Vermont Estate Tax 2026: The $5M Exemption, 16% Flat Rate, and the Federal-State Gap
Vermont imposes its own estate tax on estates above $5,000,000, codified in 32 V.S.A. §7442a. The exemption has remained at $5 million since 2021 — fixed by statute, not inflation-indexed. In 2026, the federal exemption is $15,000,000 per person (permanently raised by the One Big Beautiful Bill Act). Vermont's flat rate of 16% applies to every dollar above $5M. Estates in the $5M–$15M band — a $10 million band — owe Vermont estate tax while paying zero federal tax. Vermont does not allow portability between spouses. This guide covers what Vermont families, heirs, and out-of-state vacation-property owners need to know in 2026.
- Exemption: $5,000,000 per decedent (fixed since 2021; not inflation-indexed). 32 V.S.A. §7442a(b). Vermont's exemption has not been adjusted for inflation, so it covers a shrinking share of Vermont estates as home values and retirement accounts appreciate.1
- Rate: Flat 16% on the Vermont taxable estate above $5,000,000. There is no cliff provision (unlike New York, where an estate slightly above the threshold can owe tax on the entire value). Vermont taxes only the amount above $5M, but at a flat rate that is higher than most states' graduated schedules.1
- No portability: Vermont does not allow a surviving spouse to inherit the deceased spouse's unused Vermont estate tax exemption. The first spouse's $5M exemption is permanently lost unless used through a credit shelter trust. A married couple that does no planning has a combined effective Vermont exemption of $5M — not $10M.2
- No Vermont gift tax: Vermont imposes no standalone gift tax. However, Vermont's gross estate includes federal taxable gifts made within the two years before death — a 2-year clawback longer than Maine's 1-year lookback but shorter than New York's 3-year clawback. Gifts within the federal annual exclusion ($19,000 per recipient in 2026) are not "taxable gifts" and are not clawed back.1
- No Vermont inheritance tax: Vermont has no inheritance tax based on the beneficiary's relationship to the decedent. Estate tax is paid from the estate before distributions; individual heirs owe no separate Vermont tax on amounts they receive.
- Filing deadline: Form EST-191 (Estate Tax Return, Resident and Nonresident) is due within 9 months of the decedent's date of death. A 6-month extension may be requested on Form EST-195. The extension applies to the filing deadline only — taxes owed must still be paid within 9 months to avoid interest and penalties.3
- Who must file: Form EST-191 is required if (1) the decedent owned Vermont property and the federal gross estate plus taxable gifts within 2 years exceeds $4,250,000, or (2) the estate is required to file federal Form 706. Note: the $4.25M filing threshold is below the $5M exemption — estates between $4.25M and $5M that include Vermont property must file a return but owe no Vermont estate tax.3
- Tax clearance: Vermont probate courts require a Vermont Department of Taxes clearance certificate (Form E-2A, Vermont Estate Tax Information and Application for Tax Clearance) before an estate can be closed. Personal representatives should plan for this step even if no tax is owed.3
How Vermont estate tax is calculated
Vermont's calculation is simpler than most state estate taxes: the estate pays 16% on every dollar above the $5M exemption. There are no rate brackets, no cliff, and no phase-outs. The only complexity is determining what counts as the Vermont taxable estate — gross estate plus taxable gifts made within 2 years of death, less qualified deductions (marital deduction, charitable deduction, debts, and expenses).
Worked example: $7 million estate
Vermont taxable estate: $7,000,000
Less exemption: – $5,000,000
Taxable amount: $2,000,000
Vermont estate tax: $2,000,000 × 16% = $320,000
Federal estate tax: $0 (estate is below the $15M federal threshold)
Worked example: $10 million estate
Vermont taxable estate: $10,000,000
Less exemption: – $5,000,000
Taxable amount: $5,000,000
Vermont estate tax: $5,000,000 × 16% = $800,000
Federal estate tax: $0
Comparison note: Vermont's 16% flat rate produces significantly higher tax than the graduated schedules used by states like Maine (8–12%) or Illinois (0.8–16%). On a $10M estate, Vermont collects $800,000 versus Maine's $227,200 — more than three times as much. Vermont's simplicity comes at a cost.
Approximate Vermont estate tax by estate size (2026)
| Estate size | Vermont estate tax (approx.) | Federal estate tax | Notes |
|---|---|---|---|
| $4,500,000 | $0 | $0 | Below $5M exemption — no Vermont tax (but may need to file if VT property present) |
| $5,000,000 | $0 | $0 | At threshold — no Vermont tax |
| $5,500,000 | ~$80,000 | $0 | $500K × 16% |
| $6,000,000 | ~$160,000 | $0 | $1M × 16% |
| $7,000,000 | ~$320,000 | $0 | $2M × 16% |
| $8,000,000 | ~$480,000 | $0 | $3M × 16% |
| $9,000,000 | ~$640,000 | $0 | $4M × 16% |
| $10,000,000 | ~$800,000 | $0 | $5M × 16% |
| $12,000,000 | ~$1,120,000 | $0 | $7M × 16% |
| $15,000,000 | ~$1,600,000 | $0 | $10M × 16%; both VT and federal apply above $15M |
| $18,000,000 | ~$2,080,000 | $720,000 | Both Vermont and federal estate tax apply |
Approximate figures. Vermont taxable estate may differ from gross estate due to marital deductions, charitable deductions, debts, expenses, and the 2-year gift clawback. Consult a Vermont estate planning attorney for a precise estimate.
The federal-Vermont gap: who gets hit
The central problem for Vermont residents and Vermont vacation-property owners is the gap between Vermont's $5M threshold and the federal $15M threshold (OBBBA). Every dollar in this $10M band is subject to Vermont estate tax at 16% — while owing nothing federal. A $9M estate owes $640,000 to Vermont with zero federal offset. No deduction, no credit, no phase-in. It's straight out of the estate.
Who commonly falls into this gap:
- Stowe, Killington, and Mad River Glen property owners. Vermont ski resort communities have seen sustained appreciation for decades. A Stowe chalet worth $2M–$4M, combined with a $2M retirement portfolio and $1M brokerage account, puts the estate comfortably above $5M — often without any tax planning in place.
- Retiring Vermont professionals. A Burlington attorney, physician, or business owner who maxed out retirement plans for 30 years, owns a home, and has accumulated investment accounts can reach $5M–$8M without thinking of themselves as an estate tax concern. Vermont's $5M threshold is not "ultra-high-net-worth territory" for a retiring professional in 2026.
- Non-resident vacation-property owners. Vermont taxes the Vermont-situs property of non-resident decedents. A Massachusetts or New York family with a Vermont lake house or ski chalet owes Vermont estate tax on the Vermont property's value, prorated as a share of the total estate. Their primary state may handle the rest of the estate, but Vermont gets its share of the Vermont property value.
- Farm and agricultural estate owners. Vermont has significant agricultural land, and multi-generational farm families who own valuable acreage can find themselves above $5M on paper — particularly after decades of land appreciation — while cash flow is modest and liquidity is limited for paying a six-figure Vermont estate tax bill.
No portability: the married couple trap
Vermont does not allow portability — when the first spouse dies, their $5M Vermont estate tax exemption is gone unless it was used. This is different from the federal estate tax, which allows a surviving spouse to inherit unused exemption by timely filing Form 706 (portability election).
What this means in practice for a Vermont couple:
| Scenario | Combined estate | No planning (all to survivor) | With credit shelter trust |
|---|---|---|---|
| First spouse dies, leaves everything to survivor | $8,000,000 | Second death: ~$480,000 VT tax | Second death: $0–$80,000 VT tax |
| First spouse dies, leaves everything to survivor | $11,000,000 | Second death: ~$960,000 VT tax | Second death: $0–$160,000 VT tax |
| First spouse dies, leaves everything to survivor | $14,000,000 | Second death: ~$1,440,000 VT tax | Second death: ~$640,000 VT tax |
A credit shelter trust (also called a bypass trust or AB trust) solves the portability problem by directing assets up to the first spouse's Vermont exemption ($5M) into a trust at death rather than outright to the surviving spouse. The trust corpus is not part of the survivor's taxable estate. The surviving spouse can still benefit from trust income and principal under a HEMS standard — they don't lose access to the money, they lose the Vermont estate tax exposure.
For a Vermont couple with a $10M combined estate, a properly funded credit shelter trust at the first death can eliminate the Vermont estate tax at the second death entirely (both spouses' $5M exemptions used = $10M sheltered). Without the trust, the survivor has a single $5M exemption against a $10M estate — an $800,000 Vermont estate tax bill that was avoidable.
The 2-year gift clawback: a key planning constraint
Vermont's gross estate includes federal taxable gifts made within the two years before death. A "taxable gift" for this purpose is a gift that exceeds the federal annual exclusion — gifts up to $19,000 per recipient per year (2026) are annual-exclusion gifts, not taxable gifts, and are not subject to the 2-year lookback.
What this means for gifting strategy:
- Annual exclusion gifts are safe immediately. Gifts up to $19,000 per recipient (or $38,000 per recipient for a couple with gift-splitting) made at any time are not taxable gifts. They permanently leave the Vermont estate with no clawback risk, even if made one month before death.
- Larger gifts need a 2-year runway. A gift of $200,000 to a child (above the $19,000 exclusion) counts against the federal lifetime exemption and is a "taxable gift" under Vermont's definition. If made within 2 years of death, Vermont adds it back to the estate. If made more than 2 years before death, it's permanently outside Vermont's reach.
- Deathbed gifting is ineffective for taxable amounts. Unlike Maine's 1-year lookback, Vermont's 2-year window makes last-minute large gifts unavailing if the donor dies within 2 years. The assets are added back to the Vermont estate as if the gift never happened.
- Gifts above the federal annual exclusion still count against the federal lifetime exemption, but with the federal exemption at $15M (OBBBA), most Vermont families will not exhaust the lifetime exemption through a normal gifting program.
Practically: a systematic annual-exclusion gifting program ($19K × 2 donors × 3 children = $114,000/year out of the estate with no clawback, no gift tax, and no Vermont risk) is the most accessible planning tool for a Vermont estate above $5M.
What heirs need to know when inheriting from a Vermont estate
Does the estate owe Vermont estate tax?
The personal representative (executor) determines whether the estate exceeds $5M and, if so, files Form EST-191 and pays any Vermont tax within 9 months of death. As a beneficiary, you don't pay Vermont estate tax directly — it comes out of the estate before distributions. But a Vermont estate tax bill of $300,000–$1M+ can meaningfully reduce the net inheritance, and large estates should ensure the executor has funds reserved for the payment before distributing to beneficiaries.
Non-Vermont residents with Vermont property
Vermont taxes Vermont-situs property of non-resident decedents. If your parent lived in Massachusetts but owned a Vermont ski chalet or lake house, the Vermont estate tax applies proportionally to the Vermont property's share of the total estate. The Vermont return covers the Vermont-connected portion; the Massachusetts estate is handled by the Massachusetts executor (and may trigger Massachusetts estate tax separately on the rest of the estate). Two state returns may be required.
The $4.25M filing threshold vs. the $5M exemption
Vermont has an unusual feature: estates between $4,250,000 and $5,000,000 that include Vermont property must file Form EST-191 even though they owe no Vermont estate tax. The filing threshold ($4.25M) is below the exemption amount ($5M). This means families in this range still face the administrative burden of preparing and filing an estate tax return, even with zero tax liability. Budget time and professional fees for this if the estate falls in this range.
The tax clearance requirement
Vermont probate courts require a tax clearance certificate (Form E-2A) from the Vermont Department of Taxes before they will close the estate. The personal representative must obtain this clearance whether or not estate tax was owed. This step can add 4–8 weeks to the estate settlement timeline after the estate tax return is filed and reviewed by the state.
Step-up in basis still applies
Vermont estate tax is separate from the federal income tax on inherited assets. Heirs still receive a stepped-up cost basis equal to the asset's fair market value at the date of death, regardless of whether the estate owed Vermont estate tax. The Vermont ski chalet that had an original cost of $300,000 and is now worth $2.5M gets a basis reset to $2.5M on the date of death — reducing or eliminating capital gains tax if heirs sell shortly after inheriting.
Vermont income tax on inherited assets
Vermont conforms to federal income tax treatment for most inherited assets. Vermont has no separate inheritance income tax. An inherited IRA distributed to a Vermont resident beneficiary will be subject to Vermont income tax at ordinary rates (Vermont top rate is 8.75% for 2026), but that is income tax on distributions over the 10-year window — not an estate tax or inheritance tax on receipt.
Planning strategies for Vermont estates
1. Credit shelter trust (most important for married couples)
As described above: a credit shelter trust funded at the first death is the single most effective Vermont estate tax planning tool for married couples. Without it, the surviving spouse's estate faces 16% Vermont tax on the combined estate with only one $5M exemption. With it, the couple effectively shelters up to $10M from Vermont estate tax — potentially eliminating the entire Vermont bill for a $10M combined estate. Every Vermont couple with a combined estate above $5M should have this conversation with a Vermont estate planning attorney.
2. Annual exclusion gifting
Each Vermont resident can gift $19,000 per recipient per year (2026 federal annual exclusion) with no gift tax, no 2-year Vermont clawback risk, and no reduction in the federal lifetime exemption. A Vermont couple gifting to three adult children and their spouses can transfer $228,000/year ($19K × 2 donors × 6 recipients) out of the estate annually with zero tax cost. Done consistently over 10 years, this program moves $2.28M out of the estate.
3. Irrevocable Life Insurance Trust (ILIT)
Life insurance owned by an ILIT is not part of the insured's taxable estate. For a Vermont resident with a $8M estate and a $1.5M life insurance policy, moving the policy into an ILIT removes $1.5M from the Vermont taxable estate — saving $240,000 in Vermont estate tax — and provides liquidity for estate taxes and beneficiary needs outside the estate. The annual premiums paid to the ILIT can be structured as annual-exclusion gifts.
4. Qualified Personal Residence Trust (QPRT)
For owners of Vermont ski chalets, lake houses, or other vacation real estate with significant appreciation, a QPRT allows transferring the property out of the estate at a discounted gift tax value. The grantor retains the right to occupy the property for a term of years; at the end of the term, the property passes to beneficiaries at the original gift-tax value. The actuarially discounted gift value reduces both federal lifetime exemption usage and Vermont estate tax exposure. A $2M Vermont property gifted through a QPRT with a 10-year retained interest might be valued at $900,000–$1.2M for gift tax purposes — saving $128,000–$176,000 in Vermont estate tax at the end of the term.
5. Charitable strategies
Assets left to qualified charities are deducted from the Vermont taxable estate. For Vermont residents with charitable intent, a donor-advised fund, charitable remainder trust, or direct bequest reduces Vermont estate tax dollar-for-dollar at the 16% rate. A $1M charitable bequest reduces Vermont estate tax by $160,000.
6. Domicile planning
Vermont taxes the worldwide estate of Vermont domiciliaries, plus Vermont-situs property of non-residents. For high-net-worth individuals who split time between Vermont and a non-estate-tax state (New Hampshire, Florida, Texas, South Dakota), confirming legal domicile in the non-estate-tax state can eliminate Vermont estate tax on non-Vermont property. However, domicile change requires genuine intent and physical presence — courts and state tax authorities scrutinize large estates where the decedent owned a Vermont home and spent significant time there. The Vermont Department of Taxes can assert that Vermont was the true domicile if facts support it.
7. Timing gifts outside the 2-year window
For planned larger lifetime gifts above the annual exclusion, initiating them earlier rather than later gives the 2-year clawback window time to run. A Vermont resident who is healthy and in their 60s and plans a $500,000 gift to fund a child's home purchase should make the gift now — if they live more than 2 years beyond the gift date, it's permanently outside the Vermont estate. Waiting until health declines increases the risk of dying within the 2-year window and having the gift added back.
Vermont estate tax compared to other state estate taxes
| State | 2026 exemption | Top rate | Portability | Gift lookback |
|---|---|---|---|---|
| Vermont | $5,000,000 | 16% (flat) | No | 2 years |
| Oregon | $1,000,000 | 16% | No | None |
| Rhode Island | $1,838,056 | 16% | No | None |
| Massachusetts | $2,000,000 | 16% | No | None |
| Minnesota | $3,000,000 | 16% | No | None |
| Washington | $3,000,000–$5,000,000 | 20% | No | None |
| Illinois | $4,000,000 | 16% | No | None |
| Hawaii | $5,490,000 | 20% | Yes | None |
| Maryland | $5,000,000 (estate tax) | 16% | No | None |
| Maine | $7,160,000 | 12% | No | 1 year |
| New York | $7,350,000 | 16% | No | 3 years |
| Connecticut | $15,000,000 | 12% | No | Gift tax applies |
Vermont's $5M exemption is mid-tier among state estate tax states — higher than Oregon, Rhode Island, Massachusetts, Minnesota, Illinois, and Washington, but lower than Hawaii, Maine, New York, and Connecticut. Vermont's 16% flat rate is notable for being applied uniformly with no graduation — meaning a $6M Vermont estate (16% on $1M = $160K) pays the same marginal rate as a $15M estate, unlike states that start with lower graduated rates on the first dollars above the threshold.
Vermont also stands out for its 2-year gift clawback — longer than Maine's 1-year lookback, applying the same 2-year window as federal law for certain transfers, and requiring more advance planning than states with no clawback at all.
Get matched with a Vermont estate planning specialist
If you're inheriting from a Vermont estate — or planning your own — a fee-only advisor who handles estate planning and state estate tax can help you understand the filing requirements, the credit shelter trust opportunity, and how Vermont's rules interact with your full financial picture. Vermont's unique combination of a fixed $5M exemption, 16% flat rate, and 2-year clawback makes specialist guidance particularly valuable.
Inheritance Advisor Match is a matching service. We connect you with vetted fee-only financial advisors in our network — we don't manage money or provide advice ourselves. Advisors in our network are fiduciaries who charge transparent fees (not product commissions), and we match you based on your specific situation.
Sources
- Vermont Department of Taxes, Estate Tax, tax.vermont.gov/individuals/estate-tax. Confirms $5,000,000 exemption (32 V.S.A. §7442a), 16% flat rate, 2-year gift clawback on federal taxable gifts. Vermont Dept of Taxes — Estate Tax
- SmartAsset, Vermont Estate Tax: Everything You Need to Know, 2026. Confirms no portability between spouses, $5M exemption fixed since 2021, flat 16% rate, and no Vermont gift tax. SmartAsset — Vermont Estate Tax
- Vermont Department of Taxes, Form EST-191 Instructions (2025 edition), tax.vermont.gov. Confirms 9-month filing deadline, Form EST-195 extension, $4,250,000 filing threshold (below $5M exemption), Form E-2A tax clearance requirement for probate. Form EST-191 Instructions
- Nolo, Estate Taxes in Vermont, nolo.com. Cross-check of rate, exemption, portability rules, and planning considerations. Nolo — Vermont Estate Tax
Vermont estate tax values verified as of June 2026. Vermont's $5M exemption is fixed by statute and has not been indexed to inflation since 2021. OBBBA federal exemption of $15M is permanent for 2026 and beyond unless Congress acts. Annual gift exclusion of $19,000 per recipient is per 2026 IRS guidance.