Wealth Choices: To keep or to shred? Organizing your financial records

February 14, 2007 03:56 pm

— Each year at this time we all go through mountains of paperwork that need to be organized and handled properly. The 1099s and year-end statements along with mortgage interest statements, bank accounts, etc., all need to be pulled together for tax time.
This tends to be a real chore for all of us. How do we know what to keep, how long do we keep it and what do we throw away? Here are a few guidelines as you gear up and determine what to do with all those financial records.
Personal records
Personal documents such as birth certificates, marriage or divorce and death certificates should be kept permanently in a safe deposit box or home safe. Others will include Social Security cards, medical history, employment records which all should be kept indefinitely. Documents that represent a certain time period (i.e. drivers license or insurance policies) can generally be discarded when they are no longer in effect. Legal papers that are out-dated may also be disposed of such as wills or trust documents. Be sure to have your attorney review before doing so.
Estate planning records
Wills, trusts, health care directives and power of attorney documents should be readily available. The original copy will be kept by your attorney or adviser and a copy should be kept in your home safe. In case of an emergency, your trustee or the executor of your estate will need access to these legal documents. If you are a personal trustee or an executor, you will need to keep these documents until the entity terminates and you obtain a release of personal liability from all parties, including beneficiaries and tax-related authorities.
Property records
Real property deeds, title papers, abstract and mortgage lien documents should all be kept in a safe deposit box until you are no longer the owner and tax dealings have been completed. Vehicle titles, licenses and registration should also be kept for the duration you are the owner. Inventory of household goods should be kept permanently while being updated yearly and kept in a safe deposit box as well as a copy for the home safe.
Financial and tax records
Financial and tax records are a little more complicated. Past tax returns can be kept indefinitely if that makes you feel more comfortable, but generally these do not need to be kept beyond three to six years. If the Internal Revenue Service performs an audit, it must be done within three years and then they have six years to challenge should they believe you underreported.
Keep in mind, however, the IRS has no time limit should they believe a tax return was not filed or filed fraudulently.
Investment records from mutual funds, stocks and bonds can pile up quickly. Keep year-end statements as long as you own them plus an additional three to six years should any tax questions arise. Monthly statements can be disposed of once you have the year-end statement.
In addition, the executor of your estate will need this year-end statement to determine cost basis and dividend reinvestment of all the assets you held at the time of your death.
Other records such as bank statements, savings certificates and credit cards should all be kept for the duration of ownership or possibly six years thereafter for tax purposes. Records of deductible expenses, income and tax payments should also be kept in a fireproof safe at home for six years at minimum.
Organization of records
Have all your records organized in marked files using an accordion file, a binder or box that can easily be accessible and can take with you in case of an emergency. The key document to implement is a master list of where all your financial documents are located, including bank account numbers, investment account numbers, insurance policy numbers, etc., and phone numbers of the financial professionals. Key family members should know where this master list is kept or retain a copy at home or somewhere else, such as an attorney or financial adviser.
Your efforts in this area are extremely valuable, not only financially but emotionally as well. You as well as your family members will have peace of mind knowing an organized plan is in place, easy to understand and will aid in the continuance of your affairs.

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