Many executors have stories of wading through boxes and boxes of paperwork. Most of the paperwork is completely irrelevant but they have an obligation to go through everything — to ensure they are not throwing away something that is relevant.
In addition to going through everything, they also must dispose of all the paperwork at some point. We have written estate planning articles about being organized and what documents to leave your executor. The purpose of this article is to encourage you to safely destroy (i.e. shred, burn) the documents you don’t need.
Monthly statements
We know some individuals have never thrown away a single investment statement. Methodically every month these statements get filed into binders, cabinets, or boxes.
Years ago, when clients opened an investment account, we would give them a binder to organize their account opening documents, monthly investment statements and other key documents. Every year these binders would get full, and we would give out more binders. We don’t give out binders any longer as the majority of the initial account documents are signed electronically, and we encourage our clients to save these documents electronically.
When clients open investment accounts, they have the option to get paper statements, paperless statements, or both. We encourage clients to get both — this enables them to look at the paper copies and then safely discard them. One of the benefits of also having paperless is that you can efficiently go back multiple years to look up past statements without digging through cabinets, files, or boxes.
When clients ask us if they must keep their monthly statements, the answer is no. All of this is available electronically as many of our clients are paperless.
Tax records
Accumulating financial papers extends beyond investment statements, and keeping tax records is a close second. The CRA rule for retaining tax returns and documents supporting your previous tax returns is six years from the end of the tax year to which they apply. For example, your 2017 tax return and its supporting documents, are safe to destroy at the end of 2023.
Many accounting firms are running out of physical space to store all the files. With real estate being so expensive it does not make sense having rooms full of files when it is not necessary. Many firms have digitized the process of maintaining their clients tax records. For many people they can also digitize much of their tax records. In this way, digital records do not take up space.
Using common sense with respect to the tax records you maintain is really the mindset that we encourage clients to follow. For example, if a retired client has a principal residence (no other real estate), investment statements, and no other deductions (i.e. medical expenses, etc.) with us then their situation is straight forward. In our opinion, all of the investment information can be accessed online or reprinted if requested by CRA. Keeping the last couple of years of tax returns, in simple situations, is plenty.
If someone has business transactions, deductions, etc. then maintaining the documents supporting your previous six years tax returns is prudent. It is always important to maintain documentation (to support the book value) for real estate and other investments that may result in a taxable capital gain – it should extend to the original purchase date. This important information should be clearly marked for your executor as to not get discarded with old documents than can be shredded.
Insurance policies
Insurance policies should always be stored in a safe place that your executor knows where they are and can access.
When we take on new client relationships, we will always ask about existing insurance policies. It is often possible to change the agent on record for existing, in-force insurance policies.
When we review insurance policies that have been brought in, occasionally we discover that the policies have lapsed, been replaced, converted, or cancelled. Once we get confirmation that the policy is no longer in-force we recommend the client discard the policy, or at the very least mark on the documents no longer in-force. This will save your executor time on following up on insurance documents that are no longer required.
Physical share certificates
Investments and shares generally need to be registered in either the name of their beneficial owner or registered under the name of a nominee. Nearly all investment accounts that are being opened today have the individual securities registered in nominee name. It was more common in the past for investors to have investments registered in their own name, meaning they held the physical share certificates. As every year goes by, we see fewer physical share certificates.
Nearly all investors today are registering their securities in nominee name. This essentially means that the securities in your investment account are not registered in your name but in the firm’s name or the name of another person or company holding the securities on your behalf. Nominee accounts take most of the administration out of your hands. Although your securities may be registered in the financial institution’s name as nominee, you maintain beneficial ownership.
Individuals with physical stock certificates should consider the following questions:
1) What are the benefits for holding your individual share certificates in your name versus nominee name?
2) What happens if your share certificates are lost or stolen?
3) Do you know how to transfer your share certificates to another individual?
4) Do you feel the executor of your estate will be able to find all of your share certificates?
5) Are you aware of the added administrative burden your executor may encounter by having share certificates registered in your name?
6) Are you aware that transfer agents may charge fees to your estate even when proper documentation is provided?
7) When do you plan to dispose of your shares?
8) How did you plan to dispose of your shares?
The answers to the above questions may show investors that there are few reasons to hold investments in their own name. You will find that the costs to your estate may be significant. If the costs are not a concern, then consider the longer delays and greater paperwork that you are essentially asking your executor to do for you.
Registering your investments in nominee name ensures completeness, ease of administration and less overall risk of something being overlooked. A basic estate planning measure that we recommend for individuals with share certificates is to open an investment account and have them registered in nominee name. This will ensure that your investments are fully accounted for and safeguarded.
Do you have old share certificates that are defunct that you are still holding onto? Over the years we have assisted many clients in looking up to see if the physical stock certificate they have has value. We encourage our clients to shred any stock certificate that have zero value. This will avoid any confusion for the executors when they are determining if a physical stock certificate has value.
Off book or directly held investments
Like physical stock certificates, it used to be possible for clients to hold investments directly with an insurance company or with a mutual fund company. The insurance and mutual fund company would create an account number for you.
Advisors at Scotia Wealth Management, and most financial firms, are no longer able to hold off book investments. In most cases, these investments have been transferred into nominee name and the client will have two account numbers, one with the insurance/mutual fund company and one with the financial firm that holds custody of the investment.
We recommend that clients move any off book or directly held investments into nominee name. This will be one less step that your executor will have to figure out.
Shredding companies
Do not put financial information in your recycling box — this is how your personal information can be compromised. For clients that have small amounts to shred, we will offer to dispose of those records on their behalf. If you do not have a means of discarding your financial documents safely, there are commercial shredding companies that can dispose of the records.
Periodically, some shredding companies may have events where they will be raising money for charities and accept donations for shredding your documents. This is a great opportunity to declutter your house and help a charity.
Kevin Greenard CPA CA FMA CFP CIM is a Senior Wealth Advisor and Portfolio Manager, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250.389.2138, email [email protected], or visit .
