The days are getting warmer and longer and Spring is surely well on its way to arriving. Along with Spring, comes Spring cleaning and tax preparation. Between the throwing out and organizing associated with both of those things, it is a great time to get your financial and other important records in order and stored in a safe place. However, it can be very confusing to know which records to keep and for how long. This article will examine that question as well as provide tips on updating important documents.
In a recent article in Consumer Reports, the author suggests dividing your important records into four categories: (1) records you should keep for a year or less; (2) records you should keep for as long as you own the thing for which the records apply; (3) tax records that you should keep until the time for audit and amending your return has passed; and, (4) records you should keep indefinitely.
The records you should keep for a year or less include your ATM slips, bank and credit card slips and receipts. Once you’ve received your monthly statements and found no discrepancies, you can destroy these records except for the ones needed to support tax deductions. As with destroying any records containing personal information, you should shred the paper records and delete the corresponding electronic ones.
You should retain records for major purchases, including evidence of payment for the item, for as long as you own the item. You will also want to keep loan papers until the loan is paid off and vehicle records until the vehicle is sold. You will also want to keep investment statements until the investment is sold so you have the information needed to track income tax cost basis.
Tax records should generally be kept for seven years. This is the maximum amount of time the government has to collect the tax or start legal proceedings against you so keeping all tax records for this long should keep you safe.
There are other documents you should keep forever. These include your social security card, military discharge papers, estate planning documents and life insurance policies. Make sure you store these documents in a safe place, like a fire-proof box in your home. Also, make sure you inform your fiduciaries where they can locate these papers. They will usually need the originals to carry out their duties. Recently, a client contacted my office to say her daughter-in-law had thrown away her power of attorney while doing some cleaning. A good way to avoid a mishap such as this is to keep your very important papers in a separate envelope or file clearly marked as something that should not be destroyed.
While organizing your estate planning documents, it’s also a good time to consider whether they should be updated. I recommend reviewing your documents at least every three years to insure changes in circumstances and/or the laws have not changed in a way to negatively affect your documents. You should also review your estate planning documents whenever you know there has been a change in your life, such as the birth of a new child or grandchild, the death or disability of someone you have appointed to act in a fiduciary role for you, or a move to a new state.
As we approach Spring and tax deadlines, it’s a great time to organize your important papers and to toss the ones you no longer need. Dividing those papers into four categories based on how long they should be kept is one good way to streamline the task and make it more manageable. As you do this, however, remember there are some documents that should be kept forever, like your will and your powers of attorney. Not having or being able to locate the original of these documents might result in unintended consequences to your family and loved ones. While you are getting these documents organized and in a safe place, it is also a good time to review them with your attorney to make sure they are up to date.
The information provided is not intended to be legal advice and does not constitute an attorney/client relationship. You should consult with an attorney for individual advice regarding your own situation. Ms. Melancon is an attorney with Legacy Estate & Elder Law of Louisiana, LLC, with offices in Baton Rouge, LA and Prairieville, LA. The primary focus of her practice is estate planning, probate, special needs planning and elder law. For more information or to attend an upcoming estate planning seminar, call her office at (225) 744-0027.