If something unexpected were to happen to you tomorrow, would your loved ones know how to access your important records? Would they know which accounts you hold and where your money is? What about insurance policies and real estate ownership papers?
You might have a system that works for you, but imagine the challenges your loved ones would face if you weren’t there to guide them. This is why organizing your files is a crucial aspect of legacy planning, ensuring those closest to you can easily find what they need.
1. Create Space
Start by designating a specific place for all your important papers. While a shoebox technically qualifies, a proper filing system is much more effective. Invest in file folders and dedicate a drawer or filing cabinet to store everything. If you prefer digital records, establish a similar system on your computer. Make sure your loved ones know how to access your computer and have the necessary passwords for your key accounts.
2. Gather Documents
Collect all your scattered documents and bring them together in one place.
3. Set up Files
Label each file folder according to a category of documents. Examples include:
- Unpaid Bills
- Credit Card Statements
- Receipts for Items Purchased
- XYZ Bank Account Statements
- ABC Brokerage Account Statements
- IRA Statements
- Life Insurance Policies
- House Records
- Health Records
- Automobile Records
- Tax Returns
Create as many categories as you need and add subcategories if necessary. For instance, if you make significant improvements to your home, you might keep those receipts in a separate file to adjust your cost basis when you sell.
4. Decide How Long to Keep Each Document
Without a proper filing system, you might hold onto every piece of paper out of fear of discarding something important. Over the years, this can lead to an overwhelming accumulation of documents. It's time to sort through them and decide what to keep and what to discard.
Organize your file drawer into sections for short-term and long-term documents. Short-term files are for the current calendar year and should include items like unpaid bills, paid bills, bank statements, credit card statements, and receipts for purchases made during the year. At the end of the year, you can discard papers such as utility statements and receipts for items that:
- You are certain you will not return to the store
- Are not tax-deductible
- Are not associated with a warranty or major home improvement
Transfer essential documents like bank statements, credit card statements, and receipts for home improvements to your long-term files. This will leave the short-term file folders empty and ready for the next year's bills and statements.
Store your long-term files in a fireproof safe or filing cabinet, preferably a portable one that you can easily grab in case of an emergency or disaster.
The following documents should be kept in your long-term files:
- Bank statements (keep for seven years)
- Credit card statements (keep for seven years)
- Receipts for home improvements (keep as long as you own the home)
- Receipts for major purchases (keep for the warranty period)
- Operating instructions for major purchases (keep as long as you own the item)
- Investment account statements (if year-end statements contain all the tax information, these are the only ones you need to keep)
- Retirement account statements
- House papers: titles, deeds, mortgage documents
- Automobile records (keep as long as you own the car)
- Insurance policies (keep current ones; discard those no longer in force)
- Estate planning documents (will, trust, power of attorney, health care directive, prepaid burial papers)
- Copies of tax returns
Additionally, your long-term files should include a section for vital documents that need to be kept indefinitely. These include:
- Passports
- Birth certificates
- Marriage certificates
- Divorce decrees
- Social Security cards
- Military records
5. File Documents
Once your folders are set up, filing each document will be simple. If you encounter a document that doesn’t fit into any existing categories, create a new file folder. It’s better to have too many folders than too few, as this will help your loved ones understand and locate your documents more easily.
6. Maintain Your System
With a manageable system in place, staying organized will be easy. When a bill arrives, place it in the Unpaid Bills folder. After you pay your bills, move the statements to the appropriate Paid Bills folder. File bank and investment account statements in their respective folders as they come in.
At the end of the year, empty the short-term folders. Set aside the documents needed for tax filing. Transfer important statements and receipts for major purchases to the long-term section. Discard receipts and statements that are no longer needed, especially those that are not required for tax purposes.
An up-to-date, well-organized filing system is a gift to yourself. It will eliminate the hassle of searching for specific documents when you need them. It is also a gift to your loved ones, providing them with quick and easy access to your records if the need ever arises.
Cory Morrison is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. WestPac Wealth Partners LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC. CA Insurance License #0D45706 | Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. | 2024-177050 Exp. 06/26