Think Before Tossing Part 1

You’re planning your estate with the help of your personalized Executor.org plan.  You’ve selected your executor, and have even decided the important question of executor compensation.  So now you’re beginning to organize important documents and think you’ve gotten a good number of them together.  Have you remembered to organize and save your tax records?

Should you keep your old tax records? 

Yes! The quick answer to whether you should keep your old tax records is a resounding yes.  This should be part of your preparations in making your executor’s job easier.  You need to keep a copy of your tax return and all of the documents that support it (e.g., all the items you used to prepare your taxes or that you gave to your accountant for her to use in tax preparation).  

Why should you keep your tax records?

The two most important reasons to keep your tax records are:

• Be prepared for an audit. You need to keep your tax records, and make sure they are ready for your executor, in case you are subject to an IRS audit.  If you are audited by the IRS, you will have to show documentation to prove the truth of your tax return. 
• Make corrections.  If you discover errors on your tax return, whether it is money you owe or money owed to you (because of missing deductions, for example), you will need these detailed records to make corrections.

The other value that the tax return brings is that it helps you find “lost” assets. Not every will writer is organized enough to have comprehensive records of all of the financial investments they own. Any account that delivered even $1 in interest as a return on that investment can typically be found by looking at old tax returns, as that $1 was taxable income. If you have a concern that the estate may have assets in it that you’re not aware of, tax returns can be an excellent road map to find them. 

How long should you keep your tax records?

A good rule of thumb is to keep 10 years of records so you (and your executor) can be in the best position possible.  Of course, you should consult with your accountant because you may have special circumstances that mean you should keep certain documents for a longer or shorter period.  It is critical that you keep a list of your accountant and other professionals on which you rely and make this list available to your executor.  Doing so will make your executor’s role a lot easier.  

Executor.org is designed to help executors and those planning their estate by providing a customized plan that gives useful advice every step of the way.  You and your executor are not alone in preparing for and completing the executor duties.  With the right team in your corner, you can navigate the executor role successfully! 

Come back next month for Part 2.