Tax staff brief committee on estate tax rules, 2‑year lookback for gifts and trust consequences

Department of Taxes staff told the Ways & Means Committee that estate tax administration rests on domicile: a decedent has a single domicile and Vermont assesses estate tax on Vermont residents’ worldwide taxable estate. Will Baker said nonresidents owe Vermont estate tax only on Vermont situs assets and only when a taxable estate exceeds $5,000,000.

Baker said the department commonly discovers estate tax liabilities when property transactions or financing trigger title clearance and the department issues clearance certificates. He described the difficulty in catching nonresident taxable estates until a sale or transfer occurs, when title companies and buyers require tax clearances.

On trusts, Baker warned that transferring assets to a trust does not automatically remove them from the taxable estate; Vermont looks back two years on gifts (including transfers to trusts) to determine whether those assets are included in the taxable estate. He contrasted Vermont’s two‑year lookback with the federal three‑year lookback for gift tax and recommended that policymakers consult trust and estate attorneys before making legislative changes because estate plans are often longstanding and changes can create cascading effects.

A committee member stated for the record that they do not plan to change estate tax law this year. No votes or legislative actions occurred at the session; staff urged careful stakeholder engagement for any future policy changes.