Why not just tax them when they are realized? After all, that's when the heir will actually benefit from them. I see no reason to keep the tax linked to someone's death.
>> Why not just tax them when they are realized? <<
Certainly would be better than taxation at time of death. Moreover, I’d want to institute a “rollover exemption” for ALL capital gains, not just those gains tied to a deceased owner.
But I suspect those ideas are much less politically feasible for the time being than would be a straightforward substitution of capital-gains-at-death for the current estate tax. I think a half-loaf now might be much better than waiting 10 or 15 years for a full loaf!
I guess if the asset is being transferred intact to a single heir, you could simply transfer it at the cost basis, rather than at the current value basis.
Although from a practical perspective, it’s hard enough for a person to keep track of their own cost basis for everything they own (especially for things like mutual funds or stock funds where the dividends are reinvested) — I’d hate to have to track that information across generations.
Still, you could allow the inheritor the choice; let the estate pay tax to the current value and then inherit, or inherit at the cost basis determined by the estate.
I was thinking more about liquidation when I suggested taxing the untaxed portion.