Top 10 (Actually 9) Noteworthy Cases Involving New Jersey Trusts, Including Special Needs Trusts

The following post contains a summary of the noteworthy trust cases decided by New Jersey courts in the past year and a half, in chronological order. I also included links to the articles about the cases posted on this blog.

 (1)    Pfeifer v. Langone, 2012 N.J. Super. Unpub. LEXIS 429 (App. Div. Feb. 29, 2012).

Breach of Fiduciary Duty Justifies Punitive Damages Award

The Appellate Division ruled that a punitive damages award would be based upon a trustee’s breach of fiduciary duty, thereby rejecting the defendant/trustee’s claim that punitive damages could not be awarded in the absence of proof of fraud or collusion. The court reasoned that the trustee was obliged to administer the trust solely for the benefit of the beneficiaries. “Whether conceptualized as a surcharge against the trustee’s interest, or as punitive damages, the trial court correctly determined that the trustee’s conduct constituted both fraud and a breach of her fiduciary duty.”

(2)     Bond v. Bond, 2011 N.J.  Super. Unpub. LEXIS 3082 (Dec. 22, 2011), certif. granted, 201 N.J. 217 (May 2012).

Proposed Establishment Of Special Needs Trust Does Not Justify Termination Of Child Support

The Appellate Division considered whether a non-custodial parent’s creation of a special needs trust (“SNT”) can justify the elimination of that parent’s obligation to pay child support. Although it concluded that the non-custodial parent “may utilize a special needs trust to take advantage of government programs to lessen the burden on the parent to provide support and medical assistance,” it went on to reason that the creation of such a trust would not justify the non-custodial parent’s concurrent application seeking to eliminate his obligation to pay child support.

The parties’ property settlement agreement (“PSA”) obligated Mr. Bond to pay $50,000 per year in child support for each of the couple’s two children (one of whom is disabled), regardless of the mother’s income. When the disabled son turned 21, he enrolled in a residential facility for special needs young adults. Mr. Bond then filed a motion seeking, inter alia, to establish an SNT for that son and to eliminate the child support obligation. The trial court denied Mr. Bond’s request to eliminate child support and establish the SNT. On appeal, the Appellate Division found it appropriate to review the parties’ finances. It found that, although Mr. Bond was claiming that his financial circumstances had declined in recent years, his 2008 gross earned income was $4,924,469; he owns a $6 million home in New York and a $3 million beach house; and his net worth is reportedly over $8 million. It found that, although an SNT is a beneficial tool to allow funds to be invested in a manner that would not disqualify the beneficiary from governmental benefits, the creation of such a trust would not justify the non-custodial parent’s concurrent application seeking to eliminate his obligation to pay child support.

In May 2012, the Supreme Court granted certification.

(3)     In re Brandes Trusts,  2012 N.J. Super. Unpub. LEXIS 1499 (App. Div. June 26, 2012).

Assertion Of Fee Claim In Trust Litigation Is Not Sufficient Reason To Justify Removal Of Guardian Ad Litem

A mother/guardian ad litem brought litigation against the trustee of two family trusts established for the benefit of her son. After one of those lawsuits was dismissed, the trustee sought fees incurred in defending the litigation. Based upon the fee claim, the Chancery Court removed the mother as guardian ad litem, finding that the mother was in a position of conflict that justified her removal.

In reversing the trial court, the Appellate Division found that the potential for an award of attorney fees against the mother, the trust, or both, was insufficient grounds for removal of a guardian ad litem, which must be “for good cause and based on clear and convincing evidence of misconduct or inability to serve the best interests of the ward.”

(4)     Mazyk v. Cozze, 2012 N.J. Super. Unpub. LEXIS 2687 (App. Div. Dec. 11, 2012).

Income From Special Needs Trust Must Be Utilized In Calculating Trust Beneficiary’s Child Support Obligation

The parties’ brief relationship resulted in the birth of a daughter. Several months prior to the child’s birth, the defendant/father, Marcos Cozze, Jr., was in a motor vehicle accident that resulted in permanent brain damage; a lawsuit was filed on his behalf, which resulted in a net settlement of $1,200,000. At the time of the settlement, the defendant was a recipient of Medicaid and/or other public benefits based upon financial need. To maintain his eligibility for public benefits, the defendant established a self-settled special needs trust and transferred the entire settlement amount to the trust. Several months after the trust was established, plaintiff/mother, Christina Mazyk, filed a lawsuit for child support against the defendant. At the same time, the plaintiff filed for welfare for her child and herself, and was found eligible for Temporary Assistance to Needy Families.

Although the trial judge noted the total absence of case law in New Jersey discussing the effect of a parent’s special needs trust on the parent’s child support obligation, the trial court ruled that it was inequitable to allow Mr. Cozze to utilize the trust funds to pay for his own needs while the parties’ daughter was supported by the State through welfare benefits. As a result, the trial court ordered that “[Cozze’s] Special Needs … include support for his daughter.”

Cozze appealed, arguing that, under both federal and New Jersey law, the assets in a special needs trust cannot be used to support any person other than the beneficiary of the trust. The Appellate Division disagreed, and affirmed the trial court’s judgment. The appellate court ruled that, under New Jersey family law, “all parents’ resources should be considered available for support of the children,” and that “the distribution of [trust] assets is a resource which the trial judge appropriately considered available for [child] support.”

(5)     Lewis v. Alexander, 685 F.3d 325 (3d Cir. June 20, 2012), cert. denied, 133 S.Ct. 933, 2013 U.S. LEXIS 738 (Jan. 14, 2013).

State Special Needs Trust laws That Are More Restrictive Than Federal Laws Are Preempted By Federal Law

The Third Circuit held that laws passed by the State of Pennsylvania designed to regulate SNTs (in this case, pooled trusts), which placed greater restrictions on the SNTs than those contained in federal law governing SNTs, “transgress[ed] federal intent” and were preempted by federal law. The new Pennsylvania law had mandated that assets in pooled trusts would be countable in determining a trust beneficiary’s Medicaid eligibility unless the following rules were met: (1) the beneficiary would have to be under age 65 and have special needs that would not be met without the trust; (2) trust expenditures would have to bear a reasonable relationship to the needs of the beneficiary; and, (3) upon the death of a pooled trust beneficiary, the state could seek reimbursement for the cost of medical care provided to the beneficiary from up to 50% of the funds retained by the pooled trust. None of these restrictions is contained in the federal law governing SNTs or pooled trusts.

A group of pooled trust beneficiaries and several pooled trusts challenged the Pennsylvania law in federal court. On plaintiffs’ motions for summary judgment and class certification, the district court ruled that the age limitation, expenditure restrictions and reimbursement rule were preempted by federal law. On appeal, the Third Circuit affirmed. A subsequent petition for certiorari was denied.

(6)     In the Matter of Jennifer Rogiers, Deceased, 2012 N.J. Super. Unpub. LEXIS 1990 (App. Div. Aug. 21, 2012), certif. denied, 213 N.J. 46 (Jan. 30, 2013).

“Deadbeat Dad” Entitled To Assets From Deceased Child’s Special Needs Trust

Ruben Martinez and Rosa Rogiers are the parents of Jennifer Rogiers, who was severely handicapped at her birth in 1983. Jennifer’s mother filed a medical malpractice claim on Jennifer’s behalf and recovered a $2.6 million judgment that was placed in a special needs trust for Jennifer’s benefit. The special needs trust stated that upon Jennifer’s death, the funds remaining in the trust would be distributed to her heirs at law, if she did not otherwise exercise a power of appointment in her will. In 2005, Jennifer died intestate, without children, and without exercising the power of appointment.

After Jennifer’s death, her biological father sought half of the approximately $1.1 million remaining trust funds as his share of her estate under the terms of the trust. Jennifer’s mother objected, claiming that the father did not deserve the funds because he was a “deadbeat dad” who paid no child support while Jennifer was alive, contributed nothing to his daughter’s medical care, and visited his daughter less than a dozen times during her life. The mother also requested repayment of $441,391.16 in expenses that she claimed to have incurred in caring for Jennifer. In response, Martinez claimed New Jersey’s probate law does not impose any obligation of support or care upon a parent in order to inherit from a child.

After a bench trial, the trial court ruled that Martinez was entitled to one-half of Jenifer’s estate, under the terms of the trust. It also awarded $441,391.16 to the mother, to reimburse her for expenses that she incurred caring for Jennifer.

On appeal, the appellate court affirmed, becoming the first New Jersey appeals court to decide that a parent’s right to inherit from a child’s estate is not dependent upon the parent having supported the child during the child’s lifetime. A subsequent petition for certification was denied.

(7)     In re Estate of Weiner,  2013 N.J. Super. Unpub. LEXIS 509 (Ch. Div. Feb. 12, 2013).

Will Would Control Disposition Of Real Property Previously Transferred To Revocable Trust

The court set aside a decedent’s will as the result of undue influence by one of her adult children, who was the principal beneficiary of the will. The court went on to state that, had the will been upheld as valid, it would have controlled the disposition of the decedent’s vacation home, even though the property had been transferred by the decedent years before to a revocable trust (established in Florida when the decedent resided there), which named her three children as equal beneficiaries.

After ruling that the will was the product of undue influence, the court went on to address whether the will, if valid, would have been effective to control the disposition of assets titled in the name of the revocable trust that the decedent had established. The court concluded that the disposition pattern in the will, not the trust, would have controlled the disposition of the vacation home. It reasoned that the will effectively modified the trust with respect to the disposition of the real property because, under Florida law, a later will can modify a trust when the will “specifically devises property that would otherwise have passed according to the terms of the trust.” Section 736.0602(3) of Florida’s version of the Uniform Trust Code.

The court also analyzed the situation under New Jersey law and, citing N.J.S.A. 3B:3-33.1, reached the same result, through application of the doctrine of probable intent:

[I]f we posit that [the decedent] clearly intended to dispose of Trust assets by Will… then, under the doctrine of probable intent, the court would give effect to that specific bequest, notwithstanding that the property was titled in the name of the Trust.

(8)     Saccone v. Bd. of Trustees of the Police & Firemen’s Retirement System, 2012 N.J. Super. Unpub. LEXIS 2399 (App. Div. Oct. 24, 2012), certif.     granted, 213 N.J. 387 (Mar. 13, 2013).

Appellate Division Affirms Board’s Refusal To Designate Special Needs Trust As Beneficiary Of Public Pension Death Benefits; Supreme Court Grants Certification 

Thomas Saccone is a retired Newark fireman with a severely disabled adult child, Anthony. Anthony lives with his parents, has been found to be totally disabled by the SSA, and for many years has received SSI and Medicaid.

Mr. Saccone retired in 2000 and was approved for benefits from the Police and Firemen’s Retirement System (“PFRS”), effective December 1, 2000. In order to structure his estate plan to provide for Anthony after Mr. Saccone’s death without jeopardizing Anthony’s eligibility for needs-based public benefits, Mr. Saccone executed a Last Will and Testament containing a testamentary SNT, and left his entire estate to the SNT in his will. Anthony is the sole beneficiary of the SNT.

In August 2008, by way of beneficiary designation, Mr. Saccone asked the PFRS to pay the survivor benefits to which Anthony would be entitled upon Mr. Saccone’s death to the SNT established under the will, to protect Anthony’s eligibility for public benefits.

The PFRS denied the request based on N.J.A.C. 17:4-3.5, which prohibits a retiree from designating a primary or a contingent beneficiary for the receipt of the retiree’s accumulated pension contributions in the event of the retiree’s death.

Mr. Saccone appealed the PFRS decision administratively to the Division of Pensions and Benefits, which affirmed the denial, and then to the Appellate Division, which affirmed the decision of the Division of Pensions and Benefits. Thereafter, the Supreme Court granted Mr. Saccone’s Petition for Certification and “summarily reversed” the Appellate Division, remanding the case back to the PFRS to decide the case on the merits. On remand, the Board again concluded that Mr. Saccone was not permitted to designate the SNT as a beneficiary of his public pension death benefits. Mr. Saccone again appealed to the Appellate Division, which again affirmed the PFRS Board’s decision denying the request to designate a testamentary SNT as beneficiary of Mr. Saccone’s public pension death benefit.

Mr. Saccone then filed a second Petition for Certification to the New Jersey Supreme Court. On March 13, 2013, the Supreme Court granted that Petition.

(9)     In the Matter of A.N., a Minor (Approved for Publication), 2013 N.J. Super. Unpub. LEXIS 54 (App. Div. Apr. 16, 2013).

New Jersey Courts Lack Subject Matter Jurisdiction To Decide Whether Special Needs Trust Expenditures Will Disqualify The Beneficiary From Medicaid

In 2000, A.N.’s parents created a self-settled special needs trust to hold an award of money damages resulting from litigation filed on A.N.’s behalf. A.N.’s parents are co-trustees, along with the Bank of America. A.N. lives in the family home. When the home was threatened with foreclosure, the trust began assuming the mortgage payments and carrying costs. A.N.’s parents wanted the trust to purchase the home, and sought payment of various expenses from the trust.

The corporate co-trustee filed a complaint seeking, inter alia, instructions regarding the trust’s proposed purchase of the home and payment of expenses, and the “impact on the Trust beneficiary’s Medicaid eligibility.”

DMAHS was served with the pleadings as an interested party, and expressed its position that the court lacked jurisdiction to “make administrative determinations with regard to a person’s future Medicaid eligibility or make determinations about the evaluation of transactions under Medicaid rules.”

The court approved acquisition of the property and the expenses from the trust, and held that they “shall not act to deprive [the beneficiary] of … Medicaid.” After the State’s motion for reconsideration was denied, DMAHS appealed.

The Appellate Division, reversed. The appeals court held that “the court can … provide advice that the proposed transaction is consistent with [Medicaid] statutes and regulations and is unlikely to adversely affect Medicaid eligibility. [But the ruling] can have no binding effect in the future on DMAHS in rendering a Medicaid eligibility determination, [because] only the designated Medicaid agency is authorized to determine Medicaid eligibility.”