Q: My uncle died recently and had a will that named me as his executor. He had no children and left everything to me and 19 other nieces and nephews in equal shares. I was surprised to learn that our 87-year-old hard-working uncle, who kept to himself, drove an old car and rarely went anywhere, left a house, a small farm and bank accounts worth nearly $2 million. I went to a lawyer to help me handle the estate, and he told me that there would be no estate taxes, but there would be inheritance taxes. I don't understand the difference.

A: It's easy to get confused when talking about the various taxes that may affect the assets of an estate. In fact, estate, inheritance and death taxes are often used interchangeably, although they are quite different. The estate tax is one levied by the U.S. government on estates that exceed certain asset levels and is paid by the personal representative of the estate. Depending on where the deceased person lived, the state government may also levy an estate tax.

On the other hand, state inheritance taxes, if enacted, are assessed against the beneficiaries of the estate -- that is, you and your uncle's 19 favorite nephews and nieces.

For example, some states levy an "inheritance tax," which, in effect, is a tax paid by a beneficiary for the benefit of getting an inheritance. In some states, after an exemption, a beneficiary will be required to pay a percentage of what he or she receives. State inheritance taxes may be charged even though there is no estate tax.

On the other hand, the vast majority of estates are not affected by estate taxes. Those that are will be paying special attention to the scheduled estate-tax law changes. Today, an estate of more than $2 million is subject to federal estate taxes and will be required to file a Form 706 (Estate Tax Return).

In January, estates of more than $3.5 million will be subject to federal estate taxation. Unless something happens between now and then, the estate tax is to be repealed for only the year 2010, and the estates of some of those who die in 2010 will face a complicated "carryover basis" of property calculation.

While the year 2011 is scheduled to bring with it estate taxes on those who die leaving estates that exceed $1 million, most professionals don't believe that for a minute. In short, no one knows what the political climate and U.S. Treasury needs will bring.

Back to you and your uncle's estate: There are a few nontaxation issues that should be discussed.

Twenty people getting ready to each receive an undivided interest in a house and some farmland is a potential recipe for disaster. Unlike dollars and stocks, land sometimes can't be divided into 20 equal pieces despite the best efforts of appraisers and surveyors. Some parcels may include more trees; others may be partially in flood plains and not usable; still others may have more road frontage than others. For these and many other reasons, leaving land to beneficiaries in undivided interests may well lead to partition, a legal proceeding by which multi-owner property is sold at judicial sale.

For these reasons, without provisions in the will about what will happen if the beneficiaries can't agree on a division of the land, long and contentious litigation may replace the benefits of an inheritance.