We have an office in Essex Junction, Vermont, and it is important to understand the potential implications of estate taxes when you live in our state. There are a relative handful of states in the union that impose estate taxes on the state level, and Vermont is one of them.
Before we get into some of the details, we will look at the federal estate tax parameters. The estate tax exclusion is the amount that can be transferred before the remainder of the estate would be taxed upon transfer. In 2018, it skyrocketed to $11.18 million after a sweeping tax cut.
Each year, there are adjustments when inflation is taken into consideration. As a result, this year, the federal estate tax exclusion is $11.4 million. It should be pointed out that the top rate of the tax is 40%, so it is a very big deal.
Depending on where you live and what you do for a living, this is a rather robust exclusion, so few people are exposed to the estate tax on the federal level. However, the situation is entirely different when you look at the Vermont state estate tax.
Inventory Your Assets Carefully
In the states that have their own state-level estate taxes, the exclusions are usually considerably lower than the federal exclusion. This certainly applies to us here in Vermont. In 2019, the Vermont estate tax exclusion is $2.75 million. Though it is not as high as the federal rate, the maximum rate is an attention getting 16% on the state level.
There is a concept of being “land rich, cash poor.” Some people that are farmers or holders of land that has been in the family for many generations are in this position. They don’t necessarily make an extraordinary annual income, but their property is quite valuable.
And of course, there are people that have pursued fruitful career paths who have made the right decisions that have amassed total assets that exceed $2.75 million when real property is included.
We should briefly touch upon the concept of portability here. On the federal level, the estate tax exclusion has been portable since 2011. This means that your spouse could use your exclusion if you were to pass away first along with their own, so there would be a total of two exclusions to apply to the estate.
Though portability is a relatively new phenomenon, it does make total sense if you think about it.
In most cases, both people in a marriage will contribute financially over the years. Why should there be just one exclusion to apply to the combined estate?
This is an argument that was made many times prior to 2011, but it finally held sway in the legislature when it was added to a legislative budgetary measure federally. However, the Vermont state estate tax is not portable.
Business interests are also part of your estate for estate tax purposes, along with proceeds from insurance policies on your life (unless there transferred to an irrevocable trust or another owner).
Estate Plan Reviews
Your estate plan is going to be constructed in light of your situation, and the applicable laws, at the time that it was created. Things change, and you should certainly have your estate plan reviewed with the benefit of a licensed estate planning attorney on an ongoing basis about things like Vermont state estate tax.
That being stated, there are going to be other instances when you know that you have to discuss your situation with your attorney. For example, if you have additions or subtractions to the family, or if you have a change in marital status, an update will clearly be necessary.
Download Our Worksheet!
We offer some fantastic resources through this website, and one of them is our carefully prepared estate planning worksheet. If you take the time to go through it, you will definitely be glad that you did.
Like most of our other resources, this estate planning worksheet is being offered free of charge at the present time. To obtain your copy, visit our worksheet download page and follow the simple instructions.
Speak Directly With an Essex Junction, VT Estate Planning Attorney!
If you have learned enough to know that you would like to review your estate plan or put an initial plan in place, we are here to help. You can send us a message through our contact page to get in touch with us over the Internet, and we can be reached by phone at 802-879-7133.
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