An estate tax is a tax imposed on the assets of an individual after that individual’s death. All estates are potentially subject to the Federal estate tax. Many states impose their own, separate estate tax. Vermont is such a state.
Some years ago, Vermont uncoupled its estate tax from the Federal estate tax system. This meant that a separate Vermont estate tax is calculated for taxable estates. A Vermont estate is subject to taxation if the value of the estate exceeds $2.75 million. An estate is subject to Federal estate tax only if the estate exceeds $5.43 million. The amount which passes to heirs free from estate tax is often referred to as the “exclusion amount”. The Federal exclusion amount is indexed for inflation. The Vermont exclusion amount is not.
The value of most estates does not approach the Federal exclusion amount. But the disparity between the two estate tax systems requires many Vermonters to establish estate tax plans solely for the purpose of minimizing the Vermont estate tax. Because of differences in the Federal and Vermont estate tax laws, this is especially the case for married couples.
S.55 passed the Vermont Senate on April 2, 2015. Among other things, this bill addresses the difference in the exclusion amounts. If the bill is enacted as currently written, the Vermont exclusion amount will increase to $3.9 million for persons dying after December 31, 2016, and will equal the Federal exclusion amount, as annually adjusted, for persons dying after December 31, 2018. S.55 also sets the Vermont estate tax rate at a flat 16%.
S.55, or a similar bill, if enacted, should simplify estate tax planning for many Vermonters as well as decrease the burden of filing Vermont estate tax returns. The bill is currently before the Vermont House Ways and Means Committee.
We will be following this and any related legislation to evaluate the effects on clients’ estate plans. Bergeron Paradis & Fitzpatrick offers the full range of estate and estate tax planning services, as well as trust and probate administration. Please do not hesitate to contact us if we can be of service.