Our clients often look over the piles of paper (old financial records, mostly) accumulating in their homes, and ask us whether they really need to keep all that stuff. Is it important to hold on to all those documents for legal, tax or other reasons?
Sometimes, by the way, the question comes from clients who are cleaning out their parents’ homes. True story: when my own mother moved from her home of almost fifty years a few years ago, I helped clean out closets of old files and records. I found my parents’ check register from the month I was born (and, of course, months and months before and after). Excited, I figured I could find out how much they paid the doctor. Not having found an entry, I am now mostly worried about being repossessed.
But back to our question. What do you need to keep? Here are a couple things to keep:
- Tax records for the past seven years. Why seven years? Because the federal statute of limitations for taxes is generally six years (that’s not quite right, incidentally, but assuming you are not committing tax fraud you can rely on that figure), and keeping one extra year makes sure you have documentation if something does come up. But before we move on, let’s make a couple points here: your old bank statements, cancelled checks for non-deductible items like utilities for your home, and an awful lot of the paper people tend to throw into the “tax” file are simply not important for tax purposes. And keeping what you do keep in an electronic format is perfectly fine. So you can probably clean out quite a bit of that “tax” file, too.
- Original documents with independent significance. What do we mean by that? Wills, trusts, powers of attorney, deeds, auto titles, birth certificates, marriage licenses, death certificates — all of these can be needed to prove the date and circumstances of the underlying events, or to effect your wishes. Keep them. Copies can mostly be discarded (with a couple exceptions — see the next point).
- Copies of important documents if you don’t have the original. Don’t have an original death certificate for a parent or spouse who died years ago? OK — then keep that photocopy. It won’t be useable as a copy, but it will be helpful in the effort to get a new certified copy. Also keep copies of wills, trusts and powers of attorney if you don’t have the originals — copies of your trust and powers of attorney might be just fine, and even a copy of your will can be used if your heirs can convince the court you lost the original, rather than tearing it up. By the way, if you can’t find the original of your will, that might mean it’s time to make an appointment to update your estate plan. But that’s a different issue.
- Receipts showing payments for improvements to your home. Not a big deal for most people, but this one can make a difference. If the gain on your home is going to be substantial, or you will sell it more than five years after you move out, then you will want to be able to show how much you spent on improving the house. This won’t make a difference for most people, but it will for a few.
- Electronic copies of at least some of the things you plan on throwing away. Don’t bother to scan everything, but you might make a pile of documents you think you might regret destroying later, and scan that pile.
That’s not a complete list, but it does include most of the things you actually have to keep. For more detail and some other suggestions, consider the federal government’s suggested list of things to hold on to. We like their description of a process (collect all your papers from around the house and make three piles — “Active File,” “Dead Storage” and “Items to Discard”) but we think following their advice will still leave you awash in unnecessary paper.
So what can you actually throw away? Maybe it will help if you start with the stuff you just don’t need to keep any more. We have some suggestions for the discard pile, but first we want you to think about creating two separate piles of documents you’re not going to keep: one for the trash (or recycling), and the other to be shredded. Anything with an account number (even a closed account) or any personal information should go into the “shred” pile.
Things you could throw away or shred, as appropriate:
- Old bank records. By “old” we mean not likely to be needed for tax returns, so anything seven years old is safe to shred. Even more recent records can be shredded if you’re a little selective. Bank statements more than three years old are safe to shred, as are most cancelled checks. Does your bank make statements available online? Then shred them all.
- Unnecessary copies of important documents. Do you have your original will, trust, house deeds at hand? Put them in a safe place and shred all the copies you have lying around. They are more likely to confuse your family and heirs than to be helpful. But keep track of those originals, please — and keep the copies (of current documents ONLY) if you have already misplaced the originals.
- Appliance manuals. We know — the federal government is very clear about keeping these documents so long as you have the appliance. That is probably because the federal government has not heard about the internet. And when you finally replace your refrigerator, will you remember to pull out the ten-year-old manual and send it with the appliance? Of course not. OK — keep the current ones if you want, but throw out the ones for appliances you have discarded over the years. At the same time you might hunt for that pile of now-useless remote controls and plug adapters, and throw them out, too.
This is a good topic, and we will probably revisit it on another occasion. In the meantime, maybe you have your own suggestions for things you think people hold on to too long. But let us just make one more point about that federal government list of things to hold on to: we think the idea of writing down all your passwords and keeping them in a safe place is a mistake. And that’s another topic for a future entry.
Source: Written by Robert Fleming, Fleming & Curti PLC, Legal Issues Newsletter, 8/4/14.