I don't see the problem. Sell the house, use the remaining cash to buy a smaller house. The whole point of the inheritance tax is that you're not entitled to the whole amount of the inheritance.

I agree and in cases where sentimental value is a real concern I think there are obvious problems with this sort of system. But I also think there are a lot of domains where this isn't really a concern such as patents.

> The classic example is the poor person who inherits a nice house but can't pay the inheritance tax (and/or subsequent propery taxes), and is thus forced to sell the house in order to pay the taxman.

This is an entirely separate issue but this also seems entirely solvable in our current system of inheritance tax. You should just inherit the original cost basis along with the asset. So if you don't want to sell your inherited house you don't have to. But if you do then your taxes should be paid based on the original cost basis.

Definitely true, but on the other hand, "sentimental value" seems to be the root cause of most societal housing problems. I don't want to speak with certainty, but I do wonder if society would achieve overall better outcomes if we shifted our mindset a bit.