Build the tax inventory separately from probate
The tax analysis can include property that does not pass through probate, such as trust property, jointly owned assets, life insurance, retirement benefits, business interests, and certain prior transfers. Ownership, control, beneficiary terms, debt, expenses, marital or charitable transfers, and valuation dates all matter, and two estates with the same total value can owe very different amounts once those factors are applied to each asset.
Confirm current thresholds and filing rules
Exemptions, forms, elections, due dates, extensions, payment rules, and federal coordination can change. Use the Vermont Department of Taxes materials for the year of death and have counsel or a qualified tax professional assess whether a return, clearance, election, or protective filing is appropriate.
Estate-tax inventory items that probate does not show
| Item | Why it can matter for tax | What to gather |
|---|---|---|
| Trust property | Can be part of the tax analysis | Trust documents and asset lists |
| Jointly owned assets | Ownership and survivorship terms matter | Deeds and account agreements |
| Life insurance | Ownership and beneficiary terms matter | Policies and beneficiary confirmations |
| Retirement benefits | Beneficiary terms and income-tax coordination | Statements and designations |
| Business interests | Valuation and liquidity | Entity documents and valuations |
| Certain prior transfers | May need to be reviewed | Records of gifts and transfers |
| Debts and expenses | Deductions depend on the facts | Bills, claims and expense records |
Plan for valuation and liquidity
A taxable estate may hold value without holding cash. Early coordination can reduce forced decisions and missed filings.
- Qualified real-estate and business valuations
- Life-insurance ownership and beneficiary review
- Retirement and income-tax coordination
- Marital and charitable planning
- Cash available for tax and administration
- Records supporting deductions and elections
At what value does Vermont's estate tax start?
Under the statute, a Vermont taxable estate below $5,000,000 pays no Vermont estate tax. On the amount above $5,000,000 the rate is 16 percent. Values are the ones finally determined for federal estate tax purposes.
What is the federal filing threshold?
The IRS lists $13,990,000 for deaths in 2025 and $15,000,000 for deaths in 2026. Vermont's line is much lower, so a Vermont family can owe Vermont tax with no federal tax at all. The two systems are separate.
Do I count gifts I made during life?
Some, yes. Vermont adds back taxable gifts the decedent made within two years before death, under 32 V.S.A.
§ 7402(14)(C), unless the gift is already in the gross estate. Federal rules add adjusted taxable gifts for the federal tax. List your large recent gifts before running any estimate.
Does a married couple get to combine exemptions?
Federally, an unused exemption can pass to the surviving spouse if the executor files a timely estate tax return and makes the election. Vermont's rules are separate, so a couple near the Vermont line needs a plan that uses both of their thresholds.
Does Vermont tax an estate that all passes to a spouse?
Property passing to a surviving spouse generally qualifies for the marital deduction, so it does not raise the taxable estate; the tax question comes back at the second death. Planning looks at both deaths together.
Is there a break for farms?
Yes. The statute reduces Vermont tax for an estate that qualifies for installment payment under federal law and whose closely held business is farming in Vermont. The reduction is proportional to the farm's share of the adjusted gross estate.
How are values decided?
Assets are valued as of the date of death, or an alternate date if the executor elects it under federal rules. Real estate, business interests, and collections often need an appraisal. Get valuations early, since the tax and the income tax basis depend on them.
What can be done to reduce the tax?
Lifetime gifts, trusts, charitable gifts, and a coordinated marital plan are the usual tools; each has costs and side effects, such as losing control or a step up in basis. Choose with a lawyer and a tax adviser.
Does a life insurance policy count?
Often yes, if you owned it or had control over it at death, its proceeds count in the gross estate. An insurance-trust arrangement requires separate ownership, transfer-timing and tax analysis; its label does not decide inclusion.
Does Vermont have an estate tax return?
Yes. An executor must file a Vermont estate tax return when the decedent owned Vermont property and either a federal return is required or the federal gross estate plus adjusted taxable gifts from the last two years exceeds $5,000,000.
The Legislature raised that filing line from $2,750,000 in June 2026, so older sources may show the lower figure. Use the return instructions for the year of death and confirm any transitional requirement. The return is due nine months after death, and the executor may apply for a six-month extension.
What if I own property in more than one state?
Vermont's tax is computed on the whole estate and then scaled by the fraction of the estate located in Vermont, and other states may tax their own property. Multi-state estates are a case for a tax lawyer.
Should I worry if the law changes?
Thresholds have changed before and can change again. Review your plan when the law changes or your net worth passes a major line. A plan that works at today's numbers should still work if they move.
Sources and further reading