Vermont Legislature SmartTranscripts:

[Rep. Emilie Kornheiser (Chair)]: Good morning. Today is well, it's Thursday, January 29. We are the Ways and Means Committee, if anyone didn't know. We have two members who are keeping their germs to themselves and taking care of their bodies, and we appreciate both of those things that they're on the Zoom. And today, we are going to go deep on the estate tax in the context of the FY 'twenty seven budget. We heard a little bit about that yesterday from Commissioner Gresham. I'm gonna hear more about it from Pat Chittenden at JFO. And then for the miscellaneous tax bill, we're gonna have our annual conversation about the Downtown and Village Center Tax Credit. At 11:15, we're gonna talk about how we count the kids in the school. There is a luncheon at the Capitol Plaza with Superintendents Association. Highly encourage folks to go. And then in the afternoon, we're gonna talk about reserve guidance. So it'll be like a little bit of a grab bag of a dick.

[Rep. James Masland (Member)]: Good to see And with that. Good

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Just

[Rep. Emilie Kornheiser (Chair)]: Any announcements? Carol, did you have good birthday?

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Okay. So I am going to talk about a few things relating to the estate tax, a little bit of history, a little bit of how it works, a little bit about where the money goes. And then I have some numbers I can share with you all too. So I guess first things first, Vermont does have an estate tax, we can confirm that. The feds also have an estate tax. I just wanted to start with them and talk a little bit about how that works for them. Estate taxes essentially is the value of all your assets when you die and they're being passed on. So from date of death, you have to file with the tax department telling them what the value of your assets are within nine months. They do a lot of some extensions in situations where people need a little more time to get that together. But on the federal level, there is a graduated schedule, but the first $15,000,000 if you are an individual person is exempt. So that amount, if you're below that threshold is not taxed. It's only the value of the assets above that 15,000,000. You can see the schedule here. So up to 10,000 above 15,000,000, it's up to 18%. That rate goes up to 40% once you're a million over the threshold.

[Rep. Emilie Kornheiser (Chair)]: Question already, and I feel like it's a very foolish question. I don't understand how you can have joint filing for an estate, and is it two people pass at the same time? I don't understand.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: That was my impression. I thought that was weird too.

[Rep. James Masland (Member)]: Thank you.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: I don't think that's an odd question. That was my impression.

[Rep. Emilie Kornheiser (Chair)]: It's if two people pass at the same time.

[Rep. James Masland (Member)]: I believe so. Like a

[Rep. Emilie Kornheiser (Chair)]: couple who filed together get in a car accident.

[Rep. Charles Kimbell (Ranking Member)]: Unless it's a joint trust.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: That could be another situation. Will

[Rep. Emilie Kornheiser (Chair)]: you look more into that?

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Sure, yeah.

[Rep. Bridget Burkhardt (Clerk)]: Thanks. Okay.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: But yeah, so for a married couple or for joint assets, it'd be up to 30,000,000. So again, it's only on the value above those thresholds that the feds are taxing these amounts. And so these were temporary, made and expanded temporarily in TCJA. HR1 made them permanent. And then also TCJA at the time had increased these amounts. So prior to TCJA, it was more like $5,500,000 for single, about $11,000,000 for a joint estate. It is the last, since 2017, it's a big, basically tripling of that exemption threshold amount at the federal level.

[Rep. Emilie Kornheiser (Chair)]: I'm going to take this opportunity to encourage other people to join my particularly nerdy little journey on the choice about adding single and joint to any piece of tax policy sometimes makes a lot of policy sense, and sometimes it doesn't. But we tend to do it automatically without regard to the policy intent or the implications. And so I just encourage people to actually pay attention to it, because it sometimes becomes white noise because it's mentioned with almost all tax policy.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Words. Sorry. That's actually so sorry.

[Rep. Charles Kimbell (Ranking Member)]: Notice what you're saying about jointly owned assets. If there's a couple and one person dies, and the other person does not have to pay a state tax if it's a jointly owned asset until they've passed, so that's why it's 39. So if there's two people, just kind of thinking it through as

[Rep. James Masland (Member)]: to how

[Patrick (Pat) Chittenden, Joint Fiscal Office]: that would work. I will double confirm that, logically, makes sense. But that was a good segue because Vermont does it a little differently. Irregardless of how many people we're talking about, Vermont has a $5,000,000 threshold. So again, amount, only the value of assets over and above that $5,000,000 Vermont taxes at a rate of 16%. And in a couple of slides, I'll tell you why we chose the number 16%. Yeah, so Vermont's thresholds or threshold is much more similar to what the federal feds had in pre TCJA, although in 2019, 2020, and I think 'twenty two, those sort of increased on a graduated basis. And you can see what those numbers were prior.

[Rep. Emilie Kornheiser (Chair)]: Also, like, extra exemption for farm property.

[Rep. Bridget Burkhardt (Clerk)]: Farm or Farm. Farm, like ag.

[Rep. Emilie Kornheiser (Chair)]: Yes. Cool. Sorry. I didn't notice that.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Look at those details again though.

[Rep. Charles Kimbell (Ranking Member)]: I haven't looked at it in a lot. Could just say that's the main field.

[Rep. Emilie Kornheiser (Chair)]: Oh, it's like the day just started.

[Rep. Bridget Burkhardt (Clerk)]: I'm the artist.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Yes, got it.

[Rep. Emilie Kornheiser (Chair)]: You brought

[Rep. James Masland (Member)]: it up, I just want to look

[Rep. Bridget Burkhardt (Clerk)]: at that? He's asked me to

[Rep. Emilie Kornheiser (Chair)]: look at it, yes.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: I don't have anything in this here, but I'll look at farm.

[Rep. James Masland (Member)]: Yep. Good question.

[Unidentified Committee Member]: Why in a state, why would you, if you've got great deal, you want to conserve it, why would you put it in a state? Why wouldn't you have maybe a trust fund? I wonder whether things are shifting away, maybe from states to trust. I'm just curious.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: So I think maybe a CPA might be a little more qualified than me to talk about something like that, but it is certainly something both very wealthy people to utilize is trust. I know there's a lot of options, we'll put it that way, for tax treatability when you go some of those routes. But I mean, I guess I don't have additional information on that right now. No, just It's certainly a good question to ask.

[Unidentified Committee Member]: I'm curious and also curious whether taxes on the states is maybe going down and it's maybe people trying other ways.

[Rep. Emilie Kornheiser (Chair)]: And we can take more testimony about it because it's a very interesting question.

[Rep. James Masland (Member)]: Don't know

[Rep. Emilie Kornheiser (Chair)]: if it's Tax avoidance.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: In the next few slides, I do have some historical real estate tax receipts on the Vermont level. But as I mentioned, the Vermont threshold has increased in the past. So in 2020, it increased from 2,750,000 to 4,250,000. And then it again increased from 4,250,000 to 5,000,000 where we are today. That's a static amount. So, the federal amounts are indexed to inflation. Vermont is static and we do this in a few other areas of tax law where we keep things static rather than growing by inflation. But in effect, what that does end up doing is because it's not pegged to inflation in real dollar terms, that threshold amount goes down over time. In nominal terms, it's constant, stays the same. But in real dollar terms, know you've had Joyce and Julia here to talk about inflation and all that. So hopefully that

[Rep. James Masland (Member)]: We're actually

[Rep. Emilie Kornheiser (Chair)]: gonna do it again. Excellent.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: So maybe that's a good thing to keep in the back of your head when you hear about that again. So yeah, we're at $5,000,000 is the threshold now. Before 2001, all 50 states actually had an estate tax. And this is actually an interesting thing to think about also as an example, because I know you've been talking about coupling, decoupling and that sort of stuff. But prior to that, the federal government had provided a credit up to 16% of the state's value for state estate taxes. So remember Vermont taxes at 16%, right? What states would do is they would just link up to the federal credit amount, set their tax rate equal to the federal amount, because in effect what that was doing was maximizing the amount of money that states brought in without changing the total amount of federal plus state taxes that the estates were paying. It's really hard to say state and estate in the same sentence. But in the Economic Growth and Tax Relief Reconciliation Act, which was passed in 2001, phased out that credit amount. So by 2005, it was completely gone. They replaced it with a small deduction that really didn't offset that. But because states were all linked, coupled with the federal treatment, in effect, over that period of 2001 to 2005, their estate taxes were going down because they were linked up and if they didn't act, it just went away. So, today, this is basically the list of states that chose to decouple and implement their own estate tax policy. You can see that there's a lot of vestiges of historical treatment. A lot of these states still had that 16% rate that they had just because they were historically linked up to the federal amount. There's a few states, Connecticut, Hawaii, Washington, a few others that chose to go at different rates because they said maybe, well, there's no actual reason for 16%. We can kind of pick whatever we want now. And so, they did. And you can also see that the exemption thresholds vary quite a bit. Connecticut, they have almost double or twice as large exemption threshold, whereas Oregon is only at a million. So it's the value of assets over and above a million there. In Oregon and Connecticut, the value of assets over and above 9,100,000.0. So Vermont sits right around the middle in terms of where our threshold is at compared to the states that have an estate tax.

[Rep. Emilie Kornheiser (Chair)]: Surprised how low

[Rep. James Masland (Member)]: New York says. I'm gonna

[Rep. Charles Kimbell (Ranking Member)]: have New Hampshire on that.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: The Tax Policy Center did not either.

[Rep. James Masland (Member)]: Zero.

[Rep. Emilie Kornheiser (Chair)]: Not in Hampshire. They really go at it their own way, don't they?

[Patrick (Pat) Chittenden, Joint Fiscal Office]: But there are plenty of other New England states on here. Talking about some of the numbers. So, in statute in any fiscal year in which the general fund surplus, sorry, in which there is a general fund surplus, so above the forecast, and the general fund stabilization reserve is fully funded required at its statutory level. Funds that are raised on the estate tax levied under Chapter 32 that are more than 125% of the amount projected by the emergency board in the July annual forecast. So this is what I know Commissioner Gresham wasn't here talking with you about yesterday. So any time when the estate tax goes above 125% of what was forecasted, there's an automatic mechanism that sends those funds to the Vermont Higher Education Endowment Trust And so, how often does that trip? Well, in the last ten years, it's been twice. I did find some examples in the earlier 2000s where So, maybe in the last twenty years, it's happened six or seven times that it's gone above 125%, but you can see last year, and maybe why this has become a topic of interest, we had one of the highest performing years for the estate tax. So in that year, we were $26,400,000 above 125% of the forecasted amount. So, total receipts was 55,200,000.0. I think at the time Tom Covet told me that Vermont received the single largest estate tax payment last year, which contributed to a lot of this. So, I guess one way to think about that too is the revenue is extremely random. It depends on who's passing, what they're passing with in terms of assets and you know, how what the tax treatment or sort of the structure of their state is, right?

[Rep. Emilie Kornheiser (Chair)]: Yeah,

[Rep. James Masland (Member)]: thank you, Patrick. As a State College trustee, just for the purposes of the discussion around the table, I noted with great interest in the amount of money that's available for scholarships for UBM, BKSU. If we dig into this, I'd be curious to know how efficiently we raise that revenue, I suppose, since it's part of a, you know, the estate tax. It would be a different discussion if we wanted to broaden the discussion to talk about more efficient ways of raising revenue for scholarships. I'm just saying, for the record, I take an interest in this topic quite a bit, you know, so no need to dwell on it now. But ATSU and UVM and VSAC are certainly grateful for the amount of money that is available for our scholarships.

[Rep. Emilie Kornheiser (Chair)]: And the commerce and have a hearing.

[Rep. Bridget Burkhardt (Clerk)]: We have a joint hearing at ten in Room 11, I'm gonna go to About this. About this, because this is managed as an endowment that is allowed to do either 2.5% or 5% of assets in any given year to VSAC, UBM and the state colleges. And so there's the question about how this is funded. There's also the question about whether funds are pulled out of it for a specific project this year at UVM, which is not related to sanctions.

[Rep. James Masland (Member)]: Great, thank you.

[Unidentified Committee Member]: I read recently where the treasurer's office presented several scholarships to all of the state university schools, UBM and such. But that was from the treasurer. Was that the

[Rep. Bridget Burkhardt (Clerk)]: Vermont Higher Education Endowment Trust Fund.

[Unidentified Committee Member]: Endowment Trust. That's the treasurer's office.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: So, if you want to learn a real deep dive on that trust fund, the treasurer's office are the

[Unidentified Committee Member]: ones administered. Those scholarships went to the student, not the

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Yeah, sorry. And I have a little more information on this later, but the treasurer is in charge of administering the fund, but they do distribute the funds directly to those institutions for them to do the actual granting of financial aid.

[Rep. Emilie Kornheiser (Chair)]: And if one person wants to join Representative Burkhardt to go downstairs to that, they're welcome to. If more than one person goes, we're gonna have quorum problems because we have two people out sick.

[Rep. Charles Kimbell (Ranking Member)]: I'd like

[Rep. James Masland (Member)]: to Bridget, just keep me in the little push at you. Okay, great.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: And so, a little quick caveat about this table is this is the information I got directly from the tax department. They pulled it out of BEAT tax. Doesn't match up with what we saw on the previous slide because they have organized it there in terms of date of death. So that comes into play when tracking. I mentioned earlier that people have nine months to file with the tax department after date of death, they do a loss of extension. So these are all tied to date of death. With that said, are every year there are more filers than there are actual payers of the estate tax. Part of the reason I think has to do with verifying value if you're close to the threshold. Is there some language in the miscellaneous tax bill about this from the administration? Might be.

[Rep. Emilie Kornheiser (Chair)]: Verifying the value of estates?

[Patrick (Pat) Chittenden, Joint Fiscal Office]: No, around who has to file.

[Rep. Emilie Kornheiser (Chair)]: Yes, there is.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: So that distinction there is partially related to that. But you can see in any given year, there's about 40 to 60 people who actually end up paying the estate tax. Twenty twenty five numbers are preliminary, partially due to that nine month thing that's going on there. But you can see that in an average year, estate taxes of around or sorry, this average estate tax paid is around 250,000. And so far this year, the average payment amount has been about 1,000,000. Again, that's preliminary, but you can see that if so, in '23, 60 different estates contributed $25,000,000 that averaged to about $400,000 in state estate taxes in that year per estate that was required to pay. But yeah, I mean, you could see that over time, it has been sort of generally growing, but on a very inconsistent basis. Some big spikes, some troughs, not necessarily the most consistent tax type we have on the books. And just to reiterate, in the last ten years, it's only been above that 125% threshold twice. Okay, so this also ties very directly into Vermont's demographic picture. So this figure here is from a report on household wealth that Joyce Manchester wrote two years ago, I think, maybe last year.

[Rep. Emilie Kornheiser (Chair)]: I have no time anymore.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: This is just showing average and median household wealth by age group. So you can see the younger you are, the lower it is up until about the ages 65 to 74. That's when wealth typically really peaks in most households and this is national data. But then as households start to draw down on retirement accounts, that amount on average and the median amount does decrease. But you can see that wealth in The US is definitely much more highly concentrated at the older side of the population. And why does that matter for Vermont? We are an aging state. You can see here, so the blue line is 2020, the green line is 2023, and this is the shift in Vermonters age over that time. One thing I want to draw your attention to is this sort of large blob or mound that is slowly moving towards older years. And so, these are people who are going to be transitioning into what we saw on this slide, their highest period of household net wealth. I don't know how to put this sort of in a nice way, Don't but

[Rep. Emilie Kornheiser (Chair)]: always talk about it delicately. Delicately. Please go on in.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: But these are also people who are approaching

[Rep. Emilie Kornheiser (Chair)]: The time they might file for an estate tax.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Exactly, I like that. They might have to file for an estate tax. So, yeah, and so, Vermont is an aging state and we have a lot of people who are moving into this period of their life, a large amount of health held by this group. I'm not gonna tell you there's gonna be a big influx of estate tax receipts. However, if you draw some connections and patterns between these different sides, you might reasonably think that there could be a larger number of people filing for state taxes in the coming years.

[Rep. Emilie Kornheiser (Chair)]: And just for the record, unrelated to the equity tax, those two graphs together are one of the reasons that I think that an income based education tax won't work. I just want to update that. But that an income based education tax won't work, yes. I had

[Rep. Bridget Burkhardt (Clerk)]: a question somewhat related to that, which is what happens if you have a second home or chunk of your estate that's in Vermont, and you are trying to be a resident of Florida or North Carolina or something, how does the state tax work in that case? Where's nexus for the state tax? Does it just get divided up? Assets are here, assets are there, and you pay those different states according to their?

[Patrick (Pat) Chittenden, Joint Fiscal Office]: I wish Kirby was here right now, because that's another, relating back to the question about trusts, that's another area that has some nuance to it, know. I would venture to guess, but I don't wanna be wrong.

[Rep. Emilie Kornheiser (Chair)]: We can take more testimony on some of that. And also, we're gonna talk about a state versus inheritance Yes. In a minute. And I think that also gets into that.

[Unidentified Member (Zoom participant)]: Madam chair, could I ask a quick question?

[Rep. Emilie Kornheiser (Chair)]: Oh, yes. I'm so sorry. Didn't see your yellow hand. No.

[Unidentified Member (Zoom participant)]: You're good. I know with the screen sharing. Might also be a question for Kirby, but off of, representative Burkhardt's point. How is asset value calculated for purposes of the estate tax? Like, there's the easy ones like the car and the house that are worth x amount of dollars, but, like, what about the jewelry box in the house, you know, etcetera? So curious as to what goes into the calculation of assets for purposes of these date tax.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: So I don't know about the jewelry box. For something like a brokerage account or a retirement account, they'll often pick the date of death and freeze the value of those assets at that point for doing the total valuation because obviously with market accounts like that, they're going to go up and down every day. So, in an instance like that, they'll usually pick a date for when to value the assets. I don't know about the jewelry box. I assume if you have a huge art collection at some point, fine art, at some point, you're probably going to have them valued for purposes of Insurance. Insurance. Yep. So that could be one way, but yeah, I defer to someone with a little more knowledge than me on that specific part of it.

[Rep. Emilie Kornheiser (Chair)]: So in addition to hearing from Kirby, we'll hear from some accountant types on how such things work.

[Rep. Charles Kimbell (Ranking Member)]: When you were showing the other graph about the number of estate tax filers, given the grid that you've just showed in terms of people aging, you would expect that number to continue to grow if people are there are still wealthy people among those that are have more than 15 or $5,000,000 in an estate, but that number, at least for three years, which is not a trend, it is a trend, but not long enough. If that number keeps going down, then that might point to something. Because it should go by demographics, it should be going up.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: And one thing just to remember when looking at this particular chart, remember earlier I had that slide talking about how in twenty twenty and twenty twenty one Vermont actually increased the threshold, which would have pushed some people below it, which could factor into the number of filers you see there. But I know you all had a conversation, have had conversations about correlation and causation. I'm seeing some correlation between some of these things. I don't think you can necessarily draw a direct link because yes, they do have to file for an estate tax, but they also still have to be over the threshold. We might have people in that period of their life, but we can presume that we'll have more people who are above that threshold when we look at some of this data, but we don't for sure.

[Unidentified Committee Member]: This may not be a question for you either. So, when you talk about these pilots, who are I mean, the family members, what if there's nothing to do with the filers then?

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Presumably the executor of the estate is required to sort of do the valuation and submitting the tax forms to the tax department. The tax is levied on the estate itself and there's a little, maybe we can go, I have some slides talking about what is an estate tax? What is an inheritance tax? So, we can actually jump right into that. So, I guess I'll just say estate taxes are levied on the estate itself. So, the estate being the entity that is taxed and the value of its assets prior to any distributions to beneficiaries. Inheritance tax kind of captures it at next step rather than prior to distribution. So inheritance taxes are levied on the beneficiaries themselves who are receiving the assets and they're taxed up based on the value of their share of the assets they receive. Interestingly, from 1955 to 1971, Vermont had one of these. And I thought this part was funny. In chapter 32, there is a subsection in there that I guess has been in there since 1971 that just references the repeal of this estate tax. It

[Rep. Emilie Kornheiser (Chair)]: references the repeal?

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Yeah, it just says inheritance tax, below that repealed. So, it's been in there for a really long time. But yeah, so the most important distinction is who is paying the tax. So, for the estate tax, it's the estate itself and the inherited tax, it is the beneficiary. And I'll talk about how some states do have inherited tax and it's treated a little differently. But I think part of that distinction maybe relates a little bit to Representative Burkhardt's question about where you live basically or where the assets themselves are housed under an inheritance tax system. If I have a relative who passed in Tennessee, they left me money in Vermont and Vermont has an inheritance tax, I would pay an inheritance tax in the state of Vermont. But conversely, if we had a Vermonter who passed and their beneficiaries were in Massachusetts or somewhere else, Vermont would be capturing that without an estate tax.

[Unidentified Committee Member]: What's the thought if I had a huge estate? I think I'd start putting some of my assets, naming the beneficiaries beforehand and have them named within the by a property. Try to get away from paying some of these taxes by having my relatives named as co owner with me.

[Rep. Bridget Burkhardt (Clerk)]: There are a lot of

[Patrick (Pat) Chittenden, Joint Fiscal Office]: good ways to mention it.

[Unidentified Committee Member]: And I don't know, there's probably no way of accessing those individuals

[Patrick (Pat) Chittenden, Joint Fiscal Office]: are can't remember. There is.

[Rep. Bridget Burkhardt (Clerk)]: We're all thinking we need get

[Rep. Emilie Kornheiser (Chair)]: a CPA. We're gonna so we will take more testimony from both the CPA and from Kirby. And tomorrow, we have testimony on compliance and the tax department. And so I think these are also interesting questions for them.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: One thing

[Rep. Emilie Kornheiser (Chair)]: There's legal avoidance and then there's on the edge of legal avoidance and then

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Well, and also

[Unidentified Committee Member]: as we're getting older, of us may

[Rep. Emilie Kornheiser (Chair)]: Only some of us.

[Unidentified Committee Member]: In nursing homes or assisted living homes, before you go into those areas, you probably want to start moving some of

[Unidentified Committee Member]: your

[Unidentified Committee Member]: assets from your control into somebody else's.

[Rep. Bridget Burkhardt (Clerk)]: We should hear testimony on that too, I think.

[Rep. Emilie Kornheiser (Chair)]: We will hear more testimony on how the tax avoidance, which is what I'm yes. Gonna

[Rep. Bridget Burkhardt (Clerk)]: absolutely. Also, tax avoidance is why people do have trusts, because very often a trust, you could have a modest amount that's certainly under this family of children, or you just want to avoid probate. So I think we need to hear And all these

[Rep. Emilie Kornheiser (Chair)]: we have heard a lot of trust testimony in the past when updates have happened to trust law, but having a holistic look to center that would be helpful. Pat?

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Yeah, I guess just quickly anecdotally, I don't look at it very often, but whenever I have been in grand list data, there's a lot of houses that have ownership under XYZ Family Trust is the name of the owner. So there are states with inheritance taxes and some of them do administer it differently. Two examples I pulled, so New Jersey, surviving spouses, parents, children, and grandchildren are all completely exempt from this tax. However, siblings, nieces or nephews and other beneficiaries would pay 16% on their share of assets that they received as a beneficiary. In Pennsylvania, surviving spouses are exempt and adult direct descendants paid 4.5% tax and then siblings pay 12% and the other heirs paid 15%. So, just a couple of states that do it differently. And one thing that seems fairly consistent among states that do have inheritance taxes, they do vary the rate based on the relation to the deceased. So, it's, I guess, one lever they use for any particular policy feelings they have about tax treatment and relationship to the deceased. But this is just a map of who has what. I do wanna do a little more digging on Maryland because they seem They somehow have both, and I'm not quite sure how that works in terms of when you think about wanting to avoid double taxation of things. But in Vermont, where I guess in the Northeast, outside New Hampshire, all those states have an estate tax, which we saw earlier. There's 12 total who have one. Presumably Well, actually all of the states that don't have an estate tax now either did nothing and when the federal phase out of the credit went away, tax rate respectively went to zero or they just opted to appeal it outright. So, that is sort of the national look. Generally speaking, estate taxes are easier to administer because and part of that is because they generally apply to fewer people and historically were structured to align with federal tax rules. So it was sort of a well defined process that states could kind of just pick up where the feds left off and kind of continue administering it in the same way. But I think really the crux of the administratability of it is you're really talking about just the one entity, particularly in situations where there could be a half dozen or a dozen beneficiaries. So from that perspective, it's just taxing the value of the assets before any distribution, you're really only working with one entity. It's a simple way to put that. But there's some flexibility with inheritance taxes that you can tailor the rate that people are paying based on their relationship to the deceased. And I have seen a couple of arguments that inheritance taxes do sort of more directly tie the tax with the individual's ability to pay and sort of,

[Rep. Emilie Kornheiser (Chair)]: yeah, What it do you mean?

[Rep. James Masland (Member)]: So

[Rep. Emilie Kornheiser (Chair)]: I'm so sorry.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: If you get a lot from this tax, or from an estate, as opposed to someone else who's receiving some funds from it, you are going to be Sorry, let me back up for a sec. The estate tax in most other states, they have graduated schedules. So it's more of a marginal tax bracket rate. So if it's a big estate and they're getting hit at the highest marginal rate, for someone who's receiving a relatively small portion of that estate, it's sort of an indirect way where they could be getting taxed at a higher rate than they would have otherwise at their inheritance tax.

[Rep. Emilie Kornheiser (Chair)]: That makes sense. But it's not So if an estate was divided evenly and one of the beneficiaries had a lower income themselves than the other, that's not what you're referring to. No, that's

[Rep. James Masland (Member)]: not what I mean.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Yeah, this kind of looks outside. Mean

[Rep. Emilie Kornheiser (Chair)]: It's actually someone's other financial picture.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Yeah, if inherit an IRA account, you'll still be when you take distributions from that, you'll be paying income taxes on that, but this is just sort of a standalone tax type. So that was inheritance tax and state tax. I was just have a few slides talking about where the money goes in Vermont currently if we get above that threshold. So statute does provide the state treasurer with the ability to distribute 5% of the funds 12 quarter moving average value and it's divided equally between UVM, BSC and VSAC. Those entities can only use those funds to provide non loan financial aid to Vermont students attending Vermont post secondary institutions. There is an additional amount that the trust fund council and the secretary administration can approve up to 2% more split equally between UBM and VSC and that's for endowment donation matching. It's to support their endowments. And importantly, the 52% distributions that the treasurer's office can make, that can only be made from the earnings in the trust fund account, it can't be made from the principal. So basically what in effect what that does is it just protects the perpetuality of the trust fund account, so it can continue to make these distributions going forward. In another slide, I have the balance from the last two reports that their offices released. But yeah, again, it's really, it's by doing it in that way and not dipping into the estate tax revenue that's been deposited, the actual principal amount, it just allows it to either keep growing over time and continue to be able to make it or just to be able to maintain sort of what the service is providing now.

[Unidentified Committee Member]: Patrick, if UVM, VSC, and VSAT as stated language, VSC is now Vermont State University. I should update that. And then that

[Rep. James Masland (Member)]: Yes, if want to use it. But

[Unidentified Committee Member]: that would include Randolph, BTC, Vermont Community College, and the three others.

[Rep. James Masland (Member)]: Okay, right.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: I yeah. Think

[Rep. James Masland (Member)]: They're all part of ATSU.

[Rep. Emilie Kornheiser (Chair)]: And then for transparency, you're a trustee of the state colleges and you're a

[Rep. Bridget Burkhardt (Clerk)]: trustee of UVM and you're on this? The council.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: This council, okay. Okay, based on

[Rep. Emilie Kornheiser (Chair)]: that. Did I miss anyone? You're not on. Great. Okay.

[Rep. Charles Kimbell (Ranking Member)]: Just lives in a town

[Patrick (Pat) Chittenden, Joint Fiscal Office]: that happens to

[Rep. James Masland (Member)]: have Okay. Thank you. You should about former

[Rep. Emilie Kornheiser (Chair)]: trustee. That's we can never mean, think Charlie was class president of IBM at some point. Yeah.

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Okay, so we left off at protecting the principal amount so it can continue to do this moving forward. In 2024, distributions funded six seventy five scholarships, $1,400 per student. 73% of those scholarships were awarded to first generation students. And then also in that report, in fiscal year twenty twenty five, the funds portfolio posted a gain of 11.4, which is why they were able to approve that full 7% distribution amount totaling $2,600,000 So from that amount, UBM, VTSU and VSAT each received about $600,000 for the non loan financial aid. And then UBM and VTSU also received just a little under $400,000 for their endowment support.

[Rep. James Masland (Member)]: Conducting. And

[Patrick (Pat) Chittenden, Joint Fiscal Office]: I just pulled the two balance sheets from the last two reports that the treasurer's office publishes. You can see, and this connects back to that chart when I showed you how many years we have tripped that 125% threshold. In the opening balance for 2024, there was no transfer of estate tax into this trust fund. And I have that sort of box there in red, but then you see that large influx that we saw last year, the 26,400,000.0 over and above that 125% threshold, you see where it shows up in the balance of the trust fund there. And it really is quite a significant jump in the funding that is in this account. You can see prior, it was about $37,000,000 in principal balance that was in the account. And so, transfer this past year almost doubles that amount that's in the trust fund. So, it is in the context of the size of the fund, a fairly significant increase in the amount of money that is in there.

[Unidentified Committee Member]: Are these scholarships just for Vermont students or is it

[Unidentified Committee Member]: any questions?

[Patrick (Pat) Chittenden, Joint Fiscal Office]: Yeah, so what I found was that financial aid to Vermont students attending Vermont's post secondary institutions.

[Rep. Emilie Kornheiser (Chair)]: We're on the transparency kick, I think my daughter gets one at least. Did you have something Bridget? No.

[Rep. Charles Kimbell (Ranking Member)]: Do you have a slide of history of the distributions?

[Patrick (Pat) Chittenden, Joint Fiscal Office]: I don't have a slide, but it's in the reports, and I could compile that if you want.

[Rep. Charles Kimbell (Ranking Member)]: Was wondering if now, It's a loaded question, but I'm trying to just thinking about the demand is not limited. I'm just trying to phrase it the right way, so that the distribution from the fund at 5% of whatever the earnings, maybe it's $3,000,000 a year, it's not that there's that the deed is only $5,000,000 a year in total, It's unlimited, I would think, in terms of the financial aid that is needed by Vermont students or by the universities that are recipients of the fund. That's what I'm trying to convey, so there's no longer a

[Patrick (Pat) Chittenden, Joint Fiscal Office]: lot of That probably is the question more for one of the entities that receives the distributions or maybe the treasurer's office. What is the unmet need at this point? But I did see in one of the reports, I think it was, they do focus a lot of these scholarships on that last mile connection. Let's just bridge this last piece of the gap to get you to be able to come here. So that's why in the context of how much is tuition these days, dollars 1,400 is not insignificant, but it kind of falls in comparison to the total cost.

[Rep. Bridget Burkhardt (Clerk)]: Representative Masland?

[Rep. James Masland (Member)]: Yes, Representative Kimbell's question is appropriate, and yes, the unmet need is ongoing, particularly as small colleges like ETSU and also UVM are trying to increase their role as demographics change. As much as available, ETSU, for example, can use appropriately for first generation refiners and others who need the resources. I ought to speak up a little bit for those out there somewhere, but anyway, thank you. You are so welcome.

[Rep. Emilie Kornheiser (Chair)]: Will we

[Rep. Bridget Burkhardt (Clerk)]: have time to take testimony from DTSU or Especially UBM is interesting because UBM benefits from this, but then there's also, in the governor's proposed budget, dollars 15,000,000 to come out of the assets of this to go to UVM for a specific project.

[Rep. Emilie Kornheiser (Chair)]: So our responsibility is the money that comes in, and other people's responsibility is the money that goes out. And so when you and Representative Ode and whoever else watches the testimony later in those two committees sees a spot where that makes sense, let me know. But I don't want to step on the toes with those other two committees, who I think are both feeling very diligent about this issue. Any other questions for Pat? The thing I'm sitting with is this idea that sort of the a wealthy generation is shifting along that axis and what that means for how we want to be planning for the future as a state. Thank you. We have a break until 10:15?

[Rep. Bridget Burkhardt (Clerk)]: Yes. Yes.

[Unidentified Committee Member]: Cool.