There's been a good discussion on the National Academy of Elder Law Attorneys list serve in response to a USA Today article on shredding documents. The thesis of this article, like so many others, is that shredding “unnecessary” documents after tax season is critical to prevent identity theft. So, the article suggests destroying canceled checks once the bank statements have been reconciled, holding on to records for investment transactions to show the purchase or sale price for no more than three years after the transaction, etc.
There's just one problem with this thesis: taxes aren't the only reason why one should hold onto records. Before you purge, think ahead.
MassHealth applications for long-term care services require the applicant to produce five years of records., including tax returns, invoices for purchases in excess of $500, bank statements, canceled checks, credit card statements, etc., etc. If this information is not supplied with the application, the application will be rejected. I've lost track of the number of times I've asked clients to produce documents needed for a MassHealth application only to be told that they've been lost or destroyed. Then there's the problem of getting duplicates of canceled checks or old bank statements. We've had one small bank tell us that they didn't issue copies of statements if the statement was at least three years old. If there is a question about whether a transaction may have been a gift, we need to supply documentation showing what was purchased so that we can argue that there was no gift made or intended. For these reasons, I recommend that seniors hold on to five full years of financial records, preferably set up in chronological order.
There are other older documents that need to be retained as well. Veterans and their surviving spouses need discharge papers to apply for Veterans Administration benefits, such as Aid and Attendance. Invoices and canceled checks for improvements to one's home are needed at the time of sale, so that capital gains tax liabilities can be properly calculated.