Vermont’s Estate Tax Windfall: Welcome Revenue—or a Little Macabre?
What Vermonters should know now that estate-tax dollars are surging, who actually pays, and how “residency” really works at death.
What happened, and why this matters
Vermont collected $55.2 million in estate-tax revenue in FY2025, more than double the previous annual record—largely because one very large estate changed hands. State officials say it’s also an early sign of the “great wealth transfer” as baby boomers pass assets to heirs, which could make estate-tax dollars a bigger slice of Vermont’s budget in the years ahead, according to reporting by Vermont Public.
Under current law, when estate-tax revenue exceeds 125% of the July forecast, the excess is automatically deposited into Vermont’s Higher Education Endowment Trust Fund. In FY2025 that meant a transfer of about $26.4 million, nearly doubling the fund’s balance, the Legislature’s Joint Fiscal Office reported.
Is it a little macabre to “count on” death for revenue?
Critics of estate taxes sometimes call them “death taxes” and bristle at governments depending on mortality for money. Supporters say it’s one of the few tools that can modestly counter growing wealth concentration. In Vermont, Rep. Emilie Kornheiser argues the estate tax is a legitimate way to fund public needs during an unprecedented shift of assets, while Lucy Dadayan at the Urban Institute cautions the revenue is volatile, because receipts hinge on a small number of large estates and can swing with markets and federal rules—both points echoed in Vermont Public’s reporting.
Nationally, the Brookings Institution notes household net worth nearly tripled from 1997 to 2021, with 97% of that increase accruing to households age 55+—a big reason experts expect more estate-driven revenue as that cohort ages.
Who actually pays Vermont’s estate tax?
Only a small share of estates.
Threshold & rate (Vermont): If your Vermont taxable estate exceeds $5,000,000, the amount above $5,000,000 is taxed at a flat 16%, per statute.
Definition matters: “Vermont taxable estate” piggybacks on the federal taxable estate with Vermont-specific adjustments in law.
Federal context (2025–26): The federal estate-tax exemption is $13.99 million in 2025; beginning January 1, 2026, Congress set it at $15 million, indexed for inflation, via the One Big Beautiful Bill Act (P.L. 119-21). (That change affects the federal tax, not Vermont’s $5 million threshold).
How Vermont compares to nearby states
Only a minority of states impose any estate tax—12 states plus D.C.—and several neighbors do, with different thresholds:
Massachusetts: $2 million
New York: about $7.16 million in 2025 (with a well-known “cliff”)
Maine: $7 million
Vermont: $5 million (16% over the threshold)
(Counts and examples drawn from the Tax Foundation; specific thresholds from current state summaries).
“How long do I have to live in Vermont before my estate can be taxed here?”
There’s no fixed time rule—it turns on domicile at death
For estate-tax purposes, Vermont looks to whether you were domiciled in Vermont when you died (your true, permanent home), not whether you spent 183 days here last year. “Domicile” is a legal test based on your intent and facts—driver’s license, voter registration, where you keep treasured possessions, where your primary home is, etc.—as Vermont’s domicile regulation explains.
If Vermont is your domicile at death and your taxable estate exceeds $5 million, Vermont’s estate tax applies.
If you’re domiciled elsewhere, Vermont can still tax Vermont-situs property (for example, real estate or tangible personal property located here), using an apportionment formula written into statute.
Bottom line: You could move here “recently” yet be domiciled here (and in scope), or live here often but remain domiciled elsewhere (and be out of scope)—it depends on the facts. There’s no minimum months-lived requirement for estate tax.
What counts as “Vermont-situs” property if you die domiciled elsewhere?
Vermont law defines situs this way:
Real property: where it’s located (so Vermont land is Vermont-situs).
Tangible personal property: where it’s normally kept.
Intangible property (e.g., stocks, LLC interests): situs is generally your domicile.
These definitions matter because nonresidents are typically taxed only on Vermont real/tangible property, not on most intangibles.
A uniquely Vermont wrinkle: the two-year gift “add-back”
Vermont adds back taxable gifts made within two years of death to the Vermont taxable estate (to the extent those gifts aren’t already included federally). That can increase the amount exposed to Vermont’s 16% rate. Many residents—and their advisors—miss this detail. It’s explicit in statute.
Filing timing & logistics (plain-English version)
When is the return due? Generally 9 months after death; extensions of 6 months are available, but tax is still due by the original due date. (This mirrors federal timelines and appears in Vermont’s estate-tax return instructions).
Nonresidents with Vermont property: Estates may need to file a Vermont estate-tax return even if no federal return is required, depending on values and what’s in Vermont. (See Vermont E-1 instructions for nonresident estates).
Why the revenue swings (and why policymakers are cautious)
Estate-tax receipts are lumpy—a single large estate can move the totals by tens of millions. Analysts caution states not to build ongoing programs on one-time windfalls; Vermont addresses this partly by shunting “excess” receipts to higher education, but lawmakers could revisit that policy. (Both the volatility and the Higher Ed transfer rule are noted in the sources cited above).
The debate in Vermont, fairly stated
Pros (equity & services): Supporters argue that taxing very large estates helps fund public goods and modestly narrows wealth disparities during a historic wealth transfer, as Rep. Kornheiser and local advocates noted to Vermont Public.
Cons (volatility & behavior): Skeptics point to revenue volatility and worry high-wealth households will change domicile or undertake aggressive planning, dulling the yield—concerns summarized by Urban Institute’s Dadayan and echoed by tax practitioners.
What Vermonters should take away
Most estates won’t pay. Vermont’s tax applies only above $5 million (separate from the larger federal exemption).
Domicile, not days, decides residency for estate tax. There’s no minimum time you must live here; what matters is where you’re truly based at death.
Own Vermont property but live elsewhere? Your estate may owe on the Vermont piece via an apportionment formula.
Beware the two-year gift add-back. Gifts near the end of life can increase your Vermont taxable estate.
Expect ups and downs in revenue. One or two large estates can dramatically swing Vermont’s annual take; that’s why the Higher Ed Trust Fund rule captures “extra” receipts.
What happens next
Lawmakers plan a broader look at Vermont’s tax code in the 2026 session, including whether the current policy of routing “excess” estate-tax receipts to higher education is still the right fit, according to Vermont Public. Any review could also revisit thresholds, definitions, or earmarks to manage volatility and align with federal changes now scheduled for 2026.