Also in this Issue:
-What Do You Do With All Those
Drafts
-Real Estate Document Retention
-E-mail Retention
Retention of Estate Planning Documents
By Tom Stikker stikker@ddrs.com
Estate planning documents often include lengthy trust agreements, wills, powers of attorney, property agreements, deeds and related documents. We usually recommend that you sign only one original copy of these documents and retain them in a very safe location, such as a safe deposit box or a fireproof home safe. We also will keep original estate planning documents in our safekeeping upon your request and without charge.
If you keep these original signed papers in a safe deposit box, it may be a good idea to arrange for the person named in the trust or will as a back-up fiduciary (such as a successor trustee, executor or agent under a power of attorney) to have access to the box, so that if you (and your spouse) die or become incapacitated, the person who will need the original documents can easily retrieve them. The fiduciary should sign the bank signature card authorizing entry to the box and understand where the box and its key are located in case of an emergency.
You should always keep photocopies of your estate planning documents in a home file, so that they are easy to review and refer to from time to time. Any explanation or summary of the documents also can be kept in home files with these photocopies. For example, we typically prepare lengthy cover letters outlining an estate plan and explaining the documents at the time we prepare drafts for initial client review. These summaries and explanations are often very handy to refer to in the future as you review your plan from time to time to make certain it continues to express your wishes. However, prior drafts of estate planning documents can be destroyed, since you should have copies of the finalized documents that you signed.
If you revoke a trust, will, power of attorney or similar document, you usually should destroy the original and any photocopies of it, so that there is no confusion as to which documents are effective at the time you die or become incapacitated. We tend to encourage clients to clean out and destroy all suspended estate planning documents and their summaries and explanations, to avoid problems or misunderstandings in this regard. However, if a trust is amended (rather than revoked), the original trust and any prior amendments to it generally should be retained, even if the new trust amendment completely restates and amends the trust in its entirety. All original signed documents relating to a trust which continues to exist in some fashion (even with very different terms and provisions) generally should be kept together in a safe location, since they all are part of the establishment of the same continuing trust.
In some cases, we may recommend that original superseded wills be retained, as well. For example, if you are concerned about potential contest of your will by your heirs or beneficiaries after you die, retaining prior wills may be advisable to show a continuing patter of your estate planning wishes. In rare instances, we may even recommend a strategy of having a client sign a series of wills over time to make it more difficult for someone to successfully contest the will when the client dies.
You always should check with us before you destroy any original estate planning documents. While it usually is best to keep only current original documents, and their photocopies and explanations, it may be important in any particular case to hold onto prior, superseded documents.
Deeds generally should be kept in a safe location for as long as you own the subject real estate. There may be several deeds relating to the same property. For example, you may have the original Grant Deed in which the seller conveyed title to you when you bought the property, along with subsequent deeds by you changing title into you and your spouse’s names (for example, community property), and then conveying it into a trust which you have created. If so, you should keep all of the original recorded deeds together in one safe location, along with any title insurance policy or related documents on the property. You (and your named trustee, executor or agent after your death or incompetency) then will be able to quickly review the documents and determine the current status of title to a particular parcel.
Records establishing the income tax basis of your assets are also very important to retain. If you inherit property at the death of a family member or friend, it usually receives a new income tax basis equal to the fair market value of the asset at the time the person died (or, in some cases, six months later). The federal estate tax return (Form 706) filed for the decedent’s estate will set forth the value of inherited assets and can be used to establish your new income tax basis in those assets. If you then sell or liquidate any of those inherited assets, the capital gain or loss which you report for income tax purposes will be computed with reference to this new basis (not the decedent’s original basis). Accordingly, you always should keep a copy of the Form 706 for as long as you continue to hold those inherited assets.
As a result of the new Tax Act which was signed into law last year, these income tax basis rules for inherited property will change in 2010. Starting then, and assuming no further changes in the laws (a big assumption!), not all of a decedent’s assets will automatically receive a new income tax basis at his or her death. Instead, the income tax basis of inherited property will become incredibly complicated (thank you, Congress!). IN many cases, the basis of assets received upon the death of someone else will simply be a carry-over of the decedent’s adjusted basis. In other situations, there may be a stepped up basis to fair market value as of the decedent’s death, or a combination of carry-over and stepped up basis, all depending on elections made by the decedent’s executor after the person’s death. Because of this looming complexity, you should be very careful to retain all records of your current basis in your assets (including the acquisition cost, and other expenditures made by you which can be added to basis) ,so that your own heirs will be able to establish their basis in assets they inherit from you.
If you have any questions or doubts about retaining old estate planning and related documents, be sure to contact us.
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