SPRING CLEANING TIME MEANS CLEARING OLD PAPERWORK
With tax day over and the need to collect and forward any number of financial and tax documents to the government and with the coming of spring, it is time to turn to spring cleaning. The question should be asked, what paperwork can I throw out, should I throw out and what paperwork should I keep. To be accurate, you should never throw out any financial paperwork, you should shred or incinerate such documents. It is inevitable that in any such endeavor, you will come across documents that matter for purposes of your estate planning, such as wills, trusts and the various financial documents that speak to your estate planning. In any event, you should rely on a system to help you collate these important documents for future use.
You should keep certain original documents in an easily accessible but safe place, such as a fire proof safe or perhaps even a safety deposit box. Things such as birth certificates or adoption paperwork, licenses and passports, marriage certificates, judgments of divorce, military discharge papers and social security cards. Other documents do not necessarily need to be kept as an original, they should be regularly review, at least bi-annually, if not more often. Documents such as a will, trust or other testamentary documentation will be kept by your attorney or law firm, but it still always best to maintain a copy or, better still, several copies on hand.
There are also a number of documents that you should keep on hand for only a limited period of time, such as W-2s, tax returns, pay stubs for the existing calendar year (and longer if your employer made a mistake). The IRS can audit you for any reason for the last three years of tax returns, last six years for mistakenly underreporting your income by 25% and can audit you at any time for a fraudulent tax return.
As such, it is best to keep your tax returns for the last seven years. To help your executor in their duty to file a tax return, if you have any recent evaluations of your home or other real estate or any other substantial asset, it is best to hold onto it and put it in an easy to find location. Documentation in regards to warranties and receipts for high end items should also be kept on hand, for at least the life of the warranty.
Documents in regards to brokerage accounts and other accounts that speak to your tax liability should be kept on hand for at least seven years. Since these documents are often in electronic form anymore, it is best to simply print them to pdf format (or any format where they will be protected from tampering) and store them in a secure online drive. The same holds true for medical bills, receipts for jewelry and other valuables, although generally these only need to be kept for one year.
Documents such as life insurance policies, accounts of any sort and information about social security benefits, veterans administration benefits (or any other similar type of governmental benefits) should all be kept in the same online drive. The username and password for the online drive should be given to the executor, with specific permission noted on how to access it and perhaps even list them as a co-account holder so as to avoid any potential issue of violated the end-user licensing agreement with the online drive company.