The IRS has pretty clear information about how long records should be stored at the following URL: How long should I keep records? | Internal Revenue Service (irs.gov). I'd always heard that the longest we should store records is ten years but, according to this link, for most paperwork, it's an even shorter period of time. Bottom line, different scenarios require different lengths, but almost none of the scenarios require a ten-year retention period.
Why is this issue important enough for me to write about it? Years ago, I heard about a study that was done which asked high net worth investors about their top five financial concerns. Surprisingly enough, recordkeeping made the top five. I have also noticed this with my own practice. We are so fearful that we'll throw away something we need, that we tend to keep a lot of records that could be shredded.
I think that one of the most important things you can do to make things easier on your executor is to go through old paperwork and shred anything that's no longer needed. It can take a lot of time but it takes a lot more time for an executor to sort through paperwork when he or she doesn't have your background.
It is especially important to throw away any paperwork on life insurance policies that have lapsed or expired. Life insurance companies are known for merging and changing names which makes it very hard to trace a policy to find out if it's still active. It's difficult for executors to throw away policy paperwork unless they are certain the policies are no longer in force; therefore, people spend hours tracing through mergers only to find out that policies have been canceled. If you've ever been an executor for someone, you already know that it can be a fairly large chore which requires an awful lot of time. There's no need to spend time researching a canceled policy when it can be avoided simply by shredding expired policies.
As the IRS article noted above mentions, you want to be sure you don't throw away anything that helps determine the cost basis of an asset. You can think of the cost basis as the non-taxable part of the sale of an asset. Anything that exceeds the basis could be taxed. Therefore, you want to keep good records of anything that adds to the cost of an asset such as improvements to a piece of property or the purchase price of a stock. It's a good idea to keep year-end statements for all investment accounts and you can consider throwing away the monthly statements. This will substantially cut down on the amount of investment documents you retain.
If you'd like to discuss further, please call the office. This is one of the many topics I'm passionate about. The benefits can far exceed the effort!