It's not the capital gains taxes that prop 58/etc allow you to escape, it's a reassessment of the valuation for property tax purposes. So in your example, the

It's not the capital gains taxes that prop 58/etc allow you to escape, it's a reassessment of the valuation for property tax purposes. So in your example, the inheritors get a house with a $500/yr property tax bill (1% of 50k) instead of a $10000/yr property tax bill. (1% of 1M) Meanwhile all their neighbors who had to buy their homes recently are paying that $10k/yr. The estate tax doesn't kick in until 5 or so million so the capital gains thing is mostly irrelevant.