation?  What was the outcome?