- Protect your most valuable assets. Have a written testament (will) with named guardian(s) for minor children and dependents.
- Maximize your human capital through hard work and the acquisition of knowledge, education, and skills.
I was early taught to work as well as play,
— John D. Rockefeller
My life has been one long, happy holiday;
Full of work and full of play—
I dropped the worry on the way—
And God was good to me everyday.
- Contribute to your cash or deferred arrangement (CODA) type retirement plans (401(k) or similar plans) to maximize employer matching contributions.
- Retire all high interest consumer and student loan debts. Refinance high interest rate mortgage debts. Stop the hemorrhage.
- Budget and save your earnings. First contribute into a taxable stable value emergency fund equaling approximately 3-6 months of non-discretionary expenses (necessary and usually fixed expenses). The sufficient size of your emergency fund is dependent on your individual circumstances (e.g., coordinated with the length of the elimination or waiting period on a long term disability insurance contract) and may be highly variable.
- Invest your savings. First contribute into Roth, then pre-tax (traditional), then taxable accounts (generally in this order, variations may prove superior depending on your individual circumstances).
- Protect your wealth and human capital. Self-insure (retain) to the maximum that you can comfortably afford and utilize appropriate, broad, and cost effective insurance contracts for major exposures that have the potential of inducing catastrophic financial losses (i.e., maintain the highest deductibles and longest elimination or waiting periods comfortably afforded for personal, property, and liability insurance contracts); utilize cost effective tax planning to maximize tax efficiency (e.g., appropriate contributions and allocations to tax advantaged accounts, judicious tax loss harvesting and tax gain harvesting, portfolio liquidation tax planning to maximize tax savings, appropriate tax deductions and credits, municipal bonds, U.S. Treasury securities, U.S. savings bonds, possibly non-qualified annuity contracts in rare and specific instances); utilize legal structures to limit liability exposures for the protection of personal and business assets and income (e.g., irrevocable trusts, IRAs and employer sponsored retirement plans, business or partnership structures).
Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.
— Judge Learned Hand, Helvering v. Gregory, 69 F.2d 809 (2d Cir. 1934)
- Plan your legacy. Utilize appropriate estate planning tools to preserve generational wealth, plan for physical and mental incapacity, protect your beneficiaries, and protect your legacy. Tools and strategies may include: testaments (wills), advance healthcare directives (living wills) and Physician Orders for Life Sustaining Treatment (POLST) documents, revocable living (inter vivos) trusts to avoid probate, transfer on death (TOD) deeds for realty to avoid probate (as an alternative to living trusts), appropriate choices of co-ownership property interests (titles for realty, tangible personalty, and intangible personalty) to avoid probate (e.g., titling as joint tenants with right of survivorship or tenancy by the entirety), bypass (credit shelter) trusts and irrevocable living (inter vivos) trusts to limit federal and state transfer taxes (e.g., gift taxes, federal and state estate taxes, generation skipping transfer taxes, inheritance taxes) and potentially avoid probate (applies only to living trusts), use of the unlimited marital deduction and election on IRS Form 706 for portability of the deceased spousal unused exclusion (DSUE) amount to limit and defer federal transfer taxes, use of qualified terminable interest property trusts (QTIP trusts, applicable to surviving U.S. citizen spouses) or qualified domestic trusts (QDOT trusts, applicable to surviving non-U.S. citizen spouses) to qualify spousal transfers for the unlimited marital deduction while allowing the donor / decedent spouse to control the ultimate disposition of transferred assets (election must be filed on IRS Form 706 or 709), custodial accounts for minor children (UTMA and UGMA accounts), family limited partnerships (FLPs) and family limited liability companies (FLLCs), lifetime gifting and utilization of the federal gift tax annual exclusion amount (including election of spousal gift splitting on IRS Form 709 or gifting of community property), charitable trusts, possibly permanent or cash value life insurance contracts in rare and specific instances, durable powers of attorney for healthcare and property, Section 1014 step-to fair market value in basis for assets upon death of the decedent (including elimination of potential depreciation recapture).