Q: I am getting ready to move into assisted living and have over 70 years of accumulated paperwork. The kids want to just throw everything away. What do you think?
A: I have written on this subject before but I have received so many questions lately, letÕs review some general rules of thumb.
First there are no standard rules of thumb. Like you, I keep all of my business, tax, and financial records.
But letÕs look at personal records and documents that may not be needed for tax or legal reasons, such as an old Bible, photographs, birth or marriage certificates, or that old passport that you used to go to Mexico during the depression. Consider that at some point seemingly meaningless things might become a treasured link to the past for a member of the family. Instead of throwing out such items, and to give you a chance to reflect, use the provision in your Will that gives you the ability on a separate sheet of paper to designate where tangible items should go. The listing can be adjusted as you change your mind. So do not be too quick to throw these things out.
In deciding what to discard, consider that some documents such as old deeds, abstracts, or even law suit papers can be found elsewhere in the legal system and thus could be considered "expendable". But remember even if not of interest to the family, such material often is of interest to museums or historical societies. Organizations in Nebraska and Kansas seem anxious to receive such memorability, even though connected with Colorado and Wyoming, especially if there is some connection to German/Russian ethnic roots.
Next if you must throw out something, discard duplicate information. For example, if you have the check ledger books, it might not be necessary to keep all of the checks and check statements. For real estate (even though long ago bought and sold), keep original deeds, title opinions, and closing sheets with figures, anything that might be needed for a tax audit.
More often than is realized, documents such as old insurance policies, stock certificates, or other financial papers when "rediscovered" turn out to have value. An insurance company that went out of business was probably taken over by another company who may honor part of the policy, or a stock company that does not seem to be listed might have been acquired by another. Even those old retained mineral rights could have great value. Thus before throwing out old financial papers, check first.
But why not just heed the kidsÕ advice and back up a dump truck and start shoveling all that "junk" into the hopper? Besides for the reasons already noted, the IRS presents the biggest problem.
Normally after five years (or so I am told), the statute of limitations blocks tax liability. But if fraud is alleged, then there is no limitation. As a result, many advisors say to keep records for ten years. But in certain recent cases, records twenty-five years old were requested (in one case documents from the 1970Õs were demanded).
Unlike the court room, it is the tax payer that has burden of proof. Thus if you are to error, error on the side of caution and I would advise keeping any records that might be needed to satisfy an IRS inquiry.