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How To Use Safe Deposit Boxes for Estate Planning?

Last update on: Aug 14 2020

Safe deposit boxes are among the most misunderstood and improperly used tools in Estate Planning. The ways many people use safe deposit boxes can cause more problems than they solve.

A safe deposit box usually is not the place you want to keep a will or other valuable documents, especially those that are necessary to settling your estate. Your estate planning executor needs a copy of the will to get the estate settlement process moving. That means the executor needs to know that your will is in the safe deposit box, needs the key to the box, and has to go to the bank and get the will. In some states, a bank will seal the box once the owner has died. The state might prohibit opening the box without a copy of the death certificate and perhaps some other paperwork. To protect themselves, some banks create their own rules about opening the box of a deceased owner. Sometimes the bank takes a complete inventory of the box, either for its own protection or for state tax officials.

At a minimum, before leaving your will and other estate planning documents in the box, ask the bank what its procedures are upon the death of a box owner and what your executor will have to do to get the box’s contents.

It is much easier to have the original will in either your personal files or with your lawyer. Keep copies of all key estate planning documents for yourself, your executor, and anyone else you think should have a copy.

What about keeping other valuables in a safe deposit box? Again, this is over-rated as a safety measure. The items probably won’t be stolen, but they could be damaged in a fire or other disaster. Before leaving items in a box, ask about the bank’s insurance and what you’ll need to prove to recover any losses.
September 11, 2001, demonstrated why important items probably should not be kept in safe deposit boxes. There were safe deposit boxes in the buildings destroyed in New York. The documents in the boxes, of course, were obliterated. Other items ? such as jewelry, heirlooms, and artifacts ? either were lost, destroyed, or damaged. Rescue workers have reported finding many items in various conditions and trying to determine their owners.

Taxes are another consideration.

It is not true, as many people believe, that tax authorities seize the contents of safe deposit boxes when someone passes away. In an audit, the IRS and state tax authorities will want to see an inventory of the contents. If there is cash in the box, the IRS will assume that it was not reported on an income tax return unless there is some proof to the contrary. The IRS also might assume the same for any other valuables for which there is no record of the purchase.

An alternative is a fireproof home or office safe. Most owners, however, don’t realize that without proper care these safes can destroy your documents or other valuables.

Fireproof safes have a great deal of insulation. Because of that, they tend to retain the moisture in the air. If you don’t open the safe regularly, the moisture will seep into the documents or other contents of the safe, making them damp and musty at best. Keep the safe locked for an extended time and the contents might sprout mold. Jewelry and other metallic objects could become tarnished.

A home fireproof safe is supposed to be opened at least once a week according to most manufacturers. An office fireproof safe is supposed to be opened several times a week. You also should consider placing safe contents in sealed plastic bags with as much air as possible squeezed out of the bags. Other airtight containers also can be used. An additional step is to place a desiccant packet in the safe to absorb moisture.

Safe deposit boxes are not as secure as many people believe and are not appropriate for all the valuables left in them. Give careful thought to the items you put in a box and the location of the box you use. Consider options such as a fireproof home or office safe or your lawyer’s office.



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