June 2011 "Record: Making & Keeping Them"

PLANNING FOR WEALTH & SECURITY

RECORDS: MAKING AND KEEPING THEM

By Jennifer & Jeff Hawkins, Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers

Spring cleaning is a great chance to get organized and throw away the previous years’ trash. The question is, what is trash and what should you keep? This article offers ideas about the kinds of documents and records that you should retain and how long you should store them.

An old family business bought a liability insurance policy back in the early 1900's that provided much more liability protection than more modern policies. The company was sued on a modern liability claim and the business filed an insurance claim. The insurance company tried to deny the claim because it had no record of the old policy, but the business answered the3 objection with original insurance policy from its records. Next, the insurance company tried to deny that the business paid insurance premiums on the policy, but the business produced a complete set of of 70-year old cancelled premium checks proving that the business had purchased and paid for the policy and that the insurance company was fully liable.

An alternate story involves a family that leased business property for several years and made regular rental payments. The family’s checking accounts did not give them originals or photocopies of cancelled checks. The landlord died and his family questioned whether the tenants had paid several thousand dollars of the rent requested proof of rent payment. The best proof that the tenants paid the rent payments on time would have been the cancelled checks that they never received from the bank. The tenants could request special copies of the cancelled checks from the bank, but these days, banks tend to throw away records that are much older than 5 years.

Many people have heard the advice that they should keep records for 7 years. That may be good advice for dealing with the Internal Revenue Service and some other third parties, but 7 years is really too brief to be safe. It is much better to keep copies of receipts, tax returns, and cancelled checks as long as possible. Of course, small items like grocery receipts are not storage worthy, but most records of your important business are good records to keep for as long as possible.

Extensive record retention requires good organization. A good organizational plan would be to organize records by year and month. An even better organizational plan would be to include in the record keeping system a way to sort records by type so that rent, mortgage, car payment, and tax records would be kept separately within the relevant year. The better your records organization may be, the easier it is to find the records quickly when you need them weeks, months, or years later.

Enjoy the fresh start of a good spring clean. Just be careful not to throw out large and small items now that you may miss terribly later.