Inherited annuity tax rules

[nittanycheme]

My mother recently passed away.   Her estate is fairly simple, primarily consisting of a house, various bank accounts, a roth IRA, and some stocks, with one exception - she has an annuity.  I've been researching inheriting an annuity.  It looks like I need to pay taxes on the difference between the basis which she bought, and what its worth when I cash it out, even if the estate isn't subject to the rest of the federal inheritance tax.  Am I understanding that correctly?  Am I also understanding correctly that I don't have to roll it over into another annuity?  Its a pretty small annuity, as my mom didn't really have a lot of money so I'm not sure it would be worth it to me to pull it out over time; I think it only gained about $4k since she opened it in 2007.
And its such a pain that PA taxes ALL inheritances, no matter what size it is.