Although the IRS's statute of limitations for an audit is three years, tax experts recommend that you retain all tax records for seven years in the event that there are questions about the deceased person's final return. In addition, each state has its own requirements. Download all necessary tax forms for your state and review your state's rules for guidance.
Rules for Filing Estate Returns
If the deceased person has an estate plan or trust in place and her assets generate more than $600 in annual income, you will need to file an estate return using Form 1041. This is separate from the individual return, although both should be retained for seven years.
Everything you need to know about forms and procedures surrounding probate and tax returns for deceased persons can be found at the IRS website under "Deceased Persons – Probate, Filing Estate and Individual Returns, Paying Taxes Due."
Which Records to Keep
Additional records besides the deceased's final tax return need to be retained. A quick list of items to keep:
- Paper copies of pay stubs, insurance policy statements, credit card statements, bank and investment statements and receipts that aren't tied to deductions can be shredded after one year. However, most accountants recommend you keep an electronic copy of all records for three years.
- Records for assets like cars, investments or savings bonds need to be retained until the asset is sold. Once you have the bill of sale and the title or deed from the transaction, the ongoing paperwork for those assets can be shredded.
- Tax records, including the receipts, all forms and worksheets, should be kept for seven years. The IRS has the right to conduct a random audit for three years, or to challenge the return for six years if they feel you have underreported your income by more than 25 percent.
- Estate documents -- including trusts, wills and proxy documents -- as well as birth and death certificates, Social Security information, and marriage and divorce certificates should be retained indefinitely in a safe deposit box.
The National Institute of Health has guidelines about who can claim medical records and how to find them. Tax records pertaining to Medicaid, such as Medicaid qualification or liens, should be kept until Medicaid verifies in writing that a lien has been satisfied.