Gerald Kramer
The AZ CPA
4531 N 16th St
Suite 126
Phoenix, AZ 85016
(602) 264-9331
Fax: (602) 279-1766
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Get organized, then shred
Your personal finances need a brisk annual spring cleaning as much as your house does. You'll feel wonderfully virtuous afterward, especially if you've never done this before. (If your heart sinks when you contemplate a tangled 20-year-old mountain of financial papers, imagine how your heirs would feel tackling them!)
Buy a file cabinet or cardboard file boxes for your other papers. That's also where you should keep copies of your past federal and state income tax returns and the material that supports them (such as receipts for tax-deductible expenses).
There's nothing wrong with keeping tax returns forever; they're a good financial record of your life. I recommend that you do so if for no other reason than the IRS may say that you did not file the copy with the check or photocopy of the refund will help them leave you or your hiers alone. But practically speaking, you need only keep your old tax returns for seven years. (The IRS can go back six years to audit a return if it believes you underreported your income by more than 25 percent.)
Here's a list of what you should look for; it can double as a guide for your executor.
Your annual bank, brokerage and mutual fund statements, plus monthly statements for the most recent year. (You can shred monthly statements after you receive and double-check the year-end statement for each account.)
Your individual life insurance, medical and long-term care policies.
Employee benefits paperwork about group health, life and disability insurance policies.
Statements about your pension fund and any employer-sponsored retirement accounts such as 401(k), 403(b) and 457 plans.
Copies of your IRA and 401(k) account beneficiary designation forms. These forms - not your will - control what happens to the money in your retirement accounts when you die. If you don't have copies, you can get them from your IRA and 401(k) plan custodians. While you're at it, make sure the beneficiary designations on all these forms - and on life insurance policies and annuities - are up-to-date.
The names and telephone numbers of your lawyer, tax accountant, broker, insurance agent, and/or financial planner.
A letter spelling out your final wishes for cremation or burial, funeral arrangements and/or memorial service. (It's not a great idea to put these instructions in your will, which may not be read until after the funeral.)
Your will.
Your Revocable Trust.
A durable power of attorney that lets your designated agent draw on financial accounts that are solely in your name to pay your bills if you're disabled.
A living will and a health- care proxy, naming someone you trust to make medical decisions for you, if you're unable to make them yourself.
The key to your safe deposit box, if you have one.
The safe deposit box is a good place for birth and marriage certificates, adoption papers, divorce agreements, passports and copies of your will, health care proxy and current insurance policies.
You can leave the original will at your lawyer's or you can keep it at home in a fireproof metal box, along with your health care proxy and power of attorney. (You can buy the box at any large hardware store). Copies (origanlly signed) can also be given to your CPA to retain for you. Your hiers and the executor will then have a better chance of finding the correct documents.
Finally, shred every old statement or tax return that you don't keep. It's the prudent thing to do - and it's oddly satisfying.
If you don't already own a cross-cut shredder - the kind that turns paper into confetti - buy one. You should routinely destroy statements that list your account numbers, Social Security number and other personal information. That includes pre-approved credit card offers, which anybody can use to apply for a credit card in your name.
As you weed through your papers, your primary goal should be to locate your key documents so you can put them in a safe place. You and your partner - or your sibling, adult child or a good friend - both should know where you keep such documents.
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