records-papersSome people like to keep things like old bank statements, electric bills, etc., and some people throw them away as fast as they receive them. I recently started to clean my basement and found records going back some thirty years. While I am certainly not a hoarder, I do have lots of clutter that must be dealt with.

Clutter can make a difficult time ever more so if you should happen to pass away without first dealing with it. What a mess you would leave for your family. The following is a short synopsis and guide as to what to keep and what to toss or shred.

Records to keep:

Legal records, including wills, life insurance policies should be retained indefinitely, as well as information regarding the purchase or sale of a home, second home, timeshare, etc., as you will need them to determine the tax basis or cost of such assets, so that when they are sold, you or your heirs will not be paying excess capital gains tax. These records should be in a separate box and clearly marked “do not destroy,” but once the assets are sold and the statute of limitations has run on the government being able to audit or review the return, then they may be destroyed. Some people like to keep their deeds and mortgages for posterity, and some people actually frame their old deeds and mortgages for decoration, as many of them were colorful or handwritten with a fountain pen.

Tax returns, investment statements, 1099 Forms, W-2s, etc. should be kept for seven years, as the IRS has several years to audit a return once it has been filed. It is also normally good to keep records of stock purchases and sales in the event of a review by tax authorities. Such financial documents are also important to retain in the event that you need long-term care, as often the Medicaid office will request bank records and tax returns for five years prior to you requesting such assistance. If the records do not exist, you may be required to purchase them from the bank or financial institution, and this could be somewhat expensive and time consuming.

Pay stubs, credit card bills, bank statements, etc, are probably necessary to save for only one year, although if the records have to do with taxes, they should be kept for seven years. Most credit card companies, utilities, and banks have records available relatively easily, (although there may be a fee imposed for them), but they are available nonetheless. A problem may arise when a bank is acquired by another bank, and the acquiring bank must keep these records for some period of time, but they usually do not keep them any longer than the required seven years. The same is true of brokerage firms and utilities that are being acquired, merged, or sold.

It may be helpful to label the box that is holding these records so that when you place the 2013 records in your storage, you can then remove the box from 2006 and have those records shredded. In this manner, you never have more than seven years records at a time, and you are continuously purging the old records as you replace the most recent year in the storage area.