When should you throw it away?

“Life is like riding a bicycle. To keep your balance you must keep moving.”

- Albert Einstein

I hope you had a beautiful weekend with your family! Maybe you did some spring cleaning? Depending on your personality, that can either be a truly “cleansing” experience…or perhaps kind of a painful one. Throwing stuff away is never easy!

Have you ever seen those television specials about “hoarders”? These are the people who amass incredible amounts of stuff in their homes–often because they’ve experienced some kind of trauma or pain which drives them to become emotionally-attached to every scrap of their material possessions (or even trash).

I watched one of these stories recently…and they can break your heart. These folks seem to need much more help than the typically-prescribed professional “organizer”. The roots just run so deep.

Well, your family financial records should also go through a “cleanse” from time to time, and after tax day is a good time to take it up.

(By the way, this is something for every generation, even–and perhaps, especially–loved ones who have passed on. There’s a rising tide of identity theft among the deceased, and financial records are a big reason why.)

So, I’ve put together a good primer for you on the subject in this week’s Strategy Note, as well as some quick advice about what to do if you find something that can affect you NOW, as occasionally happens…

Rowel Manasan’s

“Straight Talk” Personal Strategy

What To Do With Your Records (& Why)

Now’s the best time to get rid of unnecessary paperwork, as well as to ensure that you and your accountant caught everything for your ‘09 tax return.

But before I get to what to do if you find something pertinent to your recently-filed tax return, here’s a guide for how long to keep your records…

Taxes: Seven years

Reasons Why:

There are three, actually:

1) The IRS has three years from your filing date to audit your return if it suspects good-faith errors.

2)  The three-year deadline also applies if you’d like to make some sort of amendment because you discover a mistake in your return and can claim a refund.

3)  The IRS has six years to challenge your return if it thinks you underreported your gross income.

All this adds up to keeping that info for seven years. Beyond that, there’s no reason–except for posterity.

IRA contribution records: Permanently

Reasons Why: You’ll need to be able to prove that you already paid tax on this money when the time comes to withdraw.

Bank records: Usually just one year

Reasons Why:

Those related to your taxes, business expenses, home improvements and mortgage payments will obviously need to be included for next year’s taxes. But unless there is some sort of emotional or posterity reason, get rid of everything after one year.

Brokerage statements: Until you sell

Reasons Why:

To prove whether or not you have a capital gain or loss for tax purposes; after this point, shred it.

Household Bills: From one year to permanently

Reasons Why:

When the canceled check from a paid bill has been returned, you can shred the bill with a clear conscience. However, bills for big purchases — such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. — should be kept in an insurance file for proof of their value in the event of loss or damage.

Credit card receipts and statements: 45 days/Seven years

Reasons Why:

Some families don’t even bother to match up their statements, but if you do so, shred the receipts once you’ve verified everything. There’s no reason to keep everyday receipts beyond this point. For tax-related purchases, you need only keep the statements for seven years–after that, shred it, baby!

Paycheck stubs: One year

Reasons Why:

This is to verify that when you receive your annual W-2 form from your employer, the information from your stubs match. If so, shred all of the stubs…if not, request a corrected form, known as a W-2c. After that’s been handled–shred.

House/condominium records: Six years/permanently

Reasons Why:

You’ll want to keep all records documenting the purchase price and the cost of permanent improvements — such as remodeling, additions and installations as well as records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent’s commission, for six years after you sell your home.

Holding on to these records is important because any improvements you make on your house, as well as expenses in selling it, are added to the original purchase price or cost basis. Therefore, you lower your capital gains tax when you sell your house.

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Now, in this cleansing process, sometimes, you’ll find a receipt or a documentation which really would have changed your prior year tax return. That’s when you might have your preparer file an “Amended Return”. However, this decision should be balanced against the cost of doing so, as well as the expected benefit–often these items can be dealt with the following year.

But here are some other, common reasons to amend…

* You neglected to report some income earned.

* You claimed deductions or credits you should not have claimed.

* You did not claim deductions or credits you could have claimed.

* You filed under one filing status, but you should have filed under another.

* You bought a residence and didn’t claim the First Time  Homebuyers Credit (or other credits available).

These are items to take up with your accountant.

We’re simply providing you here with common-sense advice about what to keep, and what to shred. Let it be a cleansing process for you, and sleep easy knowing you’ve handled this stuff properly!

Oh, and make sure you use a good shredder!

Not just for kids anymore

“If we do not change our direction, we are likely to end up where we are headed.”

- Chinese Proverb

The spring is really here now! It’s beginning to feel like winter was just a distant dream…and summer lies ahead. What a blessing.  Also, it was my beloved mother’s birthday last Sunday, and I had the good fortune of airing my birthday wishes to my mom as well as some basic information regarding trusts on the Filipino Channel.  If you don’t have the Filipino Channel, don’t worry.  I’ll have a taping of the interview uploaded on my website sometime next week.

Last week was “Tax Week”, and it sure brought a lot of media attention, as usual. There’s just something about deadlines which get our notice–and they provide plenty of fodder for attention-seeking publicity. We heard about the “Tea Parties”, and their responses, and while I try to make a point of not getting political in these notes, I *would* like to say this:

It shouldn’t be considered “rude” to care about preserving wealth for our nation. That said, the best kind of protest, in my opinion, is to quietly go about YOUR business, and make a difference in the lives of your family and friends. Not that we shouldn’t speak up when we care about national issues…but rather that we should get our own houses in order first.

Which is why I spent a couple weeks discussing family debt. National debt can be just as scary, and don’t we wish that politicians ran the nation more like a careful family?

Well, speaking of careful–and caring–families, I wanted to point you to your estate plans once more…but not the ones for YOUR children.

Rowel Manasan’s

“Straight Talk” Personal Strategy

Your Parent’s Estate Plan In Focus

A thoughtful estate plan can make your heirs’ lives easier. But it is your parents’ estate planning that will make your life easier.

Not every family has fostered the ability to speak openly in love–I’ve written about that necessity in the past. But if you have begun that process, here is an outline of what grown children need to know about their parents’ affairs. In fact, adults of any age should update their estate plan every year.

Children may wish to ask their parents about their financial status but worry about being overly intrusive. Or they fear their elders may perceive their questions as motivated by self-interest. They may conclude mistakenly that their parents would prefer to keep their finances private.

However, whether it’s our parents or ourselves, we are all certainly mortal, so planning for the future is always wise. Estate planning is just as critical when we are young as when we get older. And if you think estate planning information is hard for you to pull together, imagine how challenging it would be for someone else who may have to step in for you during a family crisis.

As a parent, if you are willing to share some of this information with your children–especially if one of them is also the executor of the estate–they’ll appreciate having the facts and be more prepared emotionally when the time comes. They will know your wishes ultimately anyway, and good communication will lessen any surprises ahead of time. They will benefit from knowing the answers to the following questions:

Do you have enough saved for a comfortable retirement? Many financial planners use a safe withdrawal rate by age to make sure their clients will still have enough money toward the end of their retirement. But this isn’t always the case, and it’s worth looking into.

If your spending is under this withdrawal rate, you have more than enough and probably can leave a legacy to your heirs. But if you are over this rate, you may run out of money and have to compromise your standard of living abruptly. It may be uncomfortable, even embarrassing, for parents to share their finances with their children, but grown children often want to know how their parents are doing.

Where are the important documents? The five documents your children should be able to retrieve quickly are a will, a living will, a power of attorney, a directory of basic information and the latest end-of-year financial statements.

The directory of information should list the assets of your estate along with account or policy numbers and contact phone numbers. It also helps to indicate your intentions for the distribution of each asset, which will help confirm you have the correct titling and beneficiary designations on every portion of your estate.

You may have structured your will to divide your estate equally among your children. But if you have tried to make it easy for one child to access your bank accounts by adding his or her name, you have overridden your estate plan and left that child joint tenancy with complete rights of survivorship. This can be a problem.

Titling and beneficiary designations are legal estate planning actions. It’s best to review them with your legal advisor. Various types of assets are best designated differently in the estate plan. This is not the occasion for do-it-yourself thrift. It is a rare family that has compiled and reviewed a complete list of estate assets: bank accounts, investment accounts, retirement account, real estate holding, life insurance, health savings accounts and so on.

Are there any special bequeaths? Any promises you want kept should be documented. Your good intentions won’t matter if you aren’t around to implement them. If you have promised money to a charity and want that obligation kept, document it. If you have promised to loan a child money, document it. If you have promised to help fund your grandchildren’s college education, document that. Without documentation, none of these promises can be kept if you aren’t around to make the decisions.

Are there plans to remarry? If parents have remarried, intergenerational estate planning is even more critical. Prenuptial agreements and careful estate planning are required in the case of second marriages to avoid disinheriting children or grandchildren from the first marriage. The default is rarely a good option.

Do you have any prepaid funeral arrangements? Do you want to be buried or cremated? Do you have any preferences for a memorial service? Although it may seem macabre to plan your own funeral, a memorial service takes time and thought. It will be that much more special and comforting to your family when it is filled with your favorite music and readings.

Encourage your children’s interest in your estate planning. Most of the time, their intentions are honorable. They may simply want to understand your values and therefore your wishes.

Stop the bleeding

Health Care reform and you