Estate Tax

In May of 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 will only apply if the value of the estate is $2.75M or over.  The tax will be calculated based on the amount over $2.75M, not from the first dollar as it was previously.  There will be a flat tax rate of 16% and gifts made within two years of death will be added back. For more detailed information, you can refer to the corresponding legislation, Act 146.

When a person dies, the person’s estate is responsible for filing:

Filing a Vermont Income Tax Return

Who Needs to File a Vermont Income Tax Return?

If a deceased taxpayer received Vermont income between the beginning of the taxable year and the date of death and is required to file a federal income tax return, a Form IN-111, Vermont Income Tax Return, also must be filed on the behalf of the deceased taxpayer. The return, reflecting income received from January until the date of death, should be filed with the Vermont Department of Taxes, along with payment for any tax due.

To claim an income refund on the deceased taxpayer’s behalf, attach one of the following documents to Form IN-111:

Probate Estate and Tax Clearance

When the deceased person owns assets in his or her individual name, an estate must be opened in a Vermont probate court.

The probate court requires a tax clearance from the Vermont Department of Taxes to close the estate. Complete Vermont Form E-2A, Vermont Estate Tax Information and Application for Tax Clearance and Instructions, for this purpose.

The Department will not issue a tax clearance until all required Vermont tax returns are filed, which may include one or more of the following:

  • Income Tax Return for current and (if applicable) prior year
  • Fiduciary Tax Return (except final return)
  • Estate Tax Return

What Is Estate Tax?

Vermont collects a tax on the transfer of a Vermont estate of resident and nonresident deceased persons. Generally, Vermont Form EST-191, Estate Tax Return, must be filed if the deceased person has an interest in property located in Vermont and either (1) their federal gross estate plus federal adjusted taxable gifts made within two years of their death is worth more than $2.75 million, or (2) they are required to file federal Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return. For Vermont resident decedents, property located in Vermont means all property interests, excluding real or tangible property located outside of Vermont at the time of death. For nonresident decedents, intangible property is also excluded.

Year of Death Gross Estate Value Exceeds
2000 & 2001 $675,000
2002 & 2003  $1,000,000
2004 & 2005 $1,500,000
2006-2010 $2,000,000
2011-2015 $2,750,000
Year of Death Value of GROSS ESTATE Plus Adjusted taxable Gifts Made within Two Years of Death EXCEEDS
2016- $2,750,000

Terms

Resident Estate is the estate of a decedent who was domiciled in Vermont at the time of death.

Vermont Income of a Resident Estate or Trust is the adjusted gross income of a resident estate or trust less income exempted from state taxation under the laws of the United States. 32 V.S.A. § 5823

Vermont Income of a Nonresident Estate or Trust is the sum of the following items as long as they are required to be included in federal adjusted gross income:

  • Rents and royalties from ownership of property located in Vermont
  • Gains from the sale or exchange of Vermont property
  • Wages, salaries, commissions or other income received for services performed in Vermont
  • Income from every business, trade, profession or occupation conducted in Vermont, including money received:
  1. under an agreement not to compete with a business operation in Vermont,
  2. for goodwill associated with the sale of a Vermont business, or
  3. for contractual services associated with the sale of a Vermont business, unless it is shown that the compensation for services does not constitute income from the sale of the business.
  • Vermont income previously deferred under a non-qualified deferred compensation plan and income derived from such previously deferred income.
  • Examples of other income: gambling winnings including lotteries, raffles, or a lump-sum payment from the sale of a right to receive a future lottery annuity.