1. What is an estate tax?
An estate tax is a tax imposed by a state or federal government on the right to transfer property to your heirs after your death. As of January 1, 2012, the District of Columbia and the following states impose a separate state estate tax: Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Rhode Island, Tennessee, Vermont, and Washington. Refer to the State Estate Tax and Exemption Chart for a list of each state's estate tax exemption. With regard to the federal estate tax, the exemption was $5,000,000 for 2010 and 2011 and $5,120,000 for 2012, but it is scheduled to decrease to $1,000,000 on January 1, 2013.
2. What is an inheritance tax?
An inheritance tax is a tax imposed by a state government on the privilege of an heir to receive a deceased person's assets. The following seven states collect an inheritance tax - Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. In all seven states assets left to a surviving spouse are exempt from the tax, but only four states exempt transfers to descendants. Note that Tennessee collects what is referred to in its state statute as an inheritance tax, but the tax is based on the value of the decedent's property, not on who receives the property, so Tennessee is listed above in reference to estate taxes. Refer to the State Inheritance Tax Chart for more information about state inheritance taxes.

