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In this paper we consider a state estimation problem over a wireless sensor network. A fusion center dynamically forms a local multi-hop tree of sensors and fuses the data into a state estimate. It is shown that the optimal estimator over a sensor tree is given by a Kalman filter of certain structure. Using estimation quality as a metric, two communication schemes are studied and compared. In scheme one, sensor nodes communicate measurement data to their parent nodes, while in scheme two, sensor nodes communicate their local state estimates to their parent nodes. We show that under perfect communication links, the two schemes produce the same estimate at the fusion center with unlimited computation at each sensor node; scheme one is always better than scheme two with limited computation. When data packet drops occur on the communication links, we show that scheme two always outperforms scheme one with unlimited computation; with limited computation, we show that there exists a critical packet arrival rate, above which, scheme one outperforms scheme two. Simulations are provided to demonstrate the two schemes under various circumstances.