You may remember the television show Password that ran from 1961 to 1975. Though I was a child when I watched the program, I never forgot what one episode’s winner whimsically told host Allen Ludden: “Rich or poor, it’s good to have money.” Later on, I came to understand the serious side of his comment: that protecting financial records – tax returns and supporting documentation, investment portfolios, trusts, life insurance, IOUs, promissory notes, and more – was vital to my family’s present and future security.
It’s far easier to lose it than to build it. A financial digital legacy is the only way that I can see to protect what you’ve built.
When it comes to selecting financial documents (both paper and digital) for your A-List, there are two additional factors to consider:
Retention – how long you have to keep them
Disposal – what to do when the retention period expires
It would be great if we had to keep every financial document had the same length of time. Unfortunately, that’s about as far from reality as possible. Determining the retention period for a given document category is both an art and a science: It depends on several factors which can appear to be at odds. It’s further complicated by the personal opinions, beliefs and fears that we all hold.
The situation is no different once a document’s retention period has expired. Do you just toss it in the trash, or should you destroy it to avoid identity theft? If we want to feel as safe as possible and eliminate all loose ends, how far do we have to go? Is simply tearing a document into strips enough, or do we need a shredder that chops it into confetti?
The same thinking applies to obsolete digital files. Is simply deleting them enough, or do we have to buy security software that eliminates all traces of the bygone data from our hard drive? For that matter, how powerful does our security software really have to be? What the heck is data encryption, and is it necessary?
My position is simple: Better safe than sorry. I shred everything once it’s no longer needed.
I’ll revisit these questions in Chapter 8. For now, we’ll cover the major categories of documents that you’ll be dealing with as you build your digital legacy A-List. (The following recommendations are summarized in the included Document Retention Timetable.)
Keep your tax records for seven years. Use a rolling “out with the old, in with the new” approach: When you file the new return shred the newly expired one. In terms of supporting documentation (receipts and the like), you need to keep these for only three years from the date you file a return – not the tax year. This is the time period in which the IRS can audit you for that return.
Most of us save these, but in the age of identity theft it’s risky business. Every pay stub has every bit of information needed to open a fraudulent account, so from this perspective you should only keep the most recent one (which contains all the past history) and shred the rest. On the other hand, some people like to compare the individual stubs with their tax forms to make sure all’s in order. In addition, there are times – primarily rental and mortgage applications – where several months of pay stubs are needed. And since each paycheck you only need to save the latest pay stub. Final recommendation: keep pay stubs from the most recent three months on a rolling basis.
As with pay stubs, keep a rolling three-month history for use in rental or mortgage applications. Remember – the bank stores all of your records, so you don’t have to. Many banks are even storing images of your cancelled checks, and if your bank does this you can opt not to receive these every month.
Credit Card Statements
You guessed it – keep only the most recent three months’ statements.
If you have investments – an IRA, 401K or anything else – you’ll receive an unending torrent of prospectus, privacy notices, address confirmations, and the like. Unless you’re going to act on these, get rid of them! Also, publically-held corporations will ask you to vote for the board of directors and special measures once a year, but if you don’t own a significant amount of stock, just save the company postage and just shred the vote card. Again, keep balance statements for three months on a rolling basis. Lastly, when you buy new investments keep the documentation until you sell the investment – then keep it for three years after filing your tax return for that year.
If you must, keep these only until you balance your bank statement each month. Then shred them. What you don’t want to do is leave them lying willy-nilly around the ATM. Identity thieves can use any bit of information they get their hands on.
Promissory Notes & IOUs
Once the obligation has been settled, shred these and permanently store the receipt or release (whether you are the payer or payee). You never know.
Wills & Trusts
Save these for at least five years. (Personally, I keep mine for ten.) Just in case.
Keep these receipts for ten years along with any other guarantees of workmanship. If renovating your home or apartment, get the contractor’s satisfaction of lien and keep it as long as you own the property.
How long you hold on to utility bills depends on whether or not you write them off on your tax returns. If you do, keep them as tax records (three years). Otherwise you only need the most recent three months.
Keep the loan information while the mortgage is open. After you’ve paid it off, get a satisfaction of mortgage record from your bank (they have to give you one). Keep this as long as you own the property.
Keep warranties until you sell or dispose of the covered item (be it appliance, software, or anything else). After that, shred ‘em!
FINANCIAL DOCUMENT RETENTION TIMETABLE
|Tax ReturnsSupporting Documentation||
|Credit Card Statements||
Until 3 years after filing your tax returns for the year divested
1 month (or once you balance the account, whichever comes first
|Promissory Notes & IOUsReceipt/release||
|Wills & Trusts||
|Home RepairsContractor’s Satisfaction of Lien||
As long as you own the property
Tax write-off – 3 years
Otherwise – 3 months
|Mortgage DocumentsSatisfaction of Mortgage||
Until mortgage is paid-in-full
As long as you own the property
As long as you own the item
FINANCIAL A-LIST DOCUMENT CHECKLIST
|Tax Returns & Supporting Documentation|
|Credit Card Statements|
|Promissory Notes & IOUs|
|Wills & Trusts|