I expect I'll inherit everything my folks own, apart from a few keepsakes for other family members. And if that comes anywhere near hitting the lower limit on estate taxes the resultant shock will bring my own last will & testament into play.

Happy Birthday Kat!

But as it stands now, if someone hands me a necklace which costs a million and five dollars, I only have to pay taxes on the five bucks.

If someone hands me money above a certain amount, whether it's my parents, my boss, or some random rich wacko who thinks I'm just that cute, I get taxed on it.

What it is, apparently, is if your parents (say) bought a bunch of IBM stock in the 60s (say), when you inherit the stock certificates, you pay taxes on today's value of the stocks even if you don't sell them. (Right?) Which to me sounds like bullshit. Do you pay again when you sell them?

But as it stands now, if someone hands me a necklace which costs a million and five dollars, I only have to pay taxes on the five bucks.

But only if the person is dead.

Isn't it income? If someone hands me money above a certain amount, whether it's my parents, my boss, or some random rich wacko who thinks I'm just that cute, I get taxed on it. Why would that change just because the giver is dead?

1. Gifts are not taxed until they reach a certain amount because, double dipping ($11,000/yr). Over that it's subject to a tax for the same reason as all the other double dipping taxes-- because they can tax it. But generally gifts are not considered taxable.
2. Wages are not taxable to the employer.

ETA: I made a mistake: the basis is not taxable to you.

if someone hands you a necklace of huge expensive diamonds or a racehorse or mansion or something and you have to sell it to pay the taxes on it

That's still looking like income to me. As I understand it, if I win a Ferrari on a game show, that's seen as taxable income. Why should that change if I was given the same car by a person who'd just died?

What it is, apparently, is if your parents (say) bought a bunch of IBM stock in the 60s (say), when you inherit the stock certificates, you pay taxes on today's value of the stocks even if you don't sell them. (Right?) Which to me sounds like bullshit. Do you pay again when you sell them?

Right, and you pay the capital gains when you sell them. I.e., I buy a stock for $60K. I die and you get the stock, now worth $300K. You pay estate taxes on $300K. You later sell them for $450K. You then pay cap gains tax on $150K.

Without the estate tax I think you would pay taxes on 450K-60K, or 390K, when the stock is eventually sold.

1. Gifts are not taxable until they reach a certain amount because, double dipping ($11,000/yr).

I thought that inherited income (however we're defining that--houses, cars, piles of gold doubloons) wasn't taxed until it reached a million.

Gifts are not inherited income as far as the tax law is concerned; it applies to gifts while the giver is still living.

I buy a stock for $60K. I die and you get the stock, now worth $300K. You pay estate taxes on $300K.

Inheriting is expensive, especially if the market crashes the day after you pay tax.