No, There’s No Inheritance Tax in Vermont
Vermont has no inheritance tax but does levy an estate tax on estates over $5 million, emphasizing the need for strategic estate planning.
Here’s the quick answer on inheritance tax in Vermont: the state doesn’t impose one. Beneficiaries aren’t taxed by Vermont on what they receive. (Recipients pay an inheritance tax.) Vermont does, however, levy a separate estate tax that’s paid from the estate before distributions. (Estates pay an estate tax.) Vermont uses the estate tax.
Vermont’s Current Estate Tax, In Brief
- Exemption: $5 million. Amounts below that owe no Vermont estate tax.
- Rate: Flat 16% on the value over $5 million.
- Timing: Returns are generally due nine months after passing; extensions to file may be available (but not to pay).
- Portability: Vermont doesn’t offer it; each spouse has a separate exclusion.
Vermont has long favored an estate tax structure rather than a separate inheritance tax. Before the early 2000s, Vermont tied its system to the federal one as many states did. When that federal credit phased out, Vermont maintained its own stand-alone estate tax. (Something that only a few states have done.)
A 2016 law simplified the structure by applying a flat 16% rate above the exclusion, replacing prior brackets. Then, in 2019 (H.541), lawmakers phased in a higher exclusion—$4.25 million in 2020 and $5 million starting in 2021—where it stands today. So, the state has never been big on inheritance tax.
Key Takeaways
- There’s no inheritance tax in Vermont; the state relies on an estate tax instead.
- Vermont currently taxes only the portion of an estate over $5 million, at a flat 16%.
- The law moved to a flat-rate system in 2016 and raised the exclusion to $5 million by 2021.
Once you separate the concepts, inheritance tax in Vermont is simple. The state doesn’t tax beneficiaries, although it may tax larger estates. Therefore, a bit of early organization goes a long way.
(Learn More: Read about revocable trusts in Vermont versus Nevada.)