State receives $13 million from single estate

Here is a reminder about state estate taxes. While this article is from Vermont, don’t forget that Massachusetts imposes a significant estate tax for estates valued above $1 million (which can include Life Insurance!). In these current economic times, we do not expect that any state to eliminate or even reduce this revenue source. Careful planning, however, can reduce or eliminate this tax for your heirs. The choice is often whether you will engage in ‘voluntary philanthropy’ (like naming a charity as a beneficiary) or ‘involuntary philanthropy’ – meaning the State will take a chunk. Careful planning can help make these choices.

Burlington Free Press
By Terri Hallenbeck, Free Press Staff Writer

MONTPELIER — As lawmakers were stretching the last nickels and dimes to pull together the 2010 state budget last week, an unlikely thing happened: A $13 million windfall blew through the door.

That’s how much the state received in estate tax from one person’s estate last month.

“That’s a very unusual, large, one-time estate tax,” said Tax Commissioner Tom Pelham. He is precluded by law from identifying the estate’s owner. Somewhere in Vermont, someone died last year who was worth something on the order of $80 million to $100 million.

For the state, the $13 million in unexpected revenue is like an inheritance from a long lost relative and couldn’t have come at a better time. Various revenue that fund state spending have shrunk in the last year because of the ailing economy, forcing program cuts and layoffs.

As they put the last pieces of the 2010 budget together, legislators found the estate-tax money a welcome bandage to stop the bleeding. They earmarked $1.5 million of it for college scholarships that would otherwise have gone unfunded. The rest will be used as insurance in case revenue takes another dive in June. If the revenue doesn’t materialize, the money could help spare various state special funds from being cut and could give the state the first step out of a $67 million hole in the 2011 budget.

Because of that one estate, estate tax revenue was up $13.6 million above what economists had predicted in May, said state Finance Commissioner Jim Reardon. Other revenue continued to lag, he said, and the estate tax windfall left state $11.6 million over the expected General Fund revenue mark.

“Relying on a large settlement to balance your books is not the greatest position to be in,” he said, “but a worse position is not to balance your books.”

Estate taxes of that size are rare, said Joseph Bilodeau, a certified public accountant with Bilodeau Wells & Co. in Essex Junction. He estimated that a person’s estate would have been worth about $80 million to yield a $13 million tax bill. Many people with such a sizeable estates donate at least a portion to charity, making it tax-free, Bilodeau said.

Reardon said the state’s economist estimated the estate could have been worth $100 million, depending on whether all the assets were held in Vermont.