Vermont Estate Tax Update

Vermont Department of Taxes imposes an estate tax on the transfer of Vermont estates of decedents dying while a resident of Vermont*. Currently, Vermont law provides for a $2,750,000 exemption from an estate tax. Estates are subject to a 16% tax on the value of assets exceeding the exemption amount. For example, a Vermont resident dies in 2019 with a taxable estate of $3,750,000, the Vermont estate tax would be $160,000, or 16% of $1,000,000.

On June 18, Governor Scott signed H. 541, a bill with incremental increases to the Vermont estate tax, as follows:  On January 1, 2020, the Vermont estate tax exclusion will increase to $4,250,000.00 and will apply to estates of decedents with a date of death during the calendar year 2020.  Then on January 1, 2021, the estate tax exclusion increases to $5,000,000.00, and will apply to estates of decedents with a date of death on or after January 1, 2021.  Under the current bill, any estates of decedents with a date of death during the year 2021 or after will have an estate tax exclusion of $5,000,000.

The 2019 federal estate tax exemption (reduced by certain lifetime gifts) is $11,400,000, and the federal estate tax is indexed every year for inflation. Important to remember about the federal estate tax is the “portability” rules.  Portability provides for the transfer of a deceased spouse’s unused estate tax exemption (“deceased spousal unused exclusion amount” or “DSUEA”) to a surviving spouse (without inflation adjustments). This means that each spouse has a credit of $11.4 million, for a possible total of up to $22.8 million. This is only applicable to the federal estate tax as Vermont does not have “portability” of its estate tax.

*Non-residents of Vermont with estates over the Vermont estate exemption, may be subject to a Vermont estate tax if they own real property in Vermont.