Vermont Estate Tax: $5M Exemption + Real-Property Carve-Outs

Vermont is one of 12 states (plus DC) that impose a state-level estate tax. The Vermont estate tax is codified at 32 V.S.A. Sections 7402-7493, administered by the Vermont Department of Taxes, and filed on Form EST-191. For 2026, the exemption is $5 million per individual, with a flat 16% rate on the taxable estate above the exemption.

Two features distinguish Vermont's estate tax from neighbors':

• The flat 16% rate applies to every dollar above $5M with no graduated bracket structure. DC, Massachusetts, and Hawaii all start at 10-12% on the first dollar above their exemptions and ratchet up. Vermont applies 16% immediately.
• The real-property carve-out for working farms and forestland under 32 V.S.A. Section 7402 and Vermont's Current Use program (32 V.S.A. Chapter 124). The carve-out is narrow, conditional, and recapture-vulnerable — but it is materially valuable for families holding working agricultural land.

The Vermont exemption: $5M, not indexed

32 V.S.A. Section 7442a fixes the Vermont estate tax exemption at $5 million per individual. Unlike most other state thresholds, the Vermont figure is not indexed for inflation. The $5M threshold has been in place since the Vermont legislature enacted the current statute (effective for deaths on or after the start of the 2021 tax year). Each year of inflation effectively lowers the real value of the Vermont exemption, slowly catching more estates as nominal asset values rise.

Vermont does not recognize portability between spouses. Each spouse has a separate $5M exemption, and the first spouse's unused exemption is forfeit if no credit shelter trust funds at the first death. This is the same rule that catches DC, Massachusetts, Oregon, and most other state-estate-tax couples — Vermont is in the standard no-portability camp.

The flat 16% rate: what it costs

Vermont's flat 16% rate above the $5M exemption produces a simple linear tax curve:

The flat-rate structure means small differences in estate size produce proportional differences in tax. A $1M increase in taxable estate above the exemption always adds $160,000 to the Vermont bill — whether the estate is $6M or $25M. There is no marginal-rate compression at the top, and no rate phase-in at the bottom.

Worked example: $7M Vermont resident estate

Margaret, a Burlington resident, age 79, dies leaving a $7M estate:

• Primary residence on Lake Champlain: $2.1M (cost basis $450K from a purchase decades ago)
• Brokerage account: $2.8M (cost basis $1.4M)
• Traditional IRA: $1.5M
• Stowe ski condo: $450K (cost basis $250K)
• Bank accounts and personal property: $150K
• Total gross estate: $7,000,000

Vermont estate tax calculation:

• Gross estate: $7,000,000
• Less Vermont exemption: ($5,000,000)
• Vermont taxable estate: $2,000,000
• Vermont tax at 16% flat: $320,000

Federal estate tax: $0. The $7M gross estate is well below the federal $13.99M exemption. Vermont collects the full $320,000 with no federal offset available under IRC §2053.

Step-up in basis: heirs receive a full federal §1014 step-up to date-of-death FMV on all appreciated assets. The $1.4M brokerage gain, $1.65M home appreciation, and $200K ski-condo appreciation all reset.

The Vermont real-property carve-out: working farms and forestland

32 V.S.A. Section 7402 provides a carve-out for Vermont-situated agricultural land, working farms, and forestland enrolled in Vermont's Current Use program. The mechanism: such property can be reported on the Vermont estate tax return at use value rather than fair market value, dramatically reducing the taxable estate.

How Current Use valuation differs from FMV

Vermont's Current Use program (formally, the Use Value Appraisal Program under 32 V.S.A. Chapter 124) values agricultural and forestland based on its income-producing capacity as actively-managed working land, not on its highest-and-best-use development potential. The difference can be substantial:

• A 200-acre Vermont dairy farm with FMV of $3.5M (reflecting development pressure from second-home buyers) may have a Current Use value of $400K-$800K based on its actual agricultural productivity.
• A 500-acre Vermont timber tract with FMV of $4M may have a Current Use forestland value of $250K-$600K based on standing timber economics.

For families holding working land, the Current Use valuation on the estate tax return can reduce the gross Vermont estate by $2M-$3M, effectively eliminating the Vermont estate tax exposure for many farm and forestland estates.

Qualifying requirements and recapture

The Vermont estate tax Current Use carve-out comes with strings:

• The property must be enrolled in Current Use at the date of death. Property enrolled posthumously does not qualify.
• The property must be actively used for the qualifying purpose at the date of death — not fallow, not transitioning, not in escrow.
• The heirs must continue the qualifying use for at least 5 years post-death. If the heirs sell, develop, or remove the property from Current Use within that window, Vermont recaptures the deferred estate tax (plus interest) through a delayed assessment.
• Vermont also imposes a separate Current Use land-use change tax (LUCT) under 32 V.S.A. Section 3757 when property leaves the program, equal to 10% of FMV at withdrawal. The LUCT and the estate-tax recapture stack on top of each other.

For farms and forestland families intent on continuing the working-land use, the carve-out is transformative. For families who anticipate selling or developing the land within 5-10 years of inheriting, the carve-out can actually create worse outcomes — the recapture trigger plus LUCT can cost more than the original estate tax would have.

Worked example: $8M Vermont farming estate

Robert and Helen own a 350-acre working dairy farm in Addison County. The farm has a FMV of $4.5M (reflecting development pressure) but a Current Use value of $750K. Other estate assets: $2M brokerage, $1.2M IRA, $300K home/personal property. Total FMV gross estate: $8M.

Without Current Use election: Gross estate $8M, less exemption $5M = $3M taxable. Vermont tax: $480,000.

With Current Use election: Reportable gross estate: $750K (Current Use farm value) + $3.5M (other assets) = $4.25M. Less exemption $5M = $0 taxable. Vermont tax: $0.

The election saves the family $480,000 in immediate Vermont estate tax. But the heirs must operate the farm (or lease it for qualifying agricultural use) for the next 5 years. If they sell or convert within that window, Vermont recaptures the $480,000 plus interest, plus the 10% LUCT on the FMV at withdrawal (~$450K) = approximately $930,000 in delayed tax. The 5-year clock matters.

Non-resident sourcing: the Vermont vacation-home trap

32 V.S.A. Section 7402 reaches non-residents owning Vermont-situated real property and tangible personal property at death. The most common scenario: a New York, Connecticut, Massachusetts, or New Jersey resident owning a Stowe house, Stratton condo, or Manchester second home.

The Vermont non-resident estate tax is computed in three steps:

1. Compute the hypothetical Vermont estate tax as if the decedent were a Vermont resident with the same worldwide gross estate.
2. Multiply by the ratio of (Vermont-situated property) divided by (worldwide gross estate).
3. That product is the Vermont non-resident estate tax owed.

Worked example: New York resident with Stowe ski house

Linda is a New York City resident with a $20M worldwide estate including a $3M Stowe house. She dies as a New York resident.

Step 1 — Hypothetical Vermont tax on $20M: $20M gross, less $5M exemption = $15M taxable, × 16% flat = $2,400,000.

Step 2 — Vermont-situated ratio: $3M Vermont real property / $20M worldwide = 15.0%.

Step 3 — Non-resident Vermont tax: $2,400,000 × 15.0% = $360,000.

Linda's estate owes Vermont roughly $360,000 in non-resident estate tax on the $3M Stowe house, in addition to any New York or federal tax. (New York has its own $7.16M cliff-style estate tax that catches most of the $20M; Vermont's bite is on top of that.) The Stowe house didn't even generate $360K of capital appreciation during the decedent's lifetime — the Vermont tax can exceed the realized gain on the asset.

LLC restructuring: the planning move that travels

The same LLC restructuring move that works against Hawaii non-resident sourcing also works for Vermont:

1. Form an LLC (Vermont LLC, or out-of-state LLC qualified to do business in Vermont).
2. Transfer the Vermont property into the LLC.
3. The decedent owns LLC membership interests, not Vermont real property directly.
4. The LLC interests are held by an out-of-state irrevocable trust resident in a no-estate-tax state.

At death, the included asset is an intangible LLC membership interest. Intangibles of non-residents are not subject to Vermont estate tax under 32 V.S.A. Section 7402. Setup cost: $3K-$8K. Savings on a $3M Stowe house: approximately $360K. The restructuring must be substantively prior to death.

Federal-Vermont interaction: deduction available at large estate sizes

Vermont estate tax paid is deductible on the federal Form 706 under IRC §2053(a)(3) as a debt of the estate. For estates above the federal $13.99M exemption, the deduction saves 40% of the Vermont tax in federal tax.

On a $25M Vermont resident estate paying $3.2M in Vermont tax: the federal return deducts $3.2M before computing the 40% federal rate, saving $1.28M federal. Net Vermont cost after federal deduction: $3.2M - $1.28M = approximately $1.92M.

For Vermont estates between $5M and $13.99M, no federal tax is owed and the Vermont liability is unrecovered. This is the most common Vermont exposure window: estates between $5M and $14M paying 16% on the excess over $5M with no federal offset.

Credit shelter trust for Vermont couples: the standard move

Vermont has no portability. For couples with combined estates above $5M, the credit shelter trust is the standard planning vehicle to preserve both spouses' $5M exemptions.

Worked comparison: $9M Vermont couple, with and without CST

Charles and Susan are both Vermont residents in Middlebury. Combined estate $9M: $5M in his name, $4M in hers. Charles dies first.

Scenario A — no credit shelter trust: Charles leaves everything to Susan via his will. His estate owes $0 (unlimited marital deduction). Susan now owns $9M. When Susan dies, her estate has $9M, exemption of $5M, taxable estate of $4M. Vermont tax at 16% = $640,000.

Scenario B — CST funded with $5M at first death: Charles's will directs $5M to a bypass trust for Susan's benefit (income to Susan during life, principal to children at her death). The other portion passes outright to Susan via marital deduction. Charles's estate owes $0 (CST uses his $5M exemption; rest is marital deduction). When Susan dies with the appreciated CST (~$6M now, excluded from her estate) plus her own $4M, her taxable estate is $4M. Vermont tax on the $0 above her $5M exemption = $0. Wait — her estate is $4M, below her $5M exemption.

CST saves this Vermont family the entire $640,000. Setup cost: $5K-$10K. This is exactly the kind of state-of-residence planning lever that our editorial position keeps pointing to: most Americans don't realize their state has an estate tax, and the no-portability rule turns moderate estates into six-figure bills for surviving spouses.

Lifetime gifting: Vermont has no gift tax

Vermont does not impose a state-level gift tax. Lifetime gifts of any size are not taxed by Vermont (federal gift tax under IRC §2501 still applies for gifts over the $19,000 annual exclusion). High-impact Vermont lifetime gifting strategies for $8M+ couples:

• Annual exclusion gifts: $19,000 per donee per donor for 2026. A couple with 3 children and 5 grandchildren can give $304,000/year tax-free.
• SLAT (Spousal Lifetime Access Trust): one spouse gifts up to $5M (using federal exemption) to an irrevocable trust for the other spouse. Removes the gifted assets and all future appreciation from both spouses' Vermont estates.
• Direct payment of medical and tuition under IRC §2503(e): unlimited, outside the gift tax framework entirely.
• Charitable lead annuity trust (CLAT): for Vermont families with charitable intent and large appreciated assets, a CLAT can shift gifted assets out of the Vermont estate while paying an annuity to charity for a term of years, with the remainder passing to family.

Relocation: when does moving from Vermont save estate tax?

For Vermont residents with $10M+ estates, the relocation calculus is meaningful. Most common alternatives:

New Hampshire (just across the Connecticut River) is the most natural escape for Vermont residents — no estate tax, no income tax on wages, geographically and culturally similar. Maine offers a higher $7M threshold but still catches large estates. Florida and Texas obviously save the entire Vermont bill.

For Vermont residents with working farms or forestland, the relocation calculus is more constrained: the Current Use carve-out only applies to Vermont property held by Vermont residents (or to non-residents holding qualifying Vermont land, which is rare). Selling the farm to relocate often triggers federal capital gains plus loss of the Current Use estate tax benefit. Most working-land families stay.

Filing: Form EST-191, due 9 months after death

Vermont estate tax returns are filed on Form EST-191 with the Vermont Department of Taxes, due 9 months after the date of death. An extension is available on Form EST-195 but does not extend the payment deadline. Vermont requires filing for any estate where the gross estate exceeds $5M, even if no Vermont tax is ultimately owed (because of marital or charitable deductions).

Form EST-191 is technically a "Vermont Estate Tax Return," with attachment of the federal Form 706 if one is filed. The Vermont DOT also publishes a separate Form EST-RV for resident vs. non-resident allocation calculations.

Common Vermont estate tax mistakes

• Assuming the Vermont exemption is indexed: it is not. The $5M figure is statutory and fixed. Each year of inflation reduces the real-dollar Vermont shelter.
• Failing to fund a credit shelter trust at first death: the most expensive mistake for Vermont couples. By the time the surviving spouse's estate is filed, the first spouse's $5M is gone.
• Holding Vermont vacation property directly as a non-resident: the LLC restructuring is the well-known fix, but most non-resident Vermont property owners haven't implemented it.
• Forgetting the Current Use 5-year continuation requirement: the working-farm carve-out is recapture-vulnerable for families who don't plan to actually continue the agricultural use.
• Misunderstanding the flat 16% rate: Vermont's rate doesn't graduate. A $6M estate pays 16% on the entire $1M above the exemption immediately — no soft entry at 10-12% as in DC, Hawaii, or Massachusetts.

Decision framework: who needs active Vermont estate planning?

1. Single $5M or less / couple $10M or less with proper CST: standard will + beneficiary updates likely sufficient.
2. Single $5M-$10M / couple $10M-$15M: credit shelter trust at first death is the priority. Annual exclusion gifting reduces exposure for larger estates in this band.
3. Single $10M-$25M / couple $15M-$30M: aggressive lifetime gifting through SLAT, GRAT, or CLT structures. New Hampshire relocation analysis worth running for retirees without strong VT ties.
4. Vermont working-farm or forestland families: Current Use enrollment is the priority. Verify enrollment status and active qualifying use well before any contemplated transfer.
5. Non-residents owning Vermont vacation property: LLC restructuring is the priority regardless of mainland estate size. $3K-$8K setup prevents $50K-$400K+ in non-resident Vermont estate tax.

Key takeaways

• Vermont's 2026 estate tax exemption is $5M per individual under 32 V.S.A. Section 7442a, not indexed for inflation. The flat 16% rate above the exemption is higher per dollar than the entry rates in DC, Hawaii, or Massachusetts.
• Vermont does not recognize portability between spouses. Each $5M exemption must be preserved at first death via a credit shelter trust — or lost forever.
• The Vermont real-property carve-out under 32 V.S.A. Section 7402 allows working farms and forestland enrolled in Current Use to be reported at use value rather than FMV, often reducing or eliminating the Vermont estate tax. Heirs must continue qualifying use for 5+ years to avoid recapture.
• Non-residents owning Vermont-situated real property face proportional Vermont estate tax. A $3M Stowe house in a $20M New York estate triggers approximately $360,000 in Vermont non-resident tax.
• The LLC restructuring move (Vermont real property → LLC → out-of-state irrevocable trust) converts the asset to an intangible interest, avoiding the non-resident sourcing rule. Setup $3K-$8K; savings often exceed $300K.
• On a $7M Vermont resident estate, the state tax is $320,000. On a $15M estate, the bill is $1.6M — reduced to approximately $960K after federal estate tax deduction under IRC §2053 if the estate is above the federal exemption.
• Vermont has no state-level gift tax. SLAT, annual exclusion gifting, and §2503(e) medical/tuition payments are the most underused tools for $10M+ Vermont families.