Creative Planning LLC to Acquire Thun Financial Advisors

Creative Planning LLC to Acquire Thun Financial Advisors

In a letter sent to clients on 6/15/2020, Thun Financial indicated that they are in the process of being sold to Creative Planning, L.L.C. Creative Planning will be purchasing the assets of Thun, effectively folding Thun into the larger entity.

What Does this Mean for Thun Financial’s Clients?

According to the letter, the transaction will close in the third quarter of 2020. Relationships will be moved to the new firm and assets will transfer over under Creative Planning’s management.  Clients are being asked to sign a letter consenting to the changes, though it is a “negative consent” letter, meaning that assets will transfer if no explicit refusal to transfer assets is made.

Who Does This Benefit?

In many cases when firms move, they will change custodians or leave a more onerous broker/dealer with antiquated technology or a captive situation (such as an insurance company or a focus on proprietary products). In this situation, however, it is not the case. It appears the custodians will remain the same, with advisors also expected to be maintained. Resultantly, it is likely that the owner of the firm will benefit the most from this transaction. It is almost certain that a large payment will be made, often spread over multiple years depending on the clients that stay with the new company. Advisors may be also compensated with bonuses, although in many cases a bonus will come with strings attached such as non-solicit and/or non-compete arrangements.

OK….So Will I Benefit?

Great question, and a fair one to ask your current advisor as well as the owners (or senior management) of both firms. Items you may choose to inquire about include the current pricing for the new firm, the technology changes you may face, and how your experience may be improved. It is also not out of bounds to ask about advisor and owner compensation in this transaction as well as if your advisor will now be tethered to a new firm through an employment agreement. There is nothing wrong with an owner cashing in their proverbial “chips”, but as a client you have a right to know. Additionally, you should vet the new firm by checking out their website and the SEC public disclosure website and firm ADVs to educate yourself on any past regulatory issues and if you are comfortable with them. 

What Are My Options?

You should take your due diligence seriously, particularly if you feel the new firm does not have a firm commitment to expats. You should certainly speak to those at Thun that you feel will help you make this decision, as well as other firms that work with expat investors. In being blatantly transparent, it’s what we do, and we would like to discuss how we can improve your wealth management experience. Find our more on our expat website, or schedule an appointment.

Clint Walkner

Can I Buy Life Insurance as an Expat Post-COVID?

Can I Buy Life Insurance as an Expat Post-COVID?

A crucial part of financial planning for many families is constructing an effective insurance solution to ensure that their long-term goals can be met, even in the tragic case of an unexpected death. However, as we’ve mentioned in a previous blog, such solutions are often complicated by living abroad, particularly when it comes to underwriting insurance.

As a firm, we do not sell insurance, but we do work with a variety of brokers to discuss insurance options for our clients, and all have indicated that right now, insurance companies are having a harder time pricing the risk of life insurance for their clients in a post-COVID world– particularly where those clients have international exposures.  

Before examining the expat specifics, one should note that this has changed insurance not just for Americans abroad, but also for Americans in the United States. Insurance is – essentially –  math and actuarial tables. Insurance companies using demographics, general country mortality, health and other factors, calculate your expected life expectancy based on actuarial tables in order to calculate your monthly premium in a way that will ensure the insurance company does not go out of business. Unfortunately, the inputs for general country mortality and “other factors” have been skewed by the global pandemic and currently insurance companies may not necessarily “trust” their own actuarial tables. Consequently, the insurance market may tighten as insurance companies either charge more to protect themselves against an unexpected and unquantifiable risk, or simply limit the policies they are underwriting or issuing.

In the past, many insurance companies were happy to underwrite Americans abroad in certain cases: for instance, they were able to come to the United States to submit to the policy health exam or could physically take delivery of the policy in the United States. As a result of the underwriting policies changes in the wake of COVID-19, many insurers may not be as worried about the expat angle than the issues of travel and generalized risks such as increased exposure to viruses or other communicable diseases. Consequently, we likely will see a drop in the number of companies who are willing to issue policies to Americans outside of the United States (particularly whole life policies) along with an increase in costs and restrictions (sometimes underwriting policies will require the insured to stay in the United States longer or not travel for a defined period of time).  

Unfortunately, there aren’t easy solutions to these problems at the moment. The general principles from a financial planning perspective remain the same and at the heart of our decision making process is weighing the needs for insurance versus the costs both in terms of health and any additional “hoops” required to obtain a policy. Additionally, we find that working with a broker that can quote a variety of companies rather than just a select few (or only one!) is very important, especially for expats. Ultimately, like so many things in our post-COVID world, we must wait and see, proceed cautiously, and be creative in our solutions.

Keith Poniewaz

How Does The CARES Act Impact American Expats?

How Does The CARES Act Impact American Expats?

The most important item to note for American expats is that being abroad will not disqualify you from eligibility for the Coronavirus Aid, Relief, and Economic Security (CARES) Act, should you meet the requirements. 

Americans who filed taxes abroad in 2019 (or if those have not yet been filed yet, 2018) are eligible for the tax credit. For those that earn under $75,000 in adjusted gross income for singles and $150,000 for married filers, they will receive direct payments from the government in the amount of $1,200 (single) or $2,400 (married).This will be sent via direct deposit for those that have set up ACH with the IRS, and a check can be sent to those that do not have that established. There is a phaseout for those earning above $75k/$150k, ending at $99k for single filers and $198k married.  

There are a couple of other lesser known provisions in the bill that may impact Americans abroad and we’re happy to discuss for how these changes may apply to your situation:

Required Minimum Distributions

For 2020, Required Minimum Distributions (RMDs) have been waived for all retirement accounts, including IRA, 401(k), 403(b), and 457 plans. This includes beneficiary IRAs as well. If you were in the category where you were required to take two RMDs in one year due to delaying your first RMD, you happen to be in luck – no RMD is required. 

No 10% Penalty For Early Retirees

For early retirees that qualify for “coronavirus-related distributions” (an intentionally broad definition), if you took out money prior to age 59 ½ or 55 depending on the type of retirement account, you were potentially subject to a 10% penalty. For 2020 you may now take up to $100k out of your pre-tax retirement accounts without penalty. You are still subject to reporting your distributions as income, though you are allowed to stretch the recognition of this income over three years. 

Additional Resources

As noted by our friends at American Expat Finance, a number of groups have hosted webinars discussing the various ways to apply or tax considerations involved in these “checks” from the US government.  Perhaps the most universally applicable is one hosted by the American Citizens Abroad, or ACA. As part of their newly announced Tax Cast series, President Mary Louise Serrato speaks with accountant Glen Frost to discuss the specifics of these benefits for Americans abroad from a tax perspective. The AARO (Association of Americans Resident Overseas) also hosted a webinar for its members

Keith Poniewaz

Life Insurance For Expats

Life Insurance For Expats

Life insurance is one of the most important, but often least understood, tools for financial planning, especially as it relates to estate planning. However, its specific uses are often overshadowed by a marketing strategy that pitches it as a Swiss Army Knife for all financial situations– retirement, estate planning, etc. This is not the case.

While there can be many legitimate uses for whole, variable, or universal life policies for U.S.-based people (Confused? That’s partially the goal, I think, but for more information on the types of available policies, click here.), most Americans outside of the United States frequently find themselves shut out from these policies because of their address. Even if they find themselves able to buy an American life insurance policy outside of the United States, the need to schedule fitness exams, etc. may make actually buying the policy impossible or they will– upon investigation– discover that their whole life policy may run afoul of local regulations, causing major tax headaches.    

Some investors will consider buying a whole life policy in their country of residence: however, this may not be a great idea because the whole life policy’s underlying cash value is generally invested in investment funds that are tax toxic from a U.S. perspective, the dreaded PFIC.  As noted cross-border Tax specialist Phil Hodgen notes on his blog, the ownership of the underlying assets means:

  • You have to file Form 8621 to report all of the mutual funds held as part of the investment account in that insurance policy.

  • If, during the time the life insurance policy is active and you are alive, the insurance company buys and sells mutual funds, you will have actual taxable sales under the excess distribution rules.

  • When you die, your estate will be treated as having sold the PFICs inside the “insurance policy” for fair market value, again triggering tax under the excess distribution rules.

This information doesn’t include the additional reporting requirements. In his blog, Hodgen goes into more detail on the policy itself and the fact that if the insurance policy doesn’t meet IRS definitions of a life insurance policy, any estate planning benefits will be eliminated.

As we’ll discuss below– while this is annoying– not having a whole life policy is not necessarily a disadvantage for Americans (especially when one takes into account that some of the estate planning strategies embedded in Life Insurance and Life Insurance Trusts will run up against regulations in the country of residence– the dreaded PRIIPS/KIDS). In what has become a cliché, those providing independent advice about such policies for Americans who are not expats generally recommend to “buy term and invest the difference,” and the same holds true for Americans outside of the United States.

(Curious about the definition of term insurance? Click here)

In certain cases, and with a bit of legwork, Americans abroad may find themselves able to buy such a policy in the United States, and they will generally find that any “pure life insurance” product they purchase in the United States will not pose problems in their country of residence. However, Americans should confirm any purchase of such a policy with a tax and legal advisor in their country of residence as local regulations are always shifting. 

The second option is to buy such a policy in their country of residence. However, this can be a bit more complicated for several reasons. First, before purchasing, Americans should confirm the policy is a “Pure life insurance” product without additional bells and whistles. Second, it is always encouraged to verify the policy against U.S. regulations, and generally, major insurance suppliers can help with that. An additional concern is the “excise” tax the U.S. charges on Foreign Insurance Policy Premiums– this ranges from 1-4%, but is 1% on pure life policies. However, the U.S. maintains treaty agreements with 17 countries which means that insurers from these countries are generally exempt from the “excise tax,” and the United States maintains a list of foreign insurers who are also exempt from the tax requirements. Consequently, these insurers would be, accordingly, a good place to investigate term life policies. For more information on the tax-related implications of foreign life insurance, we’d recommend this article from U.S. CPA Virginia La Torre Jeker.

No life insurance purchase takes place inside a vacuum and anyone considering a purchase of life insurance should undertake to analyze such a policy in the context of their long-term plans and goals covering the amount of policy recommended (especially to analyze in terms of any public or private pensions available), long-term family goals, determinations regarding long-term residence, etc. While Walkner Condon doesn’t sell life insurance (or any insurance), such discussions and analyses are part of our long-term financial planning process.

For Americans within the United States, the conversation about life insurance can be rather involved, as a variety of options are available and all of these options can be used to solve a variety of issues.

Generally, these options are limited for Americans outside of the United States as while insurers will continue to honor whole or variable life insurance policies for Americans outside of the United States, it is generally much harder for them to write new forms of these policies for Americans living outside of the United States. This generally leads to their option in the United States being term insurance.

Likewise, Americans outside of the United States should likely not invest in more complicated insurance products in our opinion, because these will generally hold assets that are referred to as PFICs (or Passive Foreign Investment Companies) and are taxed at a higher rate.  

Keith Poniewaz