Death and Taxes: Five Things You Need to Know

In January, my mother passed away.

Benjamin Franklin was quoted as saying, "In this world nothing is certain but death and taxes." Unfortunately, society places upon us many legal and financial responsibilities associated with death. However, with proper planning, you can make the outcome of death -- from a legal and financial perspective -- more tolerable. I will now share with you some actionable ideas that will help you prepare for the certainty of death and taxes for a loved one or yourself.

Before I begin, please be aware that none of the following should be deemed to be direct legal or tax advice. For this, consult with qualified legal and tax professionals.

1. Start Funding Your Retirement Now

I have a saying about Social Security. It is that the contributions by individuals to the program are non-tax deductible charitable contributions. In other words, we cannot rely on Social Security to finance our retirement. Four reasons why: our population continues to outlive the Social Security Administration's earlier actuarial (statically probable) assumptions, thus pushing out the age of eligibility; the returns on Social Security consistently underperform alternative investments and will continue to do so unless participants (you and I) can elect to invest in a broader class of assets , such as index funds ; and Social Security is double taxed -- first when we earn the money and second when we receive payments in retirement.

That said, you need to prepare for retirement on your own and as early as possible. How: you want to do so in tax-efficient plans that the Internal Revenue Service (IRS) has made available to all of us. These plans are far superior to the antiquated and unreliable Social Security system. They include Individual Retirement Accounts (like traditional IRAs, Roth IRAs and SEP-IRAs, which vary as to current tax deductibility and future tax nature of withdrawals) and employer sponsored plans, such as 401(k) (for-profit employer sponsored plan) and 403(b) (not-for-profit employer sponsored plan).

Not only do such plans have the ability to defer income, they can also act as a form of life insurance. For example, my mother was able to build her IRA over time, withdraw from the account to provide income and after her passing it will now be left to her beneficiaries, which were designated to be her surviving children.

As a designated beneficiary, I can elect to take my portion in cash and pay taxes now or roll-over the account into a beneficiary IRA A beneficiary IRA allows me to continue to invest the proceeds of the original IRA, thus generating long term growth and income with the provision that every year I must take out a "minimum required distribution."

To learn more about IRAs, check out the IRAs section on TheStreet.com.

2. Purchase Contingent Put Bonds

Years ago investors purchased estate anticipation bonds -- more commonly known as "flower bonds" -- to help pay for federal estate taxes (which I explain in greater detail below). These bonds were purchased at discount (less than 100 cents on the dollar) to par value (full maturity value or 100 cents on the dollar) and would mature at par value upon the death of the holder. However, the last flower bond matured in 1998. In its place, an investor may purchase contingent put bonds through their registered broker . I suggest using a broker that has a large inventory of such bonds.

These bonds may be put to the issuer in the event of the death of the holder of the securities . A put is an option (see put option ) granting the holder the right to sell. However, there is no free lunch. A contingent put bond may be subject to the following conditions: