Tax on Inheritance in Vermont

Vermont does not impose a state inheritance tax, which means beneficiaries who receive money or property generally do not owe a separate Vermont tax simply because they inherited assets.

This makes inheritance transfers simpler compared to states that still tax beneficiaries.

However, Vermont does have a state estate tax that may apply to larger estates, which can affect how much is ultimately passed on to heirs.

Does Vermont Have an Inheritance Tax?

No. Vermont does not have a state inheritance tax. Beneficiaries typically do not owe state tax just because they received an inheritance.

Example: If you inherit a home or cash from a relative in Burlington, you generally will not owe Vermont inheritance tax on that transfer.

Unique Factors in Vermont

• Vermont has a state estate tax that may apply to larger estates
• The estate tax exemption threshold is lower than in some other states
• Real estate, including second homes and rural property, can significantly affect estate value
• Estate planning is often important for residents with higher-value assets

Does Vermont Have an Estate Tax?

Yes. Vermont imposes a state estate tax on estates that exceed the applicable exemption amount.

This tax is paid by the estate before assets are distributed, which means beneficiaries may receive a reduced amount even though there is no inheritance tax.

Could Federal Taxes Still Apply?

Even without the Vermont inheritance tax, federal tax rules can still apply depending on the situation.

Common federal considerations include:

• Federal estate tax for large estates
• Income tax on inherited retirement accounts
• Tax on income earned after inheritance
• Estate or trust income tax filings

Example: If you inherit a traditional IRA, withdrawals you take later may be subject to federal income tax.

What Types of Assets Are Inherited?

Inherited assets in Vermont often include a mix of financial and real property.

Examples include:

• Cash and bank accounts
• Residential and rural real estate
• Investment portfolios
• Retirement accounts
• Business interests
• Personal property

Do You Need to Report an Inheritance?

Receiving an inheritance itself is usually not considered taxable income. However, income generated after you receive inherited assets may need to be reported.

Examples include:

• Interest from inherited funds
• Dividends from investments
• Rental income from property
• Retirement account distributions

Probate and Estate Process in Vermont

Even though there is no inheritance tax, estates may still go through probate depending on how assets were structured.

This process may include:

• Validating a will
• Paying debts and final expenses
• Transferring ownership of assets
• Distributing property to heirs

Vermont may allow simplified probate procedures for smaller estates, which can help speed up the process in certain cases.

How to Plan for Inheritance in Vermont

Planning ahead can help reduce delays and potential tax exposure.

Common strategies include:

• Creating or updating a will
• Reviewing beneficiary designations
• Considering trusts for larger estates
• Organizing financial and property records
• Planning for estate tax exposure

Example: Structuring ownership of real estate may help manage potential estate tax impact.

Who Should Review Vermont Inheritance Rules?

You may want to review the rules if you are:

• Expecting an inheritance
• Serving as executor or personal representative
• Inheriting Vermont real estate
• Managing an inherited retirement account
• Reviewing estate tax exposure
• Updating your estate plan

Electronic Filing Recommendation 💻

• Keep copies of probate records, valuations, and transfer documents
• Review whether the estate must file Vermont or federal estate tax returns
• Track income earned by inherited assets after transfer
• Consider professional guidance for estates with higher asset values

Summary

Tax on inheritance in Vermont is straightforward for beneficiaries because the state does not impose an inheritance tax.

However, Vermont’s estate tax and federal tax rules may still affect how assets are transferred, and the total value heirs ultimately receive.