About six months later, Dim Bulb was in surgery on a little girl with a brain tumor. Dim Bulb did nothing wrong in the surgery, but the results were not good. The little girl did have some residual paralysis which was permanent. Her parents were livid. Despite warnings given prior to surgery that this might occur and consents received, the parents decided to sue Dr. Bulb for malpractice.

Dr. Bulb went to a noted malpractice defense lawyer Glee Mailey, who told Bulb that he had a good case but it would be expensive to try, but would he consider settling. Bulb said, not for much because I don’t have anything and then cursed about money grubbing lawyers. At that point the lawyer informed Bulb what his retainer would be about $100,000. Bulb notified the Nevis Bank that he was being sued as well as the Alaska Bank. The result was that he stopped receiving statements concerning his account holdings with them. He did charge $100,000 on his VISA card with the Nevis Bank for the retainer and the charge was paid. He then received a letter, telling him that after that payment his limit was now $50,000. This troubled Dim, but he figured it was for his own good and the money would be there down the road. It also meant that he had no clue how much income he had earned on the account. His accountant told him that the income was taxable in the United States, but he didn’t have sufficient facts to pay the taxes, so he went ahead and filed the returns without listing the income from these assets, nor filling out the Financial Control Form required by the Treasury Department since he didn’t at this point know where his money actually was.

Dr. Bulb’s financial advisor, Clem Cudchewer, told him about setting up an Asset Protection Trust with some bank, he’d never heard of in Alaska. He received a really nice brochure from the Bank touting its services and his advisor told him that since he wouldn’t control the money (except to direct how it was invested), it was safe from creditors. He called his lawyer, Luigi Linguini. Luigi was concerned about whether a Domestic Trust would provide him all the protection he needed. So, he advised Dim to also set up a Foreign Asset Protection Trust with a bank in Nevis (a place Dim had never heard of before). Luigi and Clem arranged for Dim to sign the paperwork and forward the money to Nevis and Alaska. There were some vague promises about saving taxes as well, but Dim didn’t understand any of this since, he was focused on being a good Doctor and left these other issues up to professionals. He let his malpractice coverage lapse.

After the funds were received in Nevis, Congress passed the Foreign Compliance Tax Account Act of 2009 which required Banks which had any nexus with the United States to report income and expenses on the accounts of any US taxpayers.

Dr. Dim Bulb was a Pediatric Neurosurgeon. A handsome man of 45, he was a graduate of Jumanji School of Medicine with his residency at the Brain Surgery Hospital of Northhampton. He was recently divorced and had no children. He as six feet tall, lean and dark haired with a tan that spoke of weekends on Nantucket. He had an ample supply of willing women to date and he watched his diet and avoided alcohol and drugs which could impair his surgical talents. He was in this profession for the long haul. His office was in an upscale suburb of Boston and he practiced out of the Boston Municipal Hospital and Clinic.

Dr. Dim Bulb was worried. He still had lots of outstanding student loans from his medical school and college to the tune of $300,000. Further, despite the fact that he was a pediatric neurosurgeon, one of the most elite specialties in the medical profession, his income was severely reduced when he was placed on a fixed rate schedule by the Physicians Review Board which was established in the Health Care Reform Act of 2009. Once his rate was set by this Board for reimbursement by the Government Health Plan every private insurance company followed suit. He wasn’t sure how he was going to make it. Further, his malpractice premiums were $100,000 per year and since no one had passed any malpractice reform in the bill, he was looking at either going without malpractice insurance, or having to pay the piper. He had a 401(k) plan with about $400,000 in it and his home which he owned in his own name since he had recently divorced from his wife of ten years, Bright Bulb. To pay her off and borrowed against the house all but about ten percent of the equity. The house is now under water. However, since then, he was able to put away another $500,000. He was concerned that all that he had worked for over the years would go down the tubes.

We are going to embark over the next week or two on the subject of self-settled Asset Protection Trusts and the future effects of FATCAT (as named by my friend at Deathandtaxes, John T. Nolan) for the Foreign Account Tax Compliance Act of 2009 which is pending before Congress. Self-Settled Domestic Trusts provide little protection against creditors, because while the assets may be in Delaware, the Settlor is still around and a court can use its contempt powers to force the Settlor to get his money back. So, we’ll show this scenario in the case of Dr. Dim Bulb and his efforts at Asset Protection.