What would you suggest for stocks that have unrealized gains that are put into a trust for a grandchild (or great-grandchild), circumventing inheritance taxes to some extent, and that are, perhaps, never sold except to rebalance the portfolio?

There are any number of (largely legal) 'tricks' for avoiding taxes and maximizing intergenerational wealth accumulation. Leaving unrealized gains untaxed just makes the whole mess worse.

We have an existing estate tax. It's not a novel concept.

[1] Under the “buy, borrow, die” strategy, a government may never get to tax the capital gains on an asset. Wealthy individuals, during their lifetimes, borrow against their stock holdings instead of selling them, and then bequeath them to children, for whom the capital gains basis is revised up to market value at the point of inheritance.

    if I understand correctly, you/your wife would have to pay capital
    gains on the stock when it is sold

    Because of this provision, any appreciation of the affected property
    that occurred during the decedent's lifetime will never be taxed.
    Thus, this provision provides an incentive for taxpayers to retain
    appreciated property until death and sell depreciated property while
    they are alive.

Hence why there's an estate tax.

[1] http://en.wikipedia.org/wiki/Stepped-up_basis

(Note: Wife may have been a bad example to start with due to legally shared property and all that, but this would be true if you left it to your children)

In practice huge amounts of capital gains are not taxed by either the capital gains tax or the estate tax.

Just because a stock is trading at price X at a particular time does mean that one can sell a million shares at price X. Thus if one has a million shares of that company, it is unfair to assume that they have X times a million of ready money. Thus, this tax is unfair and dangerous. It can easily cause a stock's price to collapse as an investor is dumping shares to pay the IRS.

Furthermore, it will probably cause more large companies to go private, which will result in great inefficiencies in our economy.

The problem here is that certain people are trying to think up some weird exotic tax which will satisfy the popular desire to tax the rich more fairly and yet leave those certain people untaxed.

As far as the supposed unfairness of the examples provided by the article that is caused by a loophole that happens at death more than anything else. It seems that when someone dies their heirs get to have a higher basis on their assets without paying any income tax on the asset gains. We can easily close this loophole without enacting new exotic taxes. You can simply make it so dieing does not result in increasing the basis, which is the logical thing to do anyways.

Or if they maintain ownership and sell it in 10 years when it’s worth 20,000$ they are paying 15% of 10k gains which is 7.5% of the total gains from your purchase.

PS: For the ultra wealthily there are other games to be played. ‘No forgiven debt is taxable if it was discharged in any type of bankruptcy.’ Play the game correctly and a loss can be deducted from both your and your parents future incomes. While gains are taxed normally.

Here's why that step-up doesn't really matter. For round numbers, let's imagine Bezos acquires shares of Amazon at $1 each. Fast forward a few decades and they're now worth $100 each. He's accrued $99 in taxable gains. But he blows up in space, so it's all left for heirs. At transfer, the cap gains part is thrown away. But this is only to avoid double taxation, as the heirs now pay 40% on current market value for assets > $1m. Making them pay 20% CG on $99 and 40% would be far too high. So the gov lets them only pay 40% on ~$100, which is roughly 2x the total receipts.

(If the assets are left in trust, you can avoid the estate taxes. But then you're back to paying cap gains when the money is withdrawn.)

EDIT: Technically it's assets over $1m + other exemptions and deductions. In practice it kicks in more like $10-12m depending on particulars. But the amounts in question here are way, way above that baseline.

That being said, the estate tax would kick in for everything over 11m, so he'd have to use other tricks to work around that limitation.

Or am I missing something?

Say you invested $22 and bought one Apple stock at IPO. Thanks to splits you now hold 224 stocks each worth some $210. Let's presume you die. Your heir inherits 224 stocks at $210 and so if they sell them at $210 then no taxes are paid.

This is how the rich avoid paying taxes: they take bank loans secured by their stocks which are only paid back by their heirs using this scheme.

Jeff Bezos is worth $200B. If he died, his estate would have to pay 40% estate tax on $195B in assets (first ~$5M being exempt), which is $78B in tax. That's still a hell of a lot tax. I know there were some loopholes used by the Walton family and other super rich, but isn't the above how it's supposed to work?