" Corporations never die, so they never have to pay these taxes. Small family farmers OTOH... well they will be extinct under such a plan within a generation or two."
Good point, didn't think of that.
Instead of complex rules about what assets are exempt, I'd favor just a significant blanket exemption sufficient to cover small-time farmers and small businessmen. Say, no inheritance tax on the first $10m in assets, a small rate on $10m-$100m, and quite high rates thereafter. And eliminate all these shenanigans with trusts.
My rule is simple. If you can show that the property is tied to producing things either for a sole proprietorship or a family-run business (in any form), then it's exempt. I don't think the burden of proof needs to be very high. The key thing though is that mere rental businesses would not be. Land, capital, and means of production employed in production would be.
What I'd like to see is a 100% exemption from inheritance taxes for productive land and property (family owned businesses, business assets, office space for family or individually owned business and land contained thereon, farmland, etc), and a tax on income derived from renting out land and housing (this is designed to make it harder to make money from buying up housing to rent, and thus tilting the balance towards home ownership rather than renting). It would also help tilt the balance from corporate ownership to individual ownership of productive assets.