Vermont does have an estate tax. It applies separately from the federal estate tax, exempts the first $5 million of an estate, and taxes every dollar above that at a flat 16%.1Vermont General Assembly. Vermont Code 32 – Section 7442a Imposition of a Vermont Estate Tax and Rate of Tax Vermont is one of roughly a dozen states that still imposes a standalone estate tax, and its rules create traps around the filing threshold, spousal planning, and gifts made shortly before death.
The $5 Million Exemption
No Vermont estate tax is owed on estates below $5 million. The exemption is not indexed to inflation, so its real value drifts down each year.2Vermont General Assembly. Estate Tax Overview
The Filing Threshold Is Lower Than the Exemption
This is where families get caught. A return is required even when no tax is due. The personal representative must file Vermont Form EST-191 if the deceased person had any interest in property located in Vermont and either:
- The federal gross estate plus federal adjusted taxable gifts made within two years of death totals more than $4.25 million, or
- A federal Form 706 is required for any reason.
An estate worth $4.5 million owes zero Vermont estate tax because it sits below the $5 million exemption, but the return still has to be filed. Skipping it because “no tax is due” can trigger the same late-filing penalties that apply to taxable estates.3Department of Taxes. Estate Tax A complete copy of federal Form 706 must be attached to the state return even when no federal tax is owed.
How the Taxable Estate Is Calculated
The starting point is the federal gross estate. What Vermont pulls from that number depends on whether the deceased person was a Vermont resident.
Residents
For a Vermont resident, “property located in Vermont” means every property interest except real estate or tangible personal property physically located outside the state at death.3Department of Taxes. Estate Tax Bank accounts, investment portfolios, and retirement accounts count as Vermont property regardless of where the financial institution is headquartered. Only out-of-state real estate and physical belongings kept elsewhere are carved out.
When a resident does own real or tangible property in another state, the tax on the full taxable estate is multiplied by a fraction: the Vermont gross estate over the federal gross estate. That prevents double taxation on property another state also taxes.1Vermont General Assembly. Vermont Code 32 – Section 7442a Imposition of a Vermont Estate Tax and Rate of Tax
Nonresidents
A nonresident owes Vermont estate tax only on real and tangible personal property physically situated in Vermont. A Connecticut resident who owns a vacation home in Stowe would have that home’s value pulled into the Vermont calculation. The same pro-rata fraction applies, so only the Vermont share gets taxed.1Vermont General Assembly. Vermont Code 32 – Section 7442a Imposition of a Vermont Estate Tax and Rate of Tax
Deductions
Before the rate applies, the estate subtracts property passing to a surviving spouse (the marital deduction) and property left to qualifying charities (the charitable deduction). These mirror the federal rules and can shrink or eliminate the taxable estate. An $8 million estate that leaves $4 million to a surviving spouse calculates tax on only $4 million, falling below the $5 million exemption entirely. Every value used on the Vermont return must match what was finally determined for federal estate tax purposes.1Vermont General Assembly. Vermont Code 32 – Section 7442a Imposition of a Vermont Estate Tax and Rate of Tax
Life Insurance
If the deceased person owned a policy on their own life, the full death benefit is included in the gross estate for both federal and Vermont purposes. A $2 million policy can push an otherwise exempt estate over the $5 million threshold. Transferring a policy to an irrevocable trust more than three years before death can remove the proceeds, but policies transferred within three years generally get pulled back in under the federal lookback rules Vermont incorporates.
No Spousal Portability
Federal law lets a surviving spouse claim the deceased spouse’s unused exemption, doubling the sheltered amount to $30 million in 2026. Vermont offers nothing similar. Each spouse gets a separate $5 million exemption, and any unused portion dies with them.1Vermont General Assembly. Vermont Code 32 – Section 7442a Imposition of a Vermont Estate Tax and Rate of Tax For married couples with combined estates above $5 million, this gap makes planning critical. Without a trust or other structure that uses both exemptions, the surviving spouse’s estate can face a Vermont tax bill that proper planning would have avoided.
The 16% Flat Rate
Once the taxable estate exceeds $5 million after deductions, Vermont taxes the excess at a flat 16%. There are no graduated brackets. An estate valued at $7 million after deductions owes 16% on the $2 million above the threshold, producing a $320,000 bill.1Vermont General Assembly. Vermont Code 32 – Section 7442a Imposition of a Vermont Estate Tax and Rate of Tax
The flat structure makes the math simple and unforgiving. An estate worth $5,050,000 pays $8,000. Jump to $10 million and the bill is $800,000. Nothing softens the blow for estates just over the line.
Gifts Made Before Death
Because Vermont’s calculation runs off federal values, the federal three-year lookback rule applies. If the deceased person transferred certain property interests within three years of death, the value comes back into the gross estate. This targets transfers of life insurance policies and relinquished powers over trusts. It also pulls in any gift tax actually paid on gifts made during that three-year window.4Office of the Law Revision Counsel. 26 USC 2035 – Adjustments for Certain Gifts Made Within 3 Years of Decedents Death
Ordinary gifts do not get pulled back. A $50,000 cash gift to a child two years before death stays out of the gross estate. The lookback targets specific transactions involving retained control or life insurance ownership, not simple cash transfers.
Vermont adds its own wrinkle. The filing threshold calculation counts federal adjusted taxable gifts made within two years of death, so gifts that aren’t pulled back into the gross estate can still trigger a filing requirement if they push the combined total past $4.25 million.3Department of Taxes. Estate Tax
Deadlines, Extensions, and Penalties
The Vermont estate tax return is due nine months after the date of death. Personal representatives can request a six-month filing extension using Form EST-195.5Department of Taxes. Tax Year 2024 Estate and Fiduciary Tax Forms The extension covers paperwork only. Payment is still due at the nine-month mark.
Miss the deadline and the penalty is 5% of the unpaid tax for each month or partial month the return is late, capped at 25%. If the return is more than 60 days overdue, a $50 minimum penalty applies regardless of whether any tax is owed.6Vermont General Assembly. Vermont Code 32 – Section 3202 Interest and Penalties Interest also accrues on any unpaid balance from the original due date at 7.75% for 2026.7Department of Taxes. Interest Rates
How Vermont Compares to the Federal Tax
The gap between Vermont and federal exemptions is wide. For 2026, the federal basic exclusion amount is $15 million per person, set by the One, Big, Beautiful Bill signed into law on July 4, 2025.8Internal Revenue Service. What’s New – Estate and Gift Tax Vermont’s exemption stays at $5 million. An estate worth $8 million owes nothing to the IRS but faces a $480,000 Vermont bill.
Federal law’s spousal portability effectively gives a married couple up to $30 million of shelter. Vermont’s $5 million per person, with no portability, tops out at $10 million for a couple, and only if both exemptions are actually captured through proper planning. Families whose estates fall between $5 million and $15 million often find their entire estate tax exposure is a Vermont problem, which makes state-level planning as important as anything done at the federal level.