The estate tax (aka Death Tax) in the United States is a tax imposed on the transfer of the "taxable estate" of a deceased person, whether such property is transferred via a Last Will and Testament or according to the state laws of intestacy. The estate tax is one part of the Unified Gift and Estate Tax system in the United States. The other part of the system, the gift tax, imposes a tax on transfers of property during a person's life; the gift tax prevents avoidance of the estate tax should a person want to give away his/her estate just before dying.
The tax is imposed on other transfers of property made as an incident of the death of the owner, such as a transfer of property from an intestate estate or trust, or the payment of certain life insurance benefits or financial account sums to beneficiaries.

The Good News about Estate Tax

If an asset is left to a spouse or a charitable organization, the tax usually does not apply. And it is due to be phased out completely in 2010.

Inheritance Tax

In addition to the federal government many states also impose an inheritance tax. Inheritance Tax An inheritance tax is calculated on the portion of an estate given to an individual. It differs from an estate tax which is a tax levied on an entire estate before it is distributed. It is a state tax. Ten states still collect an inheritance tax. They are: Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania and Tennessee. In all states, transfers of assets to a spouse are exempt from the tax. In some states, transfers to children and close relatives are also exempt.