By Brittany N. Cox, Registered Investment Advisor at Nestlerode & Loy Investment Advisors
I have a few friends and colleagues who were recently tasked with cleaning out the homes of family members and based on their anecdotes, it occurred to me that there are two types of people when it comes to record retention: those who keep every single piece of paper and those who keep nothing. So, what should you keep, how long do you keep it, and how do you organize it?
Some of the most important documents to keep are related to legal/life events and major property and they need to be safe and secure. These include, but are not limited to, property deeds, trust documents, auto titles, wills and estate plans, and marriage and birth certificates. Such documents should be kept somewhere other than an ordinary file drawer.
One option for keeping these documents is a safe deposit box. You can obtain a safe deposit box at your bank for a small monthly fee. A safe deposit box is a locked drawer inside the bank’s vault. Another option is a home safe. Make sure you purchase a vault that is adequately rated to protect your documents from fire, water, and other catastrophes since these documents would be very difficult or even impossible to replace.
An inconvenience of having a safe deposit box is being limited to bank hours for your document retrieval. You can avoid the headache of making a trip to the bank for your documents in a time of need by having copies of them in an easily accessible place. It is a good idea to keep these copies in a file labeled “safe deposit box” not only for convenience to you, but in the event you would become incapacitated. Whoever handles your financial affairs will be able to find your key documents and vital information more easily.
Many people have turned to electronic records for safekeeping. This is a great way to keep records updated and organized, however you are at the mercy of your hard drive. Be sure to backup your data and keep copies of your electronic documents in a safe place in case of computer catastrophes.
It is important to keep your financial statements and records, too. If you apply for a loan, you will need your pay stubs to provide proof of income. If you suspect fraud in your bank account, having records to prove the transactions are unauthorized can reinforce your claim. If you own financial securities, the capital gains taxes will be based on the price you paid on the date you purchased the security, therefore it is helpful to have the trade confirmations or statements. Of course, all of this data will be helpful if you find yourself being audited by the IRS. A claim on your taxes that is unproven could cost you the taxes on the claim amount plus interest, and possibly a hefty penalty.
It is appropriate to keep some documents longer than others. Dividing your records into categories such as short-, medium-, and long-term will be helpful.
Short-term records are considered one to three years. These include household bills (except those supporting tax deductions) and expired insurance policies.
Medium-term (six to seven years) includes tax returns and the information supporting them, income and expense records, bank and brokerage statements, check registers, documents for paid off loans, and receipts from the sale of personal property.
Long-term documents, which should be kept indefinitely, include social security records and home ownership information in addition to those mentioned above for secure safe keeping. Your pension and retirement plan information should be kept as long as the plan is in force. Receipts for purchases and ATM slips only require being kept until they are reconciled with your bank since the bank statement will then be kept for longer term.
A good phrase to remember when you are organizing your records is “out with the old and in with the new”. To keep things from piling up and creating clutter and a headache for your heirs, be sure to properly dispose of or shred your old documents that you do not need. I find it helpful to label my folders with the year they can be shredded in the corner, so I have an organized approach each year. I like to clean out my old records at tax time when I’m digging around in them already.
If you are already thinking about organizing and storing your documents, it may also be a good time to create or update your home inventory. This is a helpful tool in a time of disaster such as flood or fire. Your inventory should be kept securely, such as in your home safe or safe deposit box, so it can be accessed if a disaster occurs.
The rule of thumb for the home inventory is to include everything but the kitchen sink. Chances are you won’t be able to recall what sat on the end table in the spare bedroom in a time of devastation, so it will be helpful to take photos of each room of your home to keep with the inventory or you could videotape your home with commentary included for each item. This is a valuable record to provide your insurance agent in the event of a disaster.
Lastly, be sure your children and/or future caregivers know where these documents are kept in the event you become incapacitated. You may also wish to include phone numbers for important contacts such as your attorney, accountant and financial advisor.
