01When Is an Estate Subject to the Vermont Estate Tax?
If the decedent was a resident of Vermont at the time of death, the estate may be subject to the Vermont estate tax if the federal gross estate exceeds $2,750,000 on the date of death or if the estate is required to file a federal estate tax return, IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return.
For nonresidents of Vermont, an estate may be subject to the Vermont estate tax if it includes Vermont sitused property (real estate, tangible personal property, and/or income-producing property sitused in Vermont) and the federal gross estate exceeds $2,750,000 on the date of death or if the estate is required to file a federal estate tax return.
Note: The Vermont estate tax exemption was increased to $2,750,000 on January 1, 2011. Prior to this date, the exemption was as follows:
- 2006 - 2010 = $2,000,000
- 2004 - 2005 = $1,500,000
- 2002 - 2003 = $1,000,000
- 2001 - 2002 = $675,000
02What Vermont Estate Tax Forms Must Be Filed?
The personal representative or other fiduciary representing an estate that is subject to the Vermont estate tax must complete and file the Vermont Estate Tax Return, Form E-1.
Additional documents that must be filed with the Vermont Department of Taxes when a Vermont Estate Tax Return is required to file are as follows:
- If no federal estate tax is due and no federal estate tax return (IRS Form 706) is required to be filed, nonetheless the estate representative must complete and file a pro forma IRS Form 706, including all exhibits and appraisals, with the Vermont Estate Tax Return.
- When federal estate tax is due and all assets are located in Vermont, the first page of IRS Form 706 must be included with the Vermont estate tax return.
- When federal estate tax is due and some assets are located outside of Vermont, IRS Form 706 must be attached to the Vermont Estate Tax Return, but excluding exhibits and appraisals.
- A duplicate of the estate tax closing letter issued by the IRS must be filed with the Vermont Department of Taxes.
03Are Transfers to a Surviving Spouse Taxable?
Outright transfers to a surviving spouse are not taxable.
For married couples who have used AB Trust planning to reduce their federal estate tax bill, a Vermont death tax may be due on the B Trust after the first spouse's death due to the gap of $2,500,000 between the Vermont exemption of $2,750,000 and the 2013 federal exemption of $5,250,000. While some states allow a married decedent's estate to make an election to treat a trust of which the surviving spouse is the sole beneficiary as "qualified terminable interest property" ("QTIP" for short) for purposes of calculating the local estate tax, Vermont law does not specifically allow for this.
However, one commentator on Vermont estate taxes has stated that "representatives of the Vermont Department of Taxes have stated informally that Vermont will recognize whole or partial QTIP elections for properly drafted trusts as long as the election is, or would be, binding for both federal and Vermont estate tax purposes." Thus, married Vermont residents should consult with a Vermont estate planning attorney to determine if they can incorporate ABC Trust planning into their estate plans.
04When Are the Vermont Estate Tax Return and Tax Payment Due?
The Vermont Estate Tax Return, Form E-1, must be filed, and any estate tax due must be paid, within 9 months of the decedent's date of death. An extension of time to file the Vermont Estate Tax Return does not extend the time to pay, so an estimate of the estate tax to be due must be paid with the extension of time request.
05Where Are the Vermont Estate Tax Return Filed and Tax Payment Made?
Mail all required forms and any payment due to:
Vermont Department of Taxes
133 State Street
Montpelier, VT 05633-1401
06What Is the Vermont Estate Tax Rate and How Is the Tax Calculated?
In May 2016 the Vermont legislature voted to change how the estate tax is calculated. For those dying on January 1st of 2016 or after, the estate tax only applies if the value of the estate is $2.75M or over. The tax is calculated based on the amount over $2.75M, not from the first dollar. A flat tax rate of 16% applies and gifts made within two years of death will be added back.
Page 4 of the current Vermont Estate Tax Return, Form E-1, contains "Computation Schedules" for calculating the Vermont estate tax bill for residents and nonresidents.
07Where Can I Find Additional Information About Vermont Estate Taxes?
For more information about Vermont estate taxes, refer to the Vermont Department of Taxation's website.
You may also call the Vermont Department of Taxation at (802) 828-6820.
08Does Vermont Collect an Inheritance Tax?
No, Vermont does not collect a local inheritance tax, which is a tax assessed against the share received by each individual beneficiary of an estate as opposed to an estate tax.
Overview of Vermont Estate Tax Laws
Understanding How Vermont Estate Taxes Affect an Estate
If you live in Vermont, then you live in one of a handful of states that still collect a local death tax. The estates of Vermont residents, as well as the estates of nonresidents who own real estate and/or tangible personal property and/or income-producing property located in Vermont, are subject to a local death tax under the following guidelines.
NOTE: State and local laws change frequently and the following information may not reflect recent changes. For current tax or legal advice, please consult with an accountant or an attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.