Vermont has no inheritance tax but it does have its own estate tax. In this article, we go into detail about that tax, and break down the state’s other inheritance laws: what happens if you die in the state without a valid will, probate, what makes a will valid and more. If you want professional guidance for your estate planning then you may want to work directly with an experienced financial advisor who specializes in helping out with situations like yours.
Does Vermont Have an Inheritance Tax or an Estate Tax?
Vermont has no inheritance tax, but it does have an estate tax, in addition to the federal estate tax. The estate tax in Vermont affects the estates of state residents, as well as the estates of nonresidents who own tangible personal property, real estate, or income-generating property in the Green Mountain State.
Since 2011 estates with a value of less than $2.75 million do not have to file a Vermont estate tax return. If your estate is worth more than the $2.75 million exemption, the state taxes every dollar above that at a rate of 16%. There is no progressive rate or tax bracket involved. The estate tax is due within nine months of the estate owner’s death.
An extension on filing the estate tax return form doesn’t extend the time to pay, so an estimate of the estate tax due must be paid when a request for an extension is made. If you are inheriting property from another state, that state may have an estate tax that applies. You may also need to file some taxes on behalf of the deceased.
Other Necessary Tax Filings
Besides the state estate tax, there are other types of taxes that you might be liable for when inheriting property. It’s important to look out for the following:
- Final individual federal and state income tax returns: The federal and state tax returns are due by Tax Day of the year following the individual’s death.
- Federal estate/trust income tax return: Due by April 15 of the year following the individual’s death
- Federal estate tax return: Due nine months after the individual’s death, though an automatic six-month extension is available if asked for prior to the conclusion of the nine-month period. This is required only of individual estates that exceed a gross asset and prior taxable gift value of $11.58 million in 2020.
To file any of these estate-based returns, you’ll need to apply for an employer identification number (EIN) with the IRS. You can do this online, by fax or via mail.
Dying With a Will in Vermont
For a will to be valid in Vermont, you must sign your will in front of two witnesses, and those witnesses must sign your will in front of you and each other. Although you do not need a notary to make your will legal, a notary can allow you to make your will “self-proving.” A self-proving will speeds up the probate process because the court can accept the will without needing to contact the witnesses who signed the will. To make the will self-proving, you and your witnesses must each go to the notary and sign an affidavit proving who you are and that you know you were signing the will.
If you have two wills and it is unclear if the older will was revoked, Vermont law first has to determine whether your new will replaces the old will or adds to it. The state assumes you meant to revoke your old will if the new will disposes of all of your property. If you do not dispose of all your property in the new will, Vermont law assumes you intended to add onto your old will, rather than replace it. In this scenario, the executor will follow instructions in both wills. If there is a contradictory term, the executor must follow the instructions in the newer will for that particular clause.
Once the will is determined to be valid, the next step is the probate process. Generally, probate proceedings are only necessary if the deceased person owned any assets in their name only. Other assets, also known as “non-probate” property, can usually be transferred to the other owner without probate.
Vermont, which is not a Uniform Probate Code state, offers a simplified probate process for smaller estates. In order to qualify for the simplified process, the value of the personal property cannot exceed $10,000 in value. In addition, the decedent must be survived by a spouse, children, or parent, and have owned no real estate other than a timeshare at the time of death. To use the simplified procedure, the executor must file a written request with the local probate court asking to use this process. The court can then allow the executor to distribute the assets without going through regular probate.
To file the request, the executor must file an inventory of the estate, a receipt showing that funeral expenses have been paid, or proof that the executor secured a bond for the payment of funeral expenses. The executor can but isn’t required to, attach the will to the request. In order to close the estate, the executor has to give the probate court proof that funeral and burial expenses have been paid, and the property has been distributed according to the will’s instructions, or state law if there is no will.
Dying Without a Will in Vermont
If you die without a valid will, you’ll lose control over what happens to your assets after your death. Vermont inheritance laws label these types of estates “intestate,” which means there is no will, or no valid will. The court will then follow intestate succession laws to determine who inherits your assets, and how much they get.
If there isn’t a will, the probate court must appoint someone to serve as the executor or personal representative. Usually, the surviving spouse or adult child is chosen for this role. The executor or personal representative takes care of the estate of the decedent.
Although there are usually extenuating factors when someone dies intestate, it’s best not to put your loved ones through that kind of stress. If you’re not sure what kind of estate plan you want to make, you can seek the help of a financial advisor specializing in legacy planning.
Vermont Inheritance Law and Spouses
If you die intestate in Vermont, which is not a community property state, your spouse will inherit everything if you have no children, or if your only descendants are with your spouse. Descendants include children, grandchildren, and great-grandchildren.
However, if you have children from another relationship, they and your spouse will split the inheritance. Usually, the inheritance will be split equally. However, the surviving spouse can petition the probate court to take ownership of household goods, like furniture. The court will grant the spouse’s request unless any descendants object, in which case the court will decide who gets what. In addition, if the value of your estate is primarily a vessel, snowmobile, or all-terrain vehicle, your spouse will inherit the vehicle.
Children in Vermont Inheritance Law
If you have children but no spouse when you die intestate, your children will inherit everything.
|Intestate Succession: Spouses and Children|
|Inheritance Situation||Who Inherits Your Property|
|Children but no spouse||– Children inherit everything|
|Spouse but no descendants||– Spouse inherits everything|
|Spouse and descendants from you and that spouse||– Spouse inherits everything|
|Spouse and one or more descendants from you and someone other than that spouse||– Spouse inherits half of the property, can ask the court for all household goods|
– Spouse can also take ownership of a vessel, snowmobile, or all-terrain vehicle
– Descendants inherit the rest
Legally adopted children have just as much right to their intestate share as biological children do. In addition, if the decedent placed their child up for adoption and that child was adopted by another family, they are not legally eligible to receive an intestate inheritance from the decedent. However, foster children and stepchildren who were never legally adopted by the decedent are not eligible to receive a share as the decedent’s child.
Children born outside of marriage still receive their share as long as paternity was established under Vermont law. The decedent’s children can still receive their share even if they are born after the decedent’s death, as long as they survive at least 120 hours after birth. Grandchildren will receive a share only if their parent is not alive to inherit.
Unmarried Individuals Without Children in Vermont Inheritance Law
Intestate succession in Vermont if there is no surviving child or spouse is arranged as in the chart below:
|Intestate Succession: Extended Family|
|Inheritance Situation||Who Inherits Your Property|
|Parents||Parents inherit everything|
|Siblings, but no parents||Siblings inherit everything|
Although there is an intestate process designed to make sure your family inherits, it is generally best to write your own will. That way, you can ensure that all of your property ends up where you want it to after your death. If no eligible relatives can be found, your property will become the property of the state of Vermont.
Non-Probate Vermont Inheritances
The probate process can be costly and difficult. However, you have some options when trying to avoid probate in Vermont. These assets will also not be affected by intestate succession laws. Instead, they go directly to the named beneficiary upon your death. Listed below are some of the non-probate assets available in Vermont.
Other Situations in Vermont Inheritance Law
To inherit under Vermont’s intestate succession law, the heir in question must survive the decedent by at least 120 hours. Relatives conceived before you die but born after the decedent’s death are eligible to inherit as if they had been born while the decedent was alive, as long as they live at least 120 hours after birth.
There are some protections written into Vermont inheritance law. If someone is criminally responsible for your death, they will not receive a share of your property. Immigration status is irrelevant when it comes to inheritance. If a relative of yours is entitled to a share of your assets, they can inherit no matter what their citizenship status is. Half-relatives inherit as much as “whole” relatives. For example, your half-sibling would get the same share as any other sibling.
The Bottom Line
Vermont doesn’t have an inheritance tax but it does have an estate tax that you need to be aware of when you’re either preparing your estate or getting ready to inherit one. You may also be hit with additional federal estate taxes if the estate you’re inheriting is fairly large. This can be a complex process that is made immensely easier with the help of experienced professionals.
Tips for Estate Planning
- Managing your own estate can be a complex process. And if you’ve inherited money, you’ll have plenty of tax and investing considerations to keep in mind. In either case, you might want some help with the process. A financial advisor can help answer your questions and navigate you through creating an estate plan or through inheriting property. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Figuring out how to minimize your tax bill on your inheritance is only half the battle. You should also be thinking through what to do with the money once you receive it.
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