Can I have the estate pay the state and federal taxes (via withholding or paying it via the estate tax return) and therefore, have the distribution of the estate be completely tax free to my sister and me since the taxes have been paid on the? Yes you can IF you want the distribution taxed at the estate tax level with is very high. I highly recommend you seek local professional assistance to see how much taxes will be paid at the estate level or the personal level and then make your decision.
