It's easy to get overly complacent on the issue of estate and inheritance taxes.

Thanks to inflation, the federal estate tax exemption for 2012 is up-to $5.12 million for 2012 from $5 million in 2011, and that exclusion is portable between spouses. In other words, the unused portion of a person's exemption can pass to a spouse, making for as much as a $10.24 million estate tax exemption for subsequent heirs in 2012.

In many states, though, death taxes are a completely different ball game. The laws keep changing. Ohio has repealed its state estate tax for those dying on or after January 1, 2013. But at least 22 states and the District of Columbia still report some form of death taxes, according to information by McGuireWoods LLP, a Richmond, Va.-based law firm. So estates of clients with assets totaling more than $5.12 million, depending on where they live, risk owing combined state and federal death-related taxes as high as 50%.

But those combined taxes could get worse if Congress fails to act by 2013 and Uncle Sam returns to a 55% estate tax bite with an exclusion of only $1 million-up from the current 35%.

Meanwhile, death taxes are a flashpoint as states desperate for revenue come up against an anti-tax political climate.

The state death taxes have dealt a surprise dose of financial pain to those already dealing with the emotional anguish of losing family members. The heirs of wealthy Connecticut real estate developer Monty Blakeman, who died last April, were among those blindsided by state death taxes. Eleven days after Blakeman's death, Connecticut lowered its estate tax exemption threshold from $3.5 million to $2 million as part of its budget bill, and made the change retroactive to January 1, 2011. This reportedly saddled Blakeman's estate with an extra $100,000 in taxes the family did not anticipate. Blakeman's executrix Susan Coyle filed suit against the Connecticut Commissioner of Revenue Services in Superior Court, Milford, Conn.

Blakeman family attorney Stephen Bellis, of New Haven, Conn., contends the retroactive law is an "unconstitutional taking." The state has argued that retroactive taxes are common and have been upheld in prior court decisions.

Apart from Connecticut and Ohio, the Federation of Tax Administrators in Washington, D.C., says there was little earth-shattering reform in state death taxes in 2011. However, that's not to say the situation couldn't change fast if the economy fails to rebound or tax conservatives win 2012 elections.

"Somebody raised a question in Indiana about eliminating the inheritance tax," notes Verenda Smith, the FTA's senior manager of administration and policy.

Nevertheless, warns Danielle Mayoras, a Troy, Mich.-based legacy expert attorney and co-author of the book Trial & Heirs: Famous Fortune Fights, there is a lot more talk about trying to raise revenue through the states. "Now is a critical time for financial advisors to advise clients to meet with an estate planning attorney to find out what state [death tax] exemptions are," she says. "Illinois had an exemption of $2 million in 2009. They removed it in 2010 and brought it back in 2011."

Every state seems to be approaching the issue of death taxes differently, says Charles D. "Skip" Fox IV, a partner at McGuireWoods. "I don't know if you can say there are any real trends. Several states in the last couple of years have used the state death tax as a possible revenue-raiser."

For example, Delaware in 2009 reinstated its state death tax when it was trying to close a budget deficit. Illinois, he says, restored the state death tax when it raised its state income tax.

Vermont, which had a state death tax in 2009, lowered the threshold for state death taxes as part of an overall budget bill. Then, in 2010, Vermont increased the threshold-effective in 2011.

And effective January 1, 2012, Oregon replaced its inheritance tax with a stand-alone estate tax.

The good news: Overall, fewer people are subject to death taxes. "Most people who come in have no idea what state inheritance and estate taxes are," says Michael J. Garry, a Newtown, Pa.-based fee-only CFP and estate planning attorney. "They generally think the federal exemption is going up, but they don't exactly know what that means."

Garry says none of his clients has left a state fearing a steeper state death tax. But planning is important, he says. Pennsylvania, for example, has an "inheritance tax," which is very different from an estate tax, he notes. While an estate tax is generally placed on the estate transferred at death, an inheritance tax is imposed as a percentage of the value of the estate transferred to specific heirs, based on an heir's relationship to the person who dies. The highest taxes are generally assessed on transfers to more distant heirs.

In Pennsylvania, transfers to a spouse are not taxed. But there's a 4.5% tax on transfers to direct descendants and lineal heirs, a 12% tax on transfers to siblings and a 15% tax on transfers to other heirs (it excludes charitable organizations, exempt institutions and government entities). The estate pays these taxes, based on the total percentages, Garry explains.

Garry is careful to talk with clients considering a will about how the state's inheritance tax will affect them. If they're considering leaving assets to brothers or sisters who are not nearly as well off as they are, Pennsylvania's 12% inheritance tax on siblings might well impact that decision.

New Jersey, considered one of the nation's toughest states on death taxes, retains both an estate tax with a low $675,000 exclusion and an inheritance tax, Garry notes. Maryland, too, has both types.

Inheritance taxes, in the style of Pennsylvania's, were common in many states until the 1980s and 1990s. Then states found it less costly and easier to administer a simple credit or "pickup tax," based on the federal estate tax. But the Economic Growth and Tax Relief Reconciliation Act of 2001 phased out the state death tax credit allowed against the federal estate tax between 2002 and 2005. Still, not all the states eliminated state death taxes accordingly.

Beware that it's not only in-state property that is subject to state taxes, McGuireWoods' Fox says. A client may be a resident of a state, like Florida, that has no state death tax, but own a vacation home in another state, like New York. When the Florida resident dies, the New York home might be subject to New York taxes. "A trust will not solve this issue because it's really where the property is located," Fox says.

Some have tried sheltering homes in limited liability companies, which typically allow membership interests to be taxed in the state in which a person resides. However, Fox warns that Maine has gotten wise to this tactic. If a client has books, pictures, furniture or any other tangible property in a Maine home, that limited liability company is not recognized, he says.

Thomas Silverman, a Palm Beach Gardens, Fla., estate planning attorney, says he has been successful avoiding state death taxes with family limited partnerships, which operate similarly. The family limited partnership is more of a wealth transfer strategy than a business structure. Individuals transfer personal or business assets into a partnership and can grant limited ownership interests to children or other family members.

In fact, a few tactics combined-including a family limited partnership, a donor-advised fund and a revocable trust for jewelry-once helped save a $10 million estate about half a million dollars in Pennsylvania inheritance taxes, Silverman says. The cost: a realty transfer tax that ran about $13,000.

Silverman also saved a client from paying a prohibitive Iowa inheritance tax by putting the title to an Iowa farm in a family limited partnership. Now, however, he is into the second generation of estate planning with at least four families in the single family limited partnership. "We're thinking about whether to break up the families and form their own separate limited partnerships," he says. The reason: "If you have one environmental problem, everyone in the chain of title is liable."

Various versions of the death tax have been surfacing in legislatures in states hard up for cash-sometimes to no avail. In Florida, which has no state income tax or estate tax but a heavy population of seasonal residents, a bill calling for a retaliatory death tax died in two legislative sessions: The language would have imposed a tax for nonresidents on the transfer of Florida property-but only if the nonresident's home state imposed a death tax on Florida residents.

Financial advisors need to get in front of their clients and make sure they are getting legal help, Mayoras advises. Legal documents, like trusts, need to have special language to take advantage of the double estate tax exemption available to spouses. Such documents also need to account for state death taxes.

Plus, clients need to take advantage of all the gifting opportunities. Like the estate tax, the lifetime gift tax and generation-skipping taxes, respectively, also have exclusions of $5.12 million for 2012. So a client might consider giving away up to that amount in 2012 while alive, or risk owing taxes on amounts over $1 million at death, Mayoras notes.

"You might have a married couple with a $10 million federal exemption," Mayoras says, "but you don't stop to think that the state exemption might be $2 million or $1 million."