Monthly Archives: February 2014

An Issue We Hope You Will Never Have to Deal With

By Louis Pashman, Esq.

For people who have disabled dependents, there is a device called a special needs trust.  A special needs trust is intended to allow a disabled individual to maintain eligibility for certain needs-based government benefits such as Medicaid, supplemental security income and others.  Assets in a special needs trust are not considered “available assets” for those purposes.

In order to achieve the purpose of a special needs trust, the trust must be properly created and administered.  The requirements for creation and administration of special needs trusts are precise and complex.  This is not intended as a tutorial on how to do it.

Two recent decisions addressed certain very specific issues related to special needs trusts.  Special needs trusts implicate both state and federal law.  One obligation of a trustee is to take care that certain state-permitted acquisitions by the trust do not disqualify the beneficiary from federal benefits.

In The Matter Of A.N., a Minor, 430 NJ Super 235 (App. Div. 2013) examined that question.  A trustee sought to purchase a home for the benefit of the disabled beneficiary, permitted by the State.  The trustee sought approval of the transaction from the Chancery Division and also sought an instruction regarding the impact of the transaction on Medicaid eligibility.  Such an application must be served on the Division of Medical Assistance and Health Services (DMAHS), the agency that makes Medicaid eligibility determinations.  After review, the court decided that the Chancery Division could review and approve the transaction but could not issue any direction on future Medicaid eligibility.  Only DMAHS could do that after an application for Medicaid had been filed.

The other recent case, J.B. v. W.B., 215 NJ 305 (2013), examined the use of special needs trusts as part of a divorce and resulting support obligations.  That case was complicated because it involved modification of an existing property settlement agreement, but putting that aside the court noted

“A special needs trust in conjunction with a thoughtful plan to gain eligibility and and receipt of government benefits, including Medicaid, SSI, and Division of Developmental Disability (DDD) programs, permits a family to provide health care, income, housing, and vocational services for their disabled, dependent child.  The redirection of a child support obligation from a parent to a trust designed to meet the present and future needs of the dependent, disabled child should not be considered exceptional or extraordinary relief, if such a plan is in the best interests of the unemancipated child.”

As noted earlier, this is not intended to give guidance on how to prepare or administer a special needs trust, or even if such a trust is appropriate for your circumstances.  It is intended only to point out two recent cases of interest.  Should you have to deal with these unfortunate issues, we are ready to help.

A Good Time to Review Your Estate Plan

By Joseph L. Goldman, Esq.

Many of you are currently gathering your income tax information for filing your 2013 income tax return.  You might want to take a little extra time to review your existing estate plan and estate plan documents (Will, Power of Attorney, Health Care Directive) to reflect current state and gift tax law, and changes in your family situation.

For 2014, the top federal estate tax rate is 40%.  The federal exemption amount is up to $5,340,000 ($5,000,000 indexed for inflation) per individual.  That amount is $10,680,000 for a married couple, if each owns at least $5,340,000 in their own name, or if they can take advantage of “portability”.

The New Jersey exemption amount remains at only $675,000.  That means that for couples with assets of over $1,350,000 there can be New Jersey estate tax due on the death of the surviving spouse, even if their assets are well below the federal estate tax threshold.

The New York exemption amount is currently $1,000,000, although Governor Cuomo has proposed raising it to conform with the federal exemption amount.  So under current law in New York, for couples with assets of over $2,000,000 there can be New York estate tax due on the death of the surviving spouse.

There is no “portability” for state estate tax purposes.

In addition to tax considerations, changes in your family situation, such as marriage or divorce, births or deaths, or a change of residence to another state, may call for updating your estate plan documents and your estate plan.

Consider also the use of gifting strategies, life insurance planning, and use of lifetime trusts for both tax and non-tax purposes.

Express Repudiation Needed to Start Statute of Limitations Running on Coauthor’s Copyright Claim

By Michael Zoller, Esq.

In a recent precedential ruling a Third Circuit Appellate Court clarified the rights of a coauthor to defend his or her copyright in a joint work.  A “joint work” is created when a work is prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole.  17 U.S.C. §101.  The copyright in the joint work is vested independently in each coauthor at the time the work is created.  The ruling in Brownstein v. Lindsay, will impact any coauthor’s ability to defend that copyright going forward so it is a ruling that every coauthor should be aware of.

In Brownstein, the plaintiff and defendant co-created a program that allowed for the identification of the ethnicity of a random list of people.  Lindsay created a set of rules and Brownstein created computer code; put together their rules and code allowed the program to function.  After the program was created Lindsay and Brownstein worked together to profit from the program; Lindsay was responsible for running the business end of their operation including registering the copyright on their program.  Shortly after the program was created, in copyright registrations Lindsay began identifying herself as the sole creator of the program.  It took 14 years for Brownstein to eventually file suit seeking a declaratory judgment that he was in fact a coauthor of the program.

At the trial level the District Court found in favor of Lindsay and dismissed Brownstein’s claim on the basis of it being filed beyond the three year statute of limitations allowed for any claim regarding a copyright.  On appeal, the Appellate Court reversed the District Court’s decision and remanded for a new trial.  In its decision, the Appellate Court held that even though it had been 14 years since Lindsay had begun to encroach on Brownstein’s copyright the three year statute had not necessarily begun to run because there had not been an “express repudiation” of Brownstein’s copyright.[1]

Leaning on the decisions of other Federal Circuits, the Appellate Court established that, in the Third Circuit, only an express repudiation can trigger the running of the statue of limitations.  An express repudiation requires that one coauthor do something that communicates not merely that he/she is the author, but that he/she is the sole author or that the other party is not a coauthor.  (Emphasis supplied by the court).  More specifically, the Appellate Court stated that identifying oneself as a sole owner in a copyright registration is not enough to establish an express repudiation.

Going forward, the Brownstein decision will provide coauthors a greater chance to defend a copyright they have in a joint work because the determination will not hinge on a strict counting of years, but rather fact questions regarding what steps were taken by the infringing party and when the party being infringed upon knew about the alleged infringement.  These changes should present a boon to those who participate in the creation of joint works.

[1] In addition to its holding on the requirement of express repudiation, the Appellate Court also held that the District Court did not have the power revoke Brownstein’s copyright registration.  That holding is not discussed in this post.

Reminder to New Jersey Employers: Don’t Post Want Ads Excluding the Unemployed

By James Boyan, Esq.

On January 7, 2014, a New Jersey appeals court upheld a $1,000 fine to an employer for posting a job advertisement which specified that unemployed individuals need not apply. 

In March of 2011, New Jersey enacted N.J.S.A. 34:8B-1 which prohibits employers from publishing job advertisements that state that applicants must be currently employed for their applications to be accepted, considered or reviewed.  Employers who violate this law are subject to fines of up to $1,000 for the first violation, $5,000 for the second violation and $10,000 for each subsequent violation.  N.J.S.A. 34:8B-1 became effective on June 1, 2011.

On August 31, 2011, the Burlington County Times ran a job posting from Crest Ultrasonics (“Crest” or the “Company”) for an open position which stated that applicants: “must be currently employed.”  (Emphasis added).  After reviewing the ad, an individual contacted the New Jersey Department of Labor and Workforce Development (“NJDOL”) and filed a complaint.  The NJDOL investigated the complaint, determined that Crest had violated N.J.S.A. 34:8B-1 and fined the Company and its CEO $1,000.

Crest appealed the NJDOL’s decision to the Superior Court of New Jersey – Appellate Division arguing that N.J.S.A. 34:8B-1 “improperly infringed upon their rights of free speech” in violation of the U.S. and New Jersey Constitutions.  The court, however, rejected Crest’s arguments finding that N.J.S.A. 34:8B-1 “is narrowly tailored to advance a limited, but nevertheless substantial governmental objective in maximizing the opportunities for unemployment workers to have their qualifications presented to prospective employers.”

This case should serve as a reminder to New Jersey employers that their job advertisements should not prevent unemployed individuals from applying for open positions.  It should be noted that the law does not prohibit employers from discriminating against unemployed individuals with respect to hiring decisions.  In other words, employers are permitted to have a preference for hiring currently employed individuals.  But, employers cannot express that preference or indicate that they will not consider applications from individuals who are currently unemployed in their job advertisements.

Fraud by Physician in the Application Process Does Not Preclude Insurance Recovery by Injured Plaintiff

By Dennis Smith, Esq.

The recent Appellate Division Decision in Demarco v. Stoddard, Docket No. A-3924-12T1, 2014 N.J. Super. LEXIS 13 (January 22, 2014), preserves some insurance proceed recovery for an injured plaintiff when an insurer seeks to rescind a policy because of misrepresentation in the application process.  In Demarco, a patient sued a doctor for malpractice.  The doctor’s insurance carrier disclaimed coverage on the theory that coverage had only been granted due to material misrepresentations having been made on the application.  The court found that while material misrepresentations had been made, the innocent patient, who is an unnamed third-party to the insurance contract, should not be forced to suffer as a result of the misrepresentations.  Accordingly, instead of rescinding the policy in its entirety, the court looked to the rational applied in auto insurance cases and used equitable principals to hold that the policy should be reformed to provide for the minimum amount of coverage required by law.  In New Jersey, the minimal amount of insurance coverage doctors must carry is one million dollars.

Notably, the court distinguished First Am. Title Ins. Co. v. Lawson, 177 N.J. 125 (2003), a case that rescinded a legal malpractice insurance policy on the basis of misrepresentations in the application, because that was a case of subrogation between insurers where no innocent third-party was involved because the wronged client had already been made whole by the title insurance company who, in turn, sought reimbursement from the attorney’s malpractice carrier.

Consequently, if Demarco succeeds in his malpractice case, the insurer is required to indemnify the doctor for the minimum amount mandated by the New Jersey law – one million dollars.  Following the Demarco decision, we expect to see in any case where an insurer files a declaratory judgment action seeking to rescind a policy issued to a physician based on fraud in the application process, the plaintiff in the underlying malpractice case, as a necessary party to the declaratory judgment action, will likely counterclaim for reformation of the policy to provide for the minimum limits of coverage required to be carried by the professional being sued.