21 Feb, 2023
Are you concerned about the tax implications of leaving wealth to your loved ones? You may wonder whether your estate will be subject to taxes when you die, and how you can reduce your liability. Or you may wonder whether a tax burden will pass to your beneficiaries or heirs. Most Vermonters do not need to be concerned about paying any estate tax when they pass away. In Vermont, estates valued in excess of $5 million are subject to a flat estate tax. However, careful estate planning may help to reduce or even avoid these taxes. At Bergeron, Paradis & Fitzpatrick PC, we believe that everyone can benefit from our customized approach to estate planning, regardless of the size of your estate. Read further to learn about estate taxes in Vermont and how our team of knowledgeable estate planning attorneys can help craft a plan that meets the needs of your family. Vermont Estate Tax Exemption The threshold for the Vermont estate tax is $5 million in 2023, which means that most Vermonters will not be subject to estate taxes. If your estate is worth less than $5 million, it will not be subject to estate tax in Vermont. Even if your estate happens to be more than $5 million, only the amount over $5 million will be subject to the estate tax, which is applied at a flat rate of 16%. For example, if your estate is worth $8 million, the first $5 million is exempt. Only the remaining $3 million would be taxed at 16%, resulting in owed estate taxes of $480,000. Determining the Value of Your Estate Determining the value of your estate is a critical step in any estate planning process. An estate planning lawyer can help determine whether your estate may be liable for any taxes, as well as identify steps you can take in your lifetime to avoid or reduce tax liability. It is also important to work with an experienced tax professional when assessing your tax risks. The value of your estate is the sum of all your assets minus your liabilities. Your assets can include everything from your savings account, to your small business, to an annuity that has not yet been paid to you. An estate planning lawyer can help identify and calculate the value of your assets and liabilities to determine the size of your estate. Federal Estate Tax The threshold for the federal estate tax exemption is $12.92 million in 2023 – therefore if your estate will not be subject to Vermont’s estate tax, it should also be free from federal estate taxes. Unlike Vermont’s flat tax, the federal estate tax rate is progressive and ranges from 18% to 40%, depending on the amount of assets over $12.92 million. Also unlike Vermont’s estate tax, the federal estate tax exemption is portable for married couples. This means that with the right legal advice, a married couple can protect up to twice the estate size ($25.84 million in 2023). No Vermont Inheritance Tax Many of our estate planning clients express concern for the tax implications to their beneficiaries and wonder whether their inheritance will be taxed. Quite simply, Vermont does not have an inheritance tax. However, some states do tax assets that are distributed to beneficiaries, even those out of state. If you inherit assets from someone who lived in another state, you may want to consult with a tax professional to determine whether any out-of-state inheritance taxes apply to you. Reduce Your Estate Through Gifting Fortunately, most Vermonters do not need to be concerned with state or federal estate taxes. Those who do may be able to reduce the size of their estate through gifts. Vermont has no gift tax, and federal tax law allows you to give away up to $12.92 million during your lifetime without triggering the gift tax. The annual federal gift tax exemption is $17,000 in 2023, meaning that you may be able to gift up to $17,000 to as many people as you want without triggering federal gift taxes. You should consult with a tax professional before making gifts which exceed the annual federal gift tax exemption. Contact a Vermont Estate Planning & Probate Lawyer Today At Bergeron, Paradis & Fitzpatrick PC, our highly knowledgeable and compassionate attorneys can help you identify your estate planning needs and draft a customized plan that works for your family. Estate planning isn’t just about protecting assets for the wealthy, and it’s not just a later-in-life concern. We can help ensure your needs are met regardless of your age or financial status. We offer comprehensive services for all aspects of the estate planning process, including: Wills Trust establishment and administration Asset protection General and specific powers of attorney Advance directives for health care Probate administration Adult and minor guardianship Medicaid planning Special needs planning Whether you’re looking to establish an estate plan or update an existing one, the dedicated team at Bergeron, Paradis & Fitzpatrick PC, can help. Contact us today for a confidential consultation and to learn more.