That is the obvious strategy for accumulating more wealth. In the estate planning context, the strategy is to "transfer low, pay less." Everyone is familiar with market fluctuations and how such fluctuations can affect one's overall portfolio and net worth. Recently, investors were reminded once again, how fragile, the stock market is. Substantial gains can be wiped out in a matter of days. Furthermore, those in the real estate market have begun to feel the effects of its slowdown.

For many, cash flow is not greatly affected by real estate market fluctuations and instead these changes in value are “on paper.” For those of us fortunate enough to live in Naples, we have seen how our net worth has increased simply because the real estate values skyrocketed between 1995 and 2005. Many became millionaires or multi-multimillionaires, “on paper,” simply because of the real estate they owned.

From an estate tax perspective unfortunately, the government looks at the “on paper” net worth and not how much cash flow one has as a guide to determine the amount of transfer taxes to assess when someone transfers assets via gift during lifetime or via bequest at death. Therefore, current valuation is the primary focus of modern estate planning.

There are periods where the stock market has been in decline or substantial increase. Likewise, the real estate market, although globally less volatile, also has a historical appreciation similar to that of the stock market. In Naples, regional growth has allowed historical increases to be much higher than 10 to 15% annually. Therefore, despite the recent declines in the markets, appreciation will likely soon follow.

The primary key in both financial planning as well as estate planning is using the market fluctuations to one's advantage. For many the focus is solely on the financial planning part of the picture. While one might have a substantially higher net worth when sound financial planning is implemented, eventually Uncle Sam will take away half of what is earned when estate planning is left unaddressed. It is likely that most Neapolitans who have real estate holdings in southwest Florida or similar historically growing markets up north, will end up paying higher transfer taxes simply because they own such property (and all appreciation that goes with it) in their estates at death.

Two key elements in estate planning center around the valuation of assets. The first is appreciation. The second is valuation discounts. When planning with real estate, both of these key elements can be utilized in such a way that greatly reduces or eliminates the transfer tax exposure on such assets. By taking advantage of a lower market and the inherent valuation discounts that can result from using fractional interest transfers or transfers involving partnerships and LLCs, one can leverage these two factors in minimizing one's overall tax exposure.

Therefore in summary, now is the time (while valuations are relatively low) to consider implementing an advanced estate and tax planning strategy that involves utilizing gifts of real estate or other soon to be appreciating assets.