This all seems to benefit from low interest rates. Was it a thing in the 90's? Or even the 80s when rates were much higher?
(Also, if you live in the house for 2 years and then sell it, you can exclude $250K-$500K in gains, but that has nothing to do with inheritance).
Family farms are the sympathetic example of choice. Let's say your parent's family farm, that they started from nothing in the 1950s is now worth $20M. If you have to sell it to pay the taxes, because the estate doesn't have $4M to pay capital gains tax, plus $2M for estate taxes, then another family farm goes corporate.
Maybe you can inherit the capital property at the original owner's basis... then you'd only owe the cap gains tax if you sold it, and you'd have money to pay it because you sold it. That could work... although one nice thing about the step-up in basis on death is that nobody has to dig through to find the old records to establish basis when there's a clearly established death instead.