I believe they are marked-to-market as of the day of death for Federal estate tax purposes -- no tax due to the beneficiary. There may be state or local taxes due on the estate or the inheritance. The taxes for the decadent -- that might get a little complicated unless the date of death is 12/31/xx.
Plus all the distributions the decedent has received are not taxed as they've been classified as return of capital and not dividends. So the basis is reduced for every distribution and then the basis is reset at death. Seems very tax efficient for a taxable account.