As the days get longer and the weather warms up, many of us get into spring cleaning mode. This year, we encourage you to include your financial affairs in your annual spring cleaning.
Here are our top spring-cleaning tips:
Review your wills, powers of attorney and beneficiary designations.
Like the seasons, things change. The powers of attorneys, executors, trustees, guardians for minor children and beneficiaries that you originally chose may no longer suit you.
Unless you regularly review your wills, powers of attorney, and beneficiary designations, it’s easy to overlook outdated designations. A family in Halifax learned this lesson the hard way due to an outdated beneficiary designation on a registered account.
If you haven’t reviewed your wills, powers of attorney, and insurance and registered account beneficiary designations in the last two to three years, we recommend you do so.
We are happy to help you assess if your current setup is still suitable.
Sort and file your documents.
You’d be hard pressed to find a household that doesn’t have a stack of documents waiting to be sorted. While you’re compiling your tax documents, this is a great time to also sort and file other household documents.
For your paper documents, a banker’s box, filing cabinet, or fireproof safe with labeled folders can simplify this process for you.
For tax documents, we recommend keeping a separate folder for each calendar year so you can quickly reference historical records as needed.
Apart from tax documents, sorting your documents by financial institution or theme (i.e. mortgage, wills & powers of attorney, life insurance, Queensbury, contracts, warranties) is usually good enough. If you only make one change, we strongly recommend that it be creating a separate and clearly labeled file for your wills and powers of attorney. This simple step can save your loved ones a lot of time and stress down the road.
For electronic documents, we like using subfolders in our email accounts and on our computers. This makes locating historical documents much easier in the future. Once you’ve set these folders up, you can quickly sort each document as it comes in to minimize the need for an annual clean up.
Don’t forget to keep a back up of any files stored on your computer, whether that be on a flash drive or a secure electronic storage service.
How long should I keep documents for?
As you sort through your documents, try to dispose of old files as you go. As satisfying as it is to do a big purge, think twice before destroying a document. In many cases, you should keep historical records for longer than a year.
For anything tax related, keep these documents for 7 years.
Investment statements and trade confirmations are also worth hanging onto for at least a few years. A paper trail is invaluable if you need to investigate something like a TFSA or RRSP overcontribution or an error that comes to light after the fact.
For non-registered accounts (also called cash or margin accounts), you may need to keep records indefinitely. Documents relating to these accounts can contain details of your original and subsequent purchase prices of your securities. You’ll need this information to calculate your adjusted cost base to determine your taxable capital gains (or losses) when you eventually sell these positions.
For married couples, in the event of a marital breakdown and a subsequent divorce, assets accumulated before your marriage (excluding matrimonial home(s)) are not subject to the division of assets under net family property. In Ontario, net family property only applies to married couples, not common law couples. Note that these rules aren’t the same in every province.
In most cases, as part of the divorce process, each spouse calculates their respective net worth to figure out net family property. The spouse with the higher respective net worth makes an equalization payment to the spouse with the lower respective net worth, so that both spouses receive an equal sum of household assets.
If one spouse came into the relationship with more assets, they’d get credit for these assets before the remaining assets are divvied up.
Long story short, to crunch these numbers, you’d need historical documents showing the value of your assets as of your marriage date and upon your separation.
Inheritances, gifts that are not from a spouse, and insurance settlement proceeds are also typically excluded from net family property in the event of a martial breakdown. This applies even if these proceeds are received after the marriage date. Again, you’d need a paper trail showing the source of these funds. You should also maintain any records indicating that these assets were kept separate and distinct and weren’t comingled with household funds.
How should I dispose of my paper documents?
Once you’re ready to get rid of your documents, the safest option for paper documents is to shred them. The details contained on most personal documents can expose you to identify fraud.
If you don’t have easy access to a shredder (or just don’t want to take the time to manually shred a large pile of documents), there numerous paid shredding services available. For instance, all Staples locations in Canada offer shredding services.
A final tip – save your financial spring cleaning for a rainy day. I’m sure that like us, you’re just itching to get outside and enjoy some beautiful spring weather.
This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.
