Fiduciary Activities, 429-462 [2013-29970]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 79, Number 2 (Friday, January 3, 2014)]
[Proposed Rules]
[Pages 429-462]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29970]



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Vol. 79

Friday,

No. 2

January 3, 2014

Part II





Department of Veterans Affairs





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38 CFR Parts 3 and 13





Fiduciary Activities; Proposed Rule

Federal Register / Vol. 79, No. 2 / Friday, January 3, 2014 / 
Proposed Rules

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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Parts 3 and 13

RIN 2900-AO53


Fiduciary Activities

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

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SUMMARY: The Department of Veterans Affairs (VA) proposes to amend its 
fiduciary program regulations, which govern the oversight of 
beneficiaries who, because of injury, disease, the infirmities of 
advanced age, or minority, are unable to manage their VA benefits, and 
the appointment and oversight of fiduciaries for these vulnerable 
beneficiaries. The proposed amendments would update and reorganize 
regulations consistent with current law, VA policies and procedures, 
and VA's reorganization of its fiduciary activities. They would also 
clarify the rights of beneficiaries in the program and the roles of VA 
and fiduciaries in ensuring that VA benefits are managed in the best 
interest of beneficiaries and their dependents.

DATES: Comments must be received by VA on or before March 4, 2014.

ADDRESSES: Written comments may be submitted through 
www.regulations.gov; by mail or hand-delivery to Director, Office of 
Regulation Policy and Management (02REG), Department of Veterans 
Affairs, 810 Vermont Avenue NW., Room 1068, Washington, DC 20420; or by 
fax to (202) 273-9026. Comments should indicate that they are submitted 
in response to ``RIN 2900-AO53, Fiduciary Activities.'' Copies of 
comments received will be available for public inspection in the Office 
of Regulation Policy and Management, Room 1063B, between the hours of 8 
a.m. and 4:30 p.m., Monday through Friday (except holidays). Call (202) 
461-4902 for an appointment. (This is not a toll-free number.) In 
addition during the comment period, comments may be viewed online 
through the Federal Docket Management System at https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Cynthia Lewis, Chief, Fiduciary Policy 
and Procedures Staff, Department of Veterans Affairs, 810 Vermont Ave. 
NW., Washington, DC 20420; (202) 632-8863. (This is not a toll-free 
number.)

SUPPLEMENTARY INFORMATION: Since as early as 1924, VA and its 
predecessor agencies have administered a fiduciary program for 
beneficiaries who, as a result of injury, disease, the infirmities of 
advanced age, or being less than 18 years of age, cannot manage their 
own VA benefits. Under this program, VA oversees these vulnerable 
beneficiaries, and appoints and oversees fiduciaries who manage these 
beneficiaries' benefits. VA's current statutory authority for this 
program is in 38 U.S.C. chapters 55 and 61.
    Under current law, ``[w]here it appears to the Secretary that the 
interest of the beneficiary would be served thereby, payment of 
benefits under any law administered by the Secretary [of Veterans 
Affairs] may be made directly to the beneficiary or to a relative or 
some other fiduciary for the use and benefit of the beneficiary, 
regardless of any legal disability on the part of the beneficiary.'' 38 
U.S.C. 5502(a)(1). VA's longstanding interpretation of this authority 
is that the Department may establish a fiduciary program, under which 
it oversees beneficiaries who cannot manage their own VA benefits, and 
may either pay benefits directly to a beneficiary under VA supervision 
or to a third-party fiduciary, who may be a relative or some other 
individual or entity. We interpret ``regardless of legal disability'' 
in section 5502(a)(1) to mean that in creating the fiduciary program, 
Congress intended to preempt State law regarding guardianships and 
other matters to the extent necessary to ensure a national standard of 
practice for payment of benefits to or on behalf of VA beneficiaries 
who cannot manage their benefits. This proposed rule would establish 
that national standard of practice and remove the distinction between 
``Federal'' fiduciaries and ``court-appointed'' fiduciaries. Except as 
discussed below in this preamble, we intend to apply this approach to 
all fiduciary matters on the effective date of the final rule.
    VA implemented its authority to administer a fiduciary program in 
current 38 CFR part 13, most of which has not been updated since as 
early as 1975. There have been several significant changes to the 
program since the last update. First, in 2004, Congress amended 38 
U.S.C. chapters 55 and 61 to add new provisions, which, among other 
things, authorize VA to conduct specific investigations regarding the 
fitness of individuals to serve as fiduciaries, conduct onsite reviews 
of fiduciaries who serve more than 20 beneficiaries, require 
fiduciaries to file reports or accountings, and reissue certain 
benefits that are misused by fiduciaries. See 38 U.S.C. 5507-5510, 
6106-6107. VA has not implemented these changes in law in its 
regulations.
    Second, VA has consolidated its fiduciary activities into six 
regional fiduciary hubs and one foreign fiduciary activity at the VA 
Manila, Philippines Regional Office. This consolidation, which VA 
completed in March 2012, was based on the positive results of a pilot 
project at the Western Area Fiduciary Hub in Salt Lake City, Utah. 
Among other things, VA found that the consolidation improved the 
timeliness and accuracy of fiduciary operations. Under the 
consolidation, authority is delegated to the Fiduciary Hub Manager (Hub 
Manager) for each hub to administer VA's regional fiduciary activities. 
Each Hub Manager reports to the Director of the VA Regional Office 
where the hub is located. Accordingly, current regulations, which refer 
to the authority delegated to the Veterans Service Center Manager in 
each regional office, are out of date.
    Finally, as we describe in greater detail in this preamble, the 
U.S. Court of Appeals for Veterans Claims (Veterans Court) held in 
April 2011 that VA's fiduciary appointments may be appealed to the 
Board of Veterans' Appeals and thereafter to the Veterans Court and the 
U.S. Court of Appeals for the Federal Circuit. Prior to this holding, 
it was VA's view that fiduciary appointments were, by law, committed to 
the discretion of the Secretary of Veterans Affairs and could not be 
appealed. Therefore, current regulations do not address the right to 
appeal a fiduciary appointment or the notice and transparency that are 
necessary to provide beneficiaries a meaningful right of appeal.
    Also, VA's current fiduciary regulations tend to be general policy 
statements, rather than the binding rules for VA, beneficiaries, and 
fiduciaries that one might expect to find in regulations. Current 
regulations are also written in archaic language. For example, current 
regulations use the terms ``estate,'' ``incompetent adult,'' ``payee,'' 
``legal custodian,'' ``custodian-in-fact,'' ``court-appointed 
fiduciary,'' and ``commission.'' As a result, current regulations are 
not written in plain, easy-to-understand language for the general 
public.
    Although VA's current fiduciary regulations are in 38 CFR part 13, 
there are regulations in 38 CFR part 3 that also address fiduciary 
matters. See 38 CFR 3.850 through 3.857. VA generally promulgated these 
regulations in the 1960s and 1970s, and they are either obsolete, 
redundant of current part 13 provisions, or general policy statements 
that do not constitute binding rules. Accordingly, we propose to remove 
these regulations from part 3 and consolidate all rules applicable to 
the fiduciary program in part 13. There are references to these part 3 
regulations in

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38 CFR 3.401, 3.403, 3.452, 3.500, and 3.501, which generally pertain 
to effective dates. We propose to update Sec. Sec.  3.403 and 3.452 
consistent with our proposed regulations and current VA policy and to 
remove the other references because they are also obsolete or are not 
applicable to fiduciary matters. There are a few references to current 
part 13 regulations in current 38 CFR 3.353. We propose to update Sec.  
3.353 by replacing these references with references to proposed 
provisions.
    As described in the section-by-section supplementary information 
below, we propose to rewrite all of VA's part 13 fiduciary regulations 
consistent with current law, current VA policy and procedures, and VA's 
current organizational structure. We also propose to rewrite the 
regulations in plain language that is easier for beneficiaries and 
current and proposed fiduciaries to understand.

13.10 Purpose and applicability of other regulations

    This regulation would provide general notice regarding the 
statutory authority for and purpose of VA's fiduciary program. It would 
also distinguish fiduciary matters from benefit claims and clarify that 
the VA regulations in 38 CFR part 3 are not for application in 
fiduciary matters, unless VA has prescribed applicability in its part 
13 fiduciary regulations.

13.20 Definitions

    Proposed Sec.  13.20 would set forth definitions applicable to part 
13.
    The fiduciary program is responsible for ensuring that VA benefit 
payments made directly to a beneficiary in the fiduciary program or to 
a fiduciary on behalf of a beneficiary in the fiduciary program are 
used to maintain the well-being of the beneficiary and the 
beneficiary's dependents. Consistent with this responsibility, we 
propose to define dependent to mean the beneficiary's spouse, child, or 
parent who does not have income sufficient for reasonable maintenance 
and who obtains support for such maintenance from the beneficiary. For 
purposes of this definition, we propose to define spouse to mean a 
husband or wife whose marriage meets the requirements of 38 U.S.C. 
103(c), including ``common law'' marriage and same-sex marriage, and 
use the definition of child in current 38 CFR 3.57, and the definition 
of parent in current 38 CFR 3.59.
    We propose to define fiduciary to mean an individual or entity that 
has been appointed by VA to receive VA benefits on behalf of a 
beneficiary for the use and benefit of the beneficiary and the 
beneficiary's dependents. We interpret sections 5502 and 5506 to mean 
that a fiduciary appointed to manage VA benefits on behalf of a 
beneficiary has a financial obligation to the beneficiary and his or 
her dependents. We intend the definition to cover any individual or 
entity that has been appointed pursuant to VA's part 13 fiduciary 
regulations.
    As noted above in this preamble, since the promulgation of VA's 
current part 13 fiduciary regulations, VA consolidated all of its 
fiduciary activities, except the activities at the VA Manila, 
Philippines Regional Office, into regional entities called fiduciary 
hubs. Within each hub, the Hub Manager has the authority to oversee the 
hub's activities, but the Veterans Service Center Manager at the Manila 
Regional Office retains jurisdiction over fiduciary matters in the 
Philippines. Because the term Hub Manager is used throughout our 
proposed part 13 regulations, we propose to define the term to mean the 
individual who has the authority to oversee the activities of a VA 
Fiduciary Hub or the Veterans Service Center Manager of the Manila 
Regional Office.
    We propose to define in the fiduciary program to mean that a 
beneficiary has been rated by VA as incapable of managing his or her 
own VA benefits as a result of injury, disease, or the infirmities of 
advanced age, has been determined by a court with jurisdiction as 
unable to manage his or her own financial affairs, or is less than 18 
years of age.
    We use the term rating authority throughout our proposed 
regulations to refer to the VA entity with the authority to determine 
whether a beneficiary can manage his or her own VA benefits. We propose 
to define the term to mean VA employees who have authority under 38 CFR 
3.353 to determine whether a beneficiary can manage his or her VA 
benefits. These employees generally work in VA's regional offices under 
the direction of a Veterans Service Center Manager or in a VA Pension 
Management Center (PMC) under the direction of a PMC Manager.
    We propose to define relative to mean an adopted child or a person 
who is related to a beneficiary by blood or marriage. We intend a broad 
definition of this term consistent with current law and VA policy, 
under which VA prefers appointing relatives to serve as fiduciaries for 
beneficiaries. This broad definition would also be consistent with 
current VA policy regarding appointment of paid fiduciaries. VA prefers 
to appoint unpaid relatives prior to considering any other individual 
who is willing to provide fiduciary services only for a fee. VA's order 
of preference is based on the type of fiduciary relationship and seeks 
to establish the least restrictive and most effective relationship. 
Relatives typically have a one-on-one relationship with the beneficiary 
they serve and also serve without a fee.
    Restricted withdrawal agreements are used in some cases to protect 
VA benefit funds under management by a fiduciary when adequate bonding 
is not available. In order for a bond to be adequate, it must be 
reasonably priced and easily enforced by VA. In cases where the 
beneficiary and fiduciary reside in a territory of the United States or 
the Republic of the Philippines and the surety company fails to perform 
the obligation stated in the bond, it would be difficult to commence 
legal action and collect the liability from the surety company. For 
this reason, a fiduciary in the Commonwealth of Puerto Rico, Guam, or 
any other territory of the United States, or in the Republic of the 
Philippines, whose location precludes adequate bonding would be able to 
use a restricted withdrawal agreement in lieu of a corporate surety 
bond. We propose to define restricted withdrawal agreement to mean a 
written contract between VA, a fiduciary, and a financial institution 
in which the fiduciary has VA benefit funds under management for a 
beneficiary, under which certain funds cannot be withdrawn without the 
consent of the VA Hub Manager.
    To refer to the VA benefits that a fiduciary manages for a 
beneficiary, to include funds in accounts and invested funds, we use 
the term VA benefit funds under management throughout our proposed 
regulations. We propose to define the term to mean the combined value 
of the fiduciary account or accounts managed by a fiduciary for a 
beneficiary and any funds invested by the fiduciary for the 
beneficiary, to include any interest income and return on investment 
derived from any account.

13.30 Beneficiary rights

    Generally, a person to whom VA has awarded monetary benefits, a 
beneficiary, has the right to have VA pay those benefits directly to 
him or her. However, under 38 U.S.C. 5502(a)(1), VA may appoint a 
fiduciary on behalf of a beneficiary when it appears that ``the 
interest of the beneficiary'' would be served by such appointment. In 
fact, section 5502(a)(1) authorizes VA to pay benefits directly to a 
beneficiary even if VA or a court has determined that the beneficiary 
is incapable of managing his benefits if VA determines that direct 
payment would serve the beneficiary's

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interest. Beneficiaries also have the right to seek appointment of a 
successor fiduciary if the current fiduciary is not performing his or 
her responsibilities adequately. Under 38 U.S.C. 6107(a), certain 
beneficiaries have the right to reissuance of benefits that a fiduciary 
misused. Further, under Freeman v. Shinseki, 24 Vet. App. 404 (2011), a 
beneficiary has a right to appeal VA's fiduciary appointment decisions. 
In addition, VA has established various beneficiary rights in its 
policies and procedures. Current regulations do not clearly prescribe 
these rights. For purposes of clear notice regarding beneficiary rights 
under current law and policy, we propose to add Sec.  13.30 as 
described below. We intend this regulation as a comprehensive list of 
the various rights addressed in more detail in other proposed part 13 
regulations.
    In the introductory text to proposed Sec.  13.30, we propose to 
state VA's policy that, except as prescribed in the part 13 fiduciary 
regulations, a beneficiary in the fiduciary program has the same rights 
as any other VA beneficiary. In proposed paragraph (a), we state that a 
beneficiary generally has a right to manage his or her own VA benefits, 
subject only to VA's authority under section 5502(a)(1) to pay benefits 
directly to a beneficiary with limited VA supervision or to appoint a 
fiduciary to receive and manage VA benefit payments on behalf of a 
beneficiary.
    Paragraph (b) would provide notice regarding specific rights that 
we believe Congress intended to afford beneficiaries when it created 
the fiduciary program. We would prescribe that, if the beneficiary is 
18 years old or older, a beneficiary in the fiduciary program has the 
right to receive recurring monthly benefit payments until VA has 
completed the process required to appoint a fiduciary. This policy 
would ensure that beneficiaries and their dependents receive the 
benefits they need while VA is fulfilling its statutory obligations in 
the appointment of a fiduciary.
    Proposed paragraph (b)(2) would prescribe that every beneficiary in 
the fiduciary program has the right to notice regarding VA's 
appointment of a fiduciary or any other decision on a fiduciary matter 
that affects VA's provision of benefits to the beneficiary. The Hub 
Manager would provide written notice of such decisions to the 
beneficiary or the beneficiary's legal guardian, and the beneficiary's 
accredited veterans service organization representative, attorney, or 
claims agent. This notice is essential because beneficiaries would have 
the right to appeal some of these determinations. Proposed paragraph 
(b)(3) would prescribe that a beneficiary in the fiduciary program has 
the right to appeal to the Board of Veterans' Appeals VA's appointment 
of a fiduciary.
    Proposed paragraph (b)(4) through (6) would prescribe the 
beneficiary's basic right to be informed of a fiduciary's name, 
telephone number, mailing address, and email address; the right to 
contact his or her fiduciary and request a disbursement of funds for 
current or foreseeable needs or consideration for payment of previously 
incurred expenses or other information or assistance consistent with 
the responsibilities of the fiduciary prescribed in proposed Sec.  
13.140; and the right to obtain from the fiduciary a copy of the 
fiduciary's VA-approved annual accounting. These rights are basic to a 
fiduciary-beneficiary relationship and are necessary to define a 
fiduciary's role in such a relationship. They are also necessary to 
clarify that VA is not the beneficiary's fiduciary and is limited to an 
oversight role.
    Proposed paragraph (b)(7) would provide notice regarding a 
beneficiary's right under 38 U.S.C. 6107 to have VA reissue benefits 
misused by a fiduciary under certain circumstances, and proposed 
paragraph (b)(8) would prescribe a beneficiary's right to appeal VA's 
determination regarding its own negligence in misuse and reissuance of 
benefits matters.
    Proposed paragraph (b)(9) would allow a beneficiary to make a 
reasonable request for the appointment of a successor fiduciary if the 
current fiduciary receives a fee paid from the beneficiary's benefits 
and the beneficiary is requesting an unpaid volunteer fiduciary who has 
a higher preference under proposed Sec.  13.100(e), or if the 
beneficiary provides credible information that the current fiduciary is 
not acting in the beneficiary's interest or is unable to effectively 
serve the beneficiary. We propose to prescribe this right consistent 
with current VA policy, which, in all cases, requires VA to consider 
the beneficiary's stated preference for a fiduciary appointment. It 
would also allow a beneficiary to request supervised direct payments of 
his or her VA benefits after the removal of a fiduciary, which would be 
one of the rights afforded under proposed Sec.  13.30.
    Proposed paragraph (b)(10) would prescribe that a beneficiary has 
the right to receive his or her VA benefits directly without VA 
supervision if removed from the fiduciary program, or receive benefits 
directly with VA supervision if the beneficiary demonstrates the 
ability to manage his or her VA benefits through supervised direct 
payment (proposed Sec.  13.110), or VA otherwise determines that the 
beneficiary no longer requires fiduciary services (proposed Sec.  
13.500).
    Proposed paragraph (b)(11) would provide that a beneficiary has the 
right to be represented by a VA-accredited attorney, claims agent, or 
representative of a VA-recognized veterans service organization.

13.40 Representation of beneficiaries in the fiduciary program

    Under 38 U.S.C. chapter 59, Congress limited representation in the 
preparation, presentation, and prosecution of claims before VA to VA-
recognized veterans service organizations and VA-accredited attorneys 
and claims agents. See 38 U.S.C. 5901, 5902, and 5904. VA implemented 
this authority in 38 CFR 14.626 through 14.637, which address 
recognition and accreditation procedures, standards of conduct for 
individuals providing representation before VA, limitations on fees, 
and disciplinary matters. It is reasonable to impose the same 
limitations on representation before VA in fiduciary matters.
    We propose in Sec.  13.40 that the provisions of 38 CFR 14.626 
through 14.629 and 14.631 through 14.637 are generally applicable to 
representation before VA in fiduciary matters. We would exclude the 
application of Sec.  14.630, which authorizes non-accredited 
representation in claims for VA benefits. We intend to ensure that the 
vulnerable beneficiaries who are in the fiduciary program have the 
assistance of qualified accredited representatives. We also propose to 
remove any ambiguity that might be created by the references to 
``claims'' in the part 14 regulations as applied to fiduciary matters, 
which are not claims for benefits. We would remove this ambiguity by 
specifying in proposed paragraph (b)(1) that the terms ``claim'' and 
``claimant'' in Sec.  14.632 include a fiduciary matter before VA and a 
beneficiary in the fiduciary program, respectively. Regarding fees, we 
propose that the provisions of 38 CFR 14.636 that reference past-due 
benefits, use the amount of past-due benefits to calculate a 
permissible fee, or authorize the direct payment of fees by VA out of 
withheld past-due benefits are not applicable in fiduciary matters. 
This proposal is based upon the fact that fiduciary matters do not 
concern the award of past-due benefits. At the time of a fiduciary 
appointment, VA has already awarded benefits to the beneficiary, and 
any

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representation provided by an accredited attorney or claims agent would 
relate only to the fiduciary appointment decision or decision to pay 
benefits directly with VA supervision.

13.50 Suspension of benefits

    In 38 U.S.C. 5502(a)(1), Congress authorized payment of benefits to 
a fiduciary on behalf of a beneficiary if VA determines that such 
payment would serve the interest of the beneficiary. However, Congress 
also recognized that VA would encounter situations in which it is 
necessary to suspend payment of benefits to a fiduciary and take 
appropriate action to ensure continuity of benefits. In section 
5502(b), Congress authorized VA to suspend payment of benefits to any 
fiduciary who neglects or refuses to comply with VA accounting 
requirements.
    In section 5502(d), Congress also authorized VA to pay benefits to 
certain other individuals in any case in which VA suspends benefit 
payments to a fiduciary. In such cases, Congress prescribed that 
benefits not paid to those individuals may be ``held in the Treasury to 
the credit of such beneficiary'' and authorized disbursement of such 
held funds ``under the order and in the discretion of the Secretary for 
the benefit of such beneficiary or the beneficiary's dependents.'' 38 
U.S.C. 5502(d). Congress prescribed similar authority in 38 U.S.C. 5504 
regarding administration of trust funds. That statute, which generally 
pertains to the personal funds of patients and other trust funds 
established by VA, authorizes the transfer of such funds into ``deposit 
fund accounts with the United States Treasury'' and provides that 
``such balances and deposits shall thereupon be available for 
disbursement for properly authorized purposes.''
    VA implemented these provisions in various regulations, all of 
which interpret VA's authority as allowing suspension of benefit 
payments and appropriate VA action to ensure continuity of benefits for 
VA's most vulnerable beneficiaries. See current 38 CFR 13.61 (payments 
to chief officers of institutions), 13.72 (release of funds from 
personal funds of patients), and 13.73 (transfer of funds from funds 
due incompetent beneficiaries). We interpret VA's current statutory 
authority and VA's current regulations as authorizing suspension of 
benefit payments and appropriate action by VA to ensure continuity of 
benefit payments if a beneficiary has an immediate need for 
disbursement of funds and it is not possible to appoint a temporary or 
permanent fiduciary in time to address that need. Accordingly, we 
propose a new regulation, Sec.  13.50, which would clearly prescribe 
VA's authority to suspend benefit payments and take appropriate action 
on behalf of a beneficiary, provided that such action serves the 
beneficiary's interest.
    In proposed paragraph (a), we would state that, notwithstanding any 
rights afforded to a beneficiary under proposed Sec.  13.30, the Hub 
Manager may temporarily suspend payments of a beneficiary's VA benefits 
and hold such benefits in the United States Treasury to the credit of 
the beneficiary, or take any other action the Hub Manager deems 
appropriate to prevent exploitation of the beneficiary's VA benefits or 
ensure that the beneficiary's needs are being met. We intend that this 
regulation would implement VA's authority under the above-referenced 
statutes to suspend benefit payments and act in the beneficiary's 
interest in the rare case where independent VA action is necessary. 
However, we would limit the Hub Manager's discretion to use this 
regulation as prescribed in paragraphs (a)(1) and (2).
    Based upon VA's experience in administering the program, we have 
determined that there are generally two situations in which VA action 
under this proposed regulation would be necessary. First, in some 
cases, a beneficiary or the beneficiary's accredited representative, 
attorney, or claims agent may withhold cooperation in the fiduciary 
appointment process and thus risk suspension of benefits. In these 
instances, VA has an obligation to ensure that the beneficiary's or the 
beneficiary's dependents' needs are being met, to include payment of 
recurring bills, such as mortgages. Second, VA occasionally removes a 
fiduciary for one of the reasons prescribed in proposed Sec.  
13.500(b), such as fiduciary misuse of benefits, and is unable to 
appoint a successor fiduciary before the beneficiary has an immediate 
need for disbursement of funds. Under these two situations only, 
proposed paragraph (b) would authorize the VA Regional Office Director 
who has jurisdiction over the fiduciary hub or regional office involved 
to order disbursement of funds in the beneficiary's and the 
beneficiary's dependents' interests.
    In light of the temporary fiduciary appointment authority in 
proposed Sec.  13.100(h) and the removal and withdrawal provisions in 
proposed Sec. Sec.  13.500 and 13.510, we anticipate that this proposed 
regulation would be reserved for rare cases in which VA has no option 
but to take appropriate independent action.

13.100 Fiduciary appointments

    Under 38 U.S.C. 5502(a)(1), VA is authorized to appoint a fiduciary 
on behalf of a beneficiary when VA determines that ``the interest of 
the beneficiary would be served.'' Under this authority, before VA 
decides to pay benefits to a fiduciary, VA considers whether VA 
benefits can be paid directly to the beneficiary with temporary and 
limited VA supervision. VA may also appoint a temporary fiduciary under 
38 U.S.C. 5502(d) and 5507(d) if the circumstances require a temporary 
appointment. With respect to fiduciary appointments, VA must conduct 
the investigation prescribed by Congress in 38 U.S.C. 5507, which 
includes conducting a face-to-face interview with the proposed 
fiduciary to the extent practicable.
    VA implemented its authority under section 5502 in current 38 CFR 
13.55. While Sec.  13.55 authorizes the Veterans Service Center Manager 
to select and appoint the individual or entity best suited to receive 
VA benefits in a fiduciary capacity on behalf of a beneficiary, it does 
not fully implement section 5502. Specifically, it does not prescribe 
the obligations in initial appointments, to include VA's order of 
preference that must be considered in selecting a fiduciary to ensure 
that the appropriate fiduciary is appointed for a beneficiary. Further, 
the current regulation was promulgated in 1975, long before Congress 
added section 5507 regarding the investigation required to appoint a 
fiduciary. Also, the current regulation does not provide notice of 
current VA policy and procedures.
    We therefore propose a new Sec.  13.100, which would prescribe the 
Hub Manager's obligations in the appointment of a fiduciary. This 
proposed regulation would also prescribe the order of preference the 
Hub Manager must consider when appointing a fiduciary, the legal 
requirements regarding investigation and qualification of a fiduciary, 
rules governing expedited and temporary fiduciary appointments, and 
rules governing disclosure of information by fiduciaries to the 
beneficiaries they serve. This proposed regulation is necessary to 
fully inform beneficiaries and fiduciaries of VA's interpretation of 
current law and the procedures for appointing fiduciaries.
    In proposed paragraph (a), we would authorize the Hub Manager to 
appoint a fiduciary for beneficiaries in the fiduciary program. 
Paragraph (a) would generally require appointment of a

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fiduciary for beneficiaries who are the subject of a VA rating or court 
order regarding inability to manage financial affairs and for 
beneficiaries who are under 18 years of age. Proposed paragraph (b) 
would prescribe the exceptions to the authority granted under proposed 
paragraph (a). We would clarify that VA will not appoint fiduciaries 
for (1) beneficiaries who qualify under proposed Sec.  13.110 for 
supervised direct payment or (2) beneficiaries who (i) have not reached 
age 18 but (ii) serve in the military, were discharged from military 
service, or qualify for VA survivors' benefits as a surviving spouse, 
and (iii) have not been rated by VA as unable to manage VA benefits and 
have not been determined by a court to be unable to manage financial 
affairs. The provisions of proposed paragraphs (i), (ii) and (iii) 
restate or clarify current provisions. We do not intend a substantive 
change.
    Current 38 CFR 3.855 prescribes that VA will continue benefit 
payments directly to a beneficiary pending appointment of a fiduciary. 
VA has interpreted this provision to mean that beneficiaries are 
entitled to direct payment of recurring monthly benefits while VA 
processes a fiduciary appointment. However, VA withholds any 
retroactive benefit payment until a fiduciary has been appointed and, 
if applicable, the fiduciary has obtained a surety bond. This long-
standing policy protects any large, one-time benefit payment that the 
beneficiary may need for future care and services and that VA would not 
be able to reissue under 38 U.S.C. 6107 if it were made directly to the 
beneficiary prior to a fiduciary appointment. We propose to remove 
current Sec.  3.855 and replace it with proposed paragraph (c), in 
which we would provide clear notice that the Hub Manager will withhold 
such payments until a fiduciary has been appointed.
    Proposed paragraph (d) would prescribe the obligations of the Hub 
Manager in initially appointing a fiduciary to act on behalf of a 
beneficiary. We would essentially restate the statutory language and 
require every effort to appoint a fiduciary that would best serve the 
interest of a beneficiary. In achieving this objective, we propose, 
consistent with section 5507 and current VA practice, to require a 
field examination prior to appointing a fiduciary, which would include 
a ``face-to-face'' meeting with the beneficiary at the beneficiary's 
residence to the extent practicable, and the investigation of the 
proposed fiduciary prescribed in proposed paragraph (f). Proposed 
paragraph (d) would also implement section 5502(a)(1) by requiring the 
Hub Manager to consider, based upon the field examination, whether the 
beneficiary is able to manage his or her VA benefits with limited and 
temporary supervision by VA. See proposed 38 CFR 13.110 regarding 
supervised direct payment.
    Proposed paragraph (d) would also require the Hub Manager to 
consider whether the beneficiary's circumstances require appointment of 
a temporary fiduciary under proposed paragraph (h). Finally, proposed 
paragraph (d) would require the Hub Manager to consider the number of 
beneficiaries the proposed fiduciary already serves and whether the 
fiduciary would be able to meet the responsibilities of a fiduciary 
prescribed in proposed 38 CFR 13.140 in all appointments, if the Hub 
Manager appointed the fiduciary. We intend that the Hub Manager would 
limit the number of beneficiaries a fiduciary may reasonably serve.
    In proposed paragraph (e), we would prescribe the order of 
preference the Hub Manager must consider in appointing a fiduciary. We 
interpret section 5502(a) to authorize a paid fiduciary only if VA 
cannot appoint a relative or other fiduciary who would be willing to 
serve without a fee. We therefore propose the order of preference in 
proposed paragraphs (e)(1) through (10), beginning with the 
beneficiary's preference and progressing to the most restrictive and 
least desirable options. Consistent with our interpretation of current 
law and VA policy, VA will consider appointment of paid fiduciaries, 
including fiduciaries who are also appointed by a court, only when no 
other appropriate person or entity is willing to serve without a fee. 
VA does not favor diverting VA benefits to individuals or entities who 
will profit from beneficiaries' disabilities.
    Proposed paragraph (f) would implement 38 U.S.C. 5507 and would 
prescribe the investigation VA must conduct of a prospective fiduciary 
to receive benefits payments for a beneficiary under section 
5502(a)(1). We would generally restate the provisions in section 5507 
but propose to require that the Hub Manager must obtain and review a 
credit report on the proposed fiduciary that was issued by a credit 
reporting agency no more than 30 days prior to the date of the proposed 
appointment. We intend that appointment of fiduciaries would be based 
upon the best available and most relevant information. We would also 
require that a proposed fiduciary must provide proof of identity and 
relationship to the beneficiary, but not require an investigation of a 
proposed fiduciary that is an entity, such as the trust department of a 
bank that provides fiduciary services. We interpret the specific 
investigation requirements in section 5507, such as the criminal 
history and credit check, as applying only to individuals. We would 
also delegate to the Hub Manager the authority to again conduct all or 
part of the investigation prescribed in paragraph (f) after the initial 
appointment of the fiduciary. We interpret the authority delegated by 
Congress in section 5507 as including the authority to monitor 
fiduciaries' qualifications to ensure that they remain fit for service 
and that there is no current bar to service under proposed Sec.  
13.130.
    Proposed paragraph (g) would implement section 5507(c) and would 
prescribe the requirements for expedited appointments under section 
5502(a)(1). We would restate the provisions of section 5507(c) and 
authorize the Hub Manager to waive the face-to-face interview, criminal 
background check, and credit report requirements for a proposed 
fiduciary who is (1) the parent (natural, adopted, or step-parent) of a 
minor beneficiary; or (2) the spouse of a beneficiary; or the proposed 
fiduciary is being considered to manage annual VA benefits that do not 
exceed $3,600, as adjusted pursuant to 38 U.S.C. 5312.
    Proposed paragraph (h) would implement section 5507(d) and would 
prescribe the circumstances under which a temporary fiduciary may be 
appointed. In accordance with the provisions of section 5507(d), the 
period for which a Hub Manager could appoint a temporary fiduciary 
would not exceed 120 days, and a temporary fiduciary may be appointed 
if a beneficiary is appealing a VA rating that the beneficiary cannot 
manage his or her own VA benefits. Also consistent with 5502(d), we 
propose to authorize appointment of a temporary fiduciary when VA has 
removed a fiduciary for the reasons prescribed in proposed Sec.  
13.500, cannot expedite the appointment of a successor fiduciary, and 
the beneficiary has an immediate need for fiduciary services. 
Consistent with VA's authority under section 5502 to act in the 
interest of beneficiaries, we also propose to authorize a temporary 
fiduciary appointment in any other case in which the Hub Manager 
determines that it is necessary to protect a beneficiary's assets.
    In proposed paragraph (h)(2), to ensure that an entity or 
individual who serves as a temporary fiduciary meets the qualification 
requirements under section 5507, we would limit appointment of 
temporary fiduciaries to individuals and entities that already

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meet the qualification criteria for appointment and are performing 
satisfactorily as a fiduciary for at least one other VA beneficiary for 
whom the fiduciary has submitted an annual accounting that VA has 
approved. This provision would ensure that VA expeditiously appoints a 
qualified fiduciary under these rare circumstances who can temporarily 
meet the beneficiary's immediate needs.
    Proposed paragraph (i) would require every proposed fiduciary who 
is an individual to provide the Hub Manager a written authorization for 
VA to disclose information about the proposed fiduciary to the 
beneficiary. Any individual who refuses to provide the authorization 
would not be eligible to serve as a fiduciary for a beneficiary. See 
proposed paragraph (c) of Sec.  13.130 regarding bars to serving as a 
fiduciary. Under Freeman v. Shinseki, a beneficiary has a right to 
appeal VA's fiduciary appointment decisions. As described below in this 
preamble, we would extend a beneficiary's right to appeal to certain 
other VA decisions made in the fiduciary program. See proposed 38 CFR 
13.600 regarding appeals. These decisions must provide the beneficiary 
the bases for VA's decision, to include any information regarding the 
disqualification of the proposed fiduciary. For example, during the 
course of the investigation required by section 5507, VA might discover 
that the proposed fiduciary has a disqualifying criminal conviction or 
a poor credit history. Without the authorization required in proposed 
Sec.  13.100(i), application of the Privacy Act might prevent VA from 
providing the beneficiary meaningful notice regarding the bases for 
VA's appointment of a fiduciary other than the one with a criminal 
history or poor credit history.
    The same concern exists during VA's processing of an appeal to the 
Board of Veterans' Appeals. Under 38 U.S.C. 7105(d), upon receipt of a 
notice of disagreement regarding a fiduciary appointment decision, VA 
must issue a statement of the case summarizing the pertinent evidence, 
citing the pertinent laws and regulations, and discussing how the law 
and regulations affect VA's decision. The purpose of this statement is 
to assist the beneficiary in making a decision regarding appeal and 
preparing the appeal for review by the Board of Veterans' Appeals. The 
statement might be viewed as inadequate for the purpose it serves if VA 
cannot fully discuss the bases for its decision.
    Accordingly, to ensure the transparency that beneficiaries need to 
perfect an appeal or understand the bases for a VA decision regarding a 
fiduciary matter, we propose to require a proposed fiduciary who is an 
individual to provide the Hub Manager a written authorization for VA to 
disclose to the beneficiary information regarding any fiduciary matter 
that may be appealed described in proposed paragraph (i)(1). The Hub 
Manager would provide the proposed fiduciary notice regarding the 
purpose of the authorization and the potential use of disclosed 
information by the beneficiary in seeking review of VA decisions. Under 
proposed paragraph (i)(3), the Hub Manager would terminate 
consideration of a proposed fiduciary if the individual refuses to 
provide the required authorization.

13.110 Supervised direct payment

    In 38 U.S.C. 5502(a)(1), Congress authorized VA to pay benefits 
directly to a beneficiary, regardless of any legal disability on the 
beneficiary's part, if VA determines that direct payment to that 
beneficiary will serve his or her interest. Congress did not address 
the scope of direct payment to a beneficiary who was initially rated as 
being unable to manage his or her VA benefits, but later, through 
supervised direct payment, demonstrated the ability to independently 
manage those benefits.
    VA implemented its authority under section 5502(a)(1) in current 38 
CFR 13.56 regarding supervised direct payment. Under Sec.  13.56, VA 
may pay benefits directly to a beneficiary rated as being unable to 
manage his or her VA benefits ``in such amount as [VA] determines the 
[beneficiary] is able to manage with continuing supervision by [VA], 
provided a fiduciary is not otherwise required.'' If the amount paid 
under direct supervision is less than the full benefit entitlement, 
such partial payment cannot exceed 1 year for a beneficiary who is 
successfully managing his or her financial affairs.
    We have determined that current Sec.  13.56 does not fully 
implement section 5502(a)(1) or current VA policy regarding supervised 
direct payment to beneficiaries in the fiduciary program. We note that 
while the current regulation allows direct payment of benefits, it is 
unclear as to how such payments will be accomplished while VA provides 
continued supervision. The current regulation is silent as to what 
continued supervision entails or whether such supervision must continue 
despite evidence that the beneficiary can actually manage his or her VA 
benefits. Furthermore, current language in the regulation which 
provides that VA may pay the beneficiary ``in such amount as [VA] 
determines the [beneficiary] is able to manage'' is not a clear 
substantive rule. Therefore, we propose a new Sec.  13.110, which would 
clearly prescribe the roles of both VA and the beneficiary during the 
supervised direct payment period, with the objective of having the 
beneficiary independently managing his or her benefits without VA 
supervision at a later date, and without having a fiduciary appointed.
    In proposed paragraph (a), we would authorize the Hub Manager to 
pay benefits directly to an adult beneficiary. Consistent with current 
VA policy and section 5502(a), the Hub Manager would determine, based 
upon a field examination, whether the beneficiary can manage his or her 
VA benefits with limited and temporary VA supervision. A beneficiary 
would also be allowed to request supervised direct payment of his or 
her VA benefits following the removal of a fiduciary as prescribed in 
proposed Sec.  13.500. We would prescribe the types of information that 
the Hub Manager would consider in determining whether a beneficiary can 
manage his or her VA benefits with limited and temporary supervision. 
Such information would include the beneficiary's awareness of his or 
her financial obligations and ability to meet those obligations through 
appropriate fund management, while still conserving excess funds. The 
Hub Manager would have authority to consider any other information 
relevant to the beneficiary's ability to manage his or her VA benefits.
    Proposed paragraph (b) would prescribe the limited and temporary 
supervision provided by VA to a beneficiary who the Hub Manager 
determines is eligible for supervised direct pay. This supervision 
would consist of budgeting assistance and assistance in creating a fund 
usage report, with the intent being that supervised direct payment 
would include instruction and monitoring components. Finally, the 
supervision prescribed by proposed Sec.  13.110(b) would include 
periodic reviews of the beneficiary's fund usage reports by fiduciary 
hub personnel. We have determined that this limited supervision would 
strike the proper balance between VA supervision and independent fund 
management by the beneficiary.
    Current Sec.  13.56 does not address whether a beneficiary who has 
been rated as being unable to manage his or her VA benefits may 
nonetheless establish such ability through supervised direct payment. 
We propose to address this gap in proposed paragraph (c), which would 
require the

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Hub Manager to reassess the beneficiary's ability at or before the end 
of the first 12-month period of supervised direct pay. Such 
reassessment would be based upon the results of a field examination, 
the factors in proposed paragraph (a), and the results of the limited 
supervision prescribed in proposed paragraph (b). If the Hub Manager 
determines that the beneficiary has demonstrated the ability to manage 
his or her own VA benefits without further supervision, the Hub Manager 
would be required to report that determination to the rating authority 
for application of 38 CFR 3.353(b)(3) regarding reevaluation of ability 
to manage VA benefits and Sec.  3.353(d) regarding the presumption of 
ability to manage VA benefits without restriction. The Hub Manager 
would have authority to extend supervised direct payment for an 
additional period up to 12 months but would otherwise be required to 
appoint a fiduciary for any beneficiary who does not demonstrate the 
requisite ability to manage one's own VA benefits. The decision as to 
whether to extend supervised direct payment for not longer than one 
additional 12-month period or appoint a fiduciary would be based on a 
field examination and factors such as whether the beneficiary is aware 
of his or her monthly income and fixed monthly expenses and has the 
ability to allocate appropriate funds, pay monthly bills in a timely 
manner, and conserve excess funds.
    In our view, proposed Sec.  13.110 would be a significant reform 
which would allow beneficiaries who were initially rated as being 
unable to manage their VA benefits to achieve the same level of 
financial independence as other beneficiaries with similar 
disabilities.

13.120 Field examinations

    Under 38 U.S.C. 5502(a), VA may pay benefits directly to a 
beneficiary who has been rated by VA as being unable to manage his or 
her VA benefits or may pay benefits to a fiduciary on behalf of such a 
beneficiary, when VA determines that doing so would serve the 
beneficiary's interest. With respect to fiduciary appointments, VA must 
conduct the investigation prescribed by Congress in 38 U.S.C. 5507 and 
thereafter conduct sufficient oversight to determine whether 
fiduciaries are properly providing services for beneficiaries. Such 
oversight may include the periodic onsite reviews of certain 
fiduciaries under the authority granted in 38 U.S.C. 5508 or the 
monitoring or investigation regarding misappropriation or misuse of 
benefits required by 38 U.S.C. 6101, 6106, and 6107. Congress did not 
specifically address how VA should conduct the various activities 
required for proper administration of the fiduciary program. However, 
in 38 U.S.C. 5711(a), Congress authorized VA to, among other things, 
``[m]ake investigations and examine witnesses upon any matter within 
the jurisdiction of the Department.''
    Current 38 CFR 13.2(a) regarding the authority to conduct field 
examinations restates the authority granted by Congress in section 
5711(a). Current paragraph (b) then prescribes the scope of field 
examinations in very general terms. It states that field examinations 
include but are not limited to matters related to administration of 
estates and the well-being of beneficiaries. Certain field examination 
provisions are in VA's 38 CFR part 3 adjudication regulations, rather 
than in the current part 13 fiduciary regulations where the reader 
might expect to find them. Specifically, upon a rating that a 
beneficiary cannot manage his or her VA benefits, current 38 CFR 
3.353(b)(2) authorizes the Service Center Manager to ``develop 
information as to the beneficiary's social, economic and industrial 
adjustment'' and appoint a fiduciary.
    We have determined that current Sec.  13.2 lacks clarity regarding 
the purpose and scope of field examinations in the fiduciary program. 
VA promulgated the current regulation before the enactment of sections 
5507, 5508, 6106, and 6107, and thus it does not reflect current law 
and VA policy. Accordingly, we propose to replace current Sec.  13.2 
with proposed Sec.  13.120 as described below.
    In proposed paragraph (a), we would define ``field examination'' 
and authorize the Hub Manager with jurisdiction over a fiduciary matter 
to order a field examination in connection with that matter. The term 
``field examination'' would describe the broad scope of duties 
performed by VA's current field examiners, who generally live near the 
beneficiaries they serve and are responsible for checking beneficiary 
needs, beneficiary well-being, and fiduciary qualifications and 
performance. In this regard, field examinations are a critical 
component of the fiduciary program, under which VA oversees vulnerable 
beneficiaries and appoints and oversees fiduciaries for those 
beneficiaries.
    Proposed paragraph (b) would prescribe the scope of field 
examinations. As noted above, under current Sec.  3.353(b)(2), 
assessment of the beneficiary is one component of a field examination. 
Further, section 5507(a)(1) prescribes ``an inquiry or investigation by 
[VA] of the fitness of that person to serve as fiduciary for that 
beneficiary,'' which we interpret to mean that Congress intended that 
VA would conduct any necessary investigations, visits, or other 
inquiries to confirm the qualifications of any person seeking to 
provide fiduciary services for a VA beneficiary prior to appointment. 
Paragraph (b) would list the scope of a field examiner's duties under 
current VA policies and procedures. In listing the scope of these 
duties, we do not intend a substantive change and instead intend to 
clarify the purpose of field examinations and the authority of field 
examiners who conduct them.
    Proposed paragraph (c) would provide the reasons for which a Hub 
Manager may order a field examination. Consistent with the primary 
purposes for field examinations, which are to ensure the well-being of 
beneficiaries and protect a beneficiary's VA benefit funds through the 
oversight of beneficiaries in the program and the appointment and 
oversight of fiduciaries, the Hub Manager would have authority to order 
a field examination at any time for those purposes. Again, VA does not 
intend any substantive change in proposing to expressly prescribe the 
circumstances under which VA would conduct a field examination. Our 
intent is to clarify current practice and provide clear notice 
regarding our field examination activities in the fiduciary program.

13.130 Bars to serving as a fiduciary

    In establishing the fiduciary program, Congress intended that VA 
would take appropriate action to ensure that only qualified individuals 
and entities provide fiduciary services for beneficiaries. In 38 U.S.C. 
5502(a)(1), Congress authorized payment of benefits to a fiduciary on 
behalf of a beneficiary if VA determines that such payment would serve 
the interest of the beneficiary. In section 5502(b), Congress 
authorized VA to appear in court regarding a fiduciary if the fiduciary 
``is not properly executing or has not properly executed the duties of 
the trust of such fiduciary'' and suspend payments to any fiduciary who 
fails to properly submit an accounting to VA. Finally, under 38 U.S.C. 
5507, VA must conduct an investigation regarding a proposed fiduciary 
before appointing the individual to serve as a fiduciary. Among other 
things, this investigation must include an inquiry regarding the 
proposed fiduciary's criminal and credit history. 38 U.S.C. 
5507(a)(1)(C) and (b). Appointment of a fiduciary must be based, in 
addition to that investigation, on ``adequate evidence that 
certification of that person as fiduciary for that

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beneficiary is in the interest of such beneficiary.'' 38 U.S.C. 
5507(a)(2). We interpret these provisions to mean that certain 
individuals should not be considered qualified for purposes of acting 
as a fiduciary for a beneficiary.
    Although VA's current regulations prescribe the appointment of a 
fiduciary if VA determines that such appointment is in the interest of 
the beneficiary, they do not contain any provisions establishing clear 
qualification standards for proposed or currently serving fiduciaries. 
Specifically, VA does not currently have a regulation that lists the 
circumstances under which VA would not consider an individual or entity 
for appointment or continuation of service. We have determined that 
such a regulation is necessary to ensure consistency in the more than 
30,000 initial fiduciary appointments that VA conducts annually and to 
ensure that VA's fiduciary personnel appoint only the best qualified 
individuals or entities to manage the funds of VA's most vulnerable 
beneficiaries. Further, it is VA's obligation in its oversight role to 
remove any fiduciary who no longer meets the requirements for 
appointment. Without a clear standard regarding the circumstances that 
would bar appointment or continuation of service, we could not 
consistently conduct oversight and beneficiaries and fiduciaries would 
not have adequate notice of VA's interpretation of governing law. 
Accordingly, we propose to add a new Sec.  13.130 regarding bars to 
serving as a fiduciary.
    Proposed paragraph (a)(1) would bar the appointment or further 
service of any person or entity that misused or misappropriated VA 
benefits while serving as a beneficiary's fiduciary. Paragraph (a) 
would continue current VA policy, under which VA does not reappoint any 
individual or entity that has misused or misappropriated beneficiary 
funds. We interpret VA's authority under 38 U.S.C. chapters 55 and 61 
as establishing an obligation to eliminate as much as possible the risk 
of exploitation of beneficiary funds. We could not meet this obligation 
if we reappointed or continued the service of a person who has engaged 
in such exploitation.
    Proposed paragraph (a)(2)(i) would prescribe the general rule that 
a felony conviction is a bar to appointment or continuation of service 
as a fiduciary for the 10-year period following the conviction, 
provided that the conviction is not for one of the offenses listed in 
proposed paragraph (a)(2)(ii). A felony conviction for one of the 
offenses in paragraph (a)(2)(ii), which generally concern fraud, 
financial crimes, or the abuse or neglect of another person, would be a 
permanent bar to serving as a fiduciary. Under section 5507(b), 
Congress authorized VA to appoint a convicted felon ``only if [VA] 
finds that the person is an appropriate person to act as fiduciary for 
the beneficiary concerned under the circumstances.'' This proposed rule 
is not inconsistent with that limitation on VA's appointment authority.
    In section 5502, Congress authorized VA to appoint a fiduciary for 
a beneficiary only if it appears to VA that it would serve the 
beneficiary's interest. We have determined that there is no 
circumstance under which it would serve a vulnerable beneficiary's 
interest to have VA benefits managed by a felon convicted for one of 
the offenses listed in proposed paragraph (a)(2)(ii). To do otherwise 
would call into question the integrity of the fiduciary program. 
Accordingly, we propose to authorize the Hub Manager to appoint a 
person who has been convicted of a felony offense other than the 
proscribed offenses listed under paragraph (a)(2)(ii) only if the Hub 
Manager determines that there is no other person or entity willing and 
qualified to serve, there is no risk to the beneficiary, and such 
appointment is in the beneficiary's interest.
    Proposed paragraph (b) would prescribe other bars to an individual 
serving as a fiduciary. Paragraph (b)(1) would bar appointment or 
continuation as a fiduciary, if the individual being considered refuses 
or neglects to authorize VA to disclose information regarding the 
individual to the beneficiary the individual wishes to serve. Under 
Freeman v. Shinseki, a beneficiary has a right to appeal VA's fiduciary 
appointment decisions. In these proposed regulations, we propose to 
acknowledge the right to appeal certain other VA decisions made in the 
fiduciary program. See proposed 38 CFR 13.600 regarding appeals. We 
described our basis for requiring each proposed fiduciary to provide VA 
an authorization for VA disclosure of information to the beneficiary in 
the supplementary information for proposed Sec.  13.100(i).
    Proposed paragraphs (b)(2) through (4) would bar appointment or 
continuation of service as a fiduciary if the individual does not have 
the current capacity to provide fiduciary services for a beneficiary. 
Paragraph (b)(2) would bar appointment or continuation of service of 
any individual who is unable to manage his or her own Federal or State 
benefits and is in a Federal or State agency's fiduciary or 
representative payment program. Paragraph (b)(3) would bar appointment 
or continuation of service if a court with jurisdiction has adjudicated 
the individual as being unable to manage his or her own financial 
affairs. Finally, paragraph (b)(4) would bar appointment or 
continuation of service if the proposed fiduciary is incarcerated in a 
Federal, State, local, or other penal institution or correctional 
facility, sentenced to home confinement, released from incarceration to 
a half-way house, or on house arrest or in custody in any facility 
awaiting trial on criminal charges. Such incarceration or custody would 
make the proposed fiduciary effectively unavailable for purposes of 
fulfilling the obligations of a fiduciary.
    Proposed paragraph (b)(5) would bar appointment or continuation of 
service as a fiduciary if the individual has felony criminal charges 
pending. Although a fiduciary or proposed fiduciary who has been 
charged with a felony might ultimately be acquitted or found not guilty 
and at that time qualify for appointment, we have determined that it 
would be inconsistent with our obligation to protect vulnerable 
beneficiaries in the fiduciary program to allow such individuals to 
provide fiduciary services to beneficiaries while the charges are 
pending. Also, a person who is on trial for a felony offense or who is 
preparing for such a trial would not, in our view, be able to properly 
attend to the needs of VA beneficiaries. However, upon request of a 
beneficiary, we would remove the bar and consider the individual for 
appointment if he or she is acquitted or found not guilty of the 
charges. We propose in paragraph (b)(6) that being under 18 years of 
age bars being appointed as a fiduciary because it would be 
unreasonable to appoint as a fiduciary a person who is deemed unable to 
manage his or her own VA benefits. Last, we propose in paragraph (b)(7) 
that any knowing violation or refusal to comply with the regulations 
governing service as a fiduciary would also be a bar.

13.140 Responsibilities of fiduciaries

    Sections 5502 and 5507 require VA to consider whether payment of 
benefits to a fiduciary is in a beneficiary's interest. We interpret 
this authority as authorizing VA to remove any fiduciary who is not 
meeting the fiduciary's responsibilities to a beneficiary and thus not 
acting in the beneficiary's interest. However, current regulations do 
not clearly prescribe those responsibilities.
    Current 38 CFR 13.100(a) regarding supervision of VA-appointed 
fiduciaries authorizes VA to require an accounting from, or terminate 
the appointment of,

[[Page 438]]

a VA-appointed fiduciary when the Veterans Service Center Manager 
``deems it necessary for the protection of the beneficiary's 
interests.'' However, it is unclear when such action might be 
necessary, and there is no notice to fiduciaries or beneficiaries 
regarding VA's expectations. Current paragraph (b) authorizes any 
necessary informal action regarding court-appointed fiduciaries to 
ensure that ``benefits are prudently administered and adequately 
protected.'' Current paragraphs (c) regarding unsatisfactory conditions 
and (d) regarding misappropriation, embezzlement, or violation of 
Federal statutes generally track the language of sections 5502(b) and 
6101 and authorize suspension of benefits and referral to the VA 
Regional Counsel if the fiduciary has performed inadequately. These 
provisions do not prescribe any meaningful standards, which might 
instruct fiduciaries and beneficiaries regarding VA's expectations or 
the grounds for further VA action to suspend payment of benefits, 
remove the fiduciary, or appoint a successor fiduciary. Nor do they 
establish binding obligations that have the force and effect of law for 
VA, beneficiaries, or fiduciaries. Accordingly, we propose to clearly 
prescribe the responsibilities of VA-appointed fiduciaries in a new 
Sec.  13.140 as described below.
    In proposed paragraph (a), we would prescribe the core requirements 
for all fiduciaries, which are to monitor the well-being of the 
beneficiaries they serve and to disburse funds according to beneficiary 
needs. It is our intent to change the culture in the fiduciary program 
to ensure that it is the fiduciary that determines the beneficiary's 
needs and whether disbursement of funds to address those needs is in 
the beneficiary's interest. VA is not the fiduciary for the beneficiary 
and must defer to the fiduciary consistent with VA regulations. 
However, we also intend to change the culture in the program to the 
extent that fiduciaries are unnecessarily conserving beneficiaries' 
funds. We are concerned that some elderly beneficiaries are dying with 
a large amount of funds under management by a fiduciary that could have 
been used during the beneficiary's life to improve his or her standard 
of living. To address this concern, we propose to prescribe in 
paragraph (a) that a fiduciary must disburse or otherwise manage funds 
according to the best interests of the beneficiary and the 
beneficiary's dependents and ``in light of the beneficiary's unique 
circumstances, needs, desires, beliefs, and values.''
    Furthermore, under 38 U.S.C. 5502(a)(1), Congress authorized 
payments of VA benefits to a fiduciary on behalf of a beneficiary if it 
appears to VA that such payment would serve the interest of the 
beneficiary. Under this authority, it is VA's obligation to oversee the 
fiduciaries it appoints to manage VA benefit funds on behalf of 
beneficiaries. Although Congress did not expressly prescribe in section 
5502 protection of beneficiaries' private information, such protection 
is inherent in the obligation of a fiduciary to act in good faith and 
in the interest of the beneficiary. We have determined that it would be 
inconsistent with a fiduciary's position of trust to permit the 
fiduciary to use inadequate information protection measures. The 
fiduciary's failure to protect the information would put the 
beneficiary at risk of identity theft, misappropriation of funds, or 
other harm. Accordingly, we propose to prescribe in paragraph (a)(2) 
the minimum requirements for protection of beneficiaries' private 
information. In proposing to prescribe these requirements, we do not 
intend to impose onerous security requirements upon fiduciaries, most 
of whom are beneficiaries' family members. Rather, we intend that 
fiduciaries will take the reasonable precautions that every person 
should take when maintaining his or her private information in paper or 
electronic records to prevent identity theft and unauthorized access. 
In proposing these requirements, we do not intend to supersede State 
law or other professional industry standards, under which a fiduciary 
may have additional requirements that exceed the minimum standard 
proposed by VA.
    Consistent with VA's oversight of beneficiaries obligation under 38 
U.S.C. 5502(a)(1), paragraph (a)(2) would require a fiduciary, if VA 
removes the fiduciary under Sec.  13.500 or the fiduciary withdraws 
under Sec.  13.510, to keep all records relating to the management of 
the beneficiary's VA benefit funds for 2 years after the date of 
removal or withdrawal. VA needs this requirement to facilitate any 
inquiry regarding a fiduciary's past services and the proper management 
of funds and to effectively oversee beneficiaries if a fiduciary is 
removed or withdraws.
    In proposed paragraph (b), we would prescribe the fiduciary's 
financial responsibilities. This paragraph generally references the 
requirements of other regulations in part 13 to provide clear notice to 
fiduciaries regarding their financial obligations. Fiduciaries would be 
required to use funds in the interest of beneficiaries and their 
dependents, protect funds from loss, maintain separate accounts, 
determine and pay just debts, provide the beneficiary information 
regarding VA benefit funds under management, protect funds from the 
claims of creditors, and provide beneficiaries a copy of any VA-
approved annual accounting. In particular, proposed paragraph (b)(8) 
would prescribe the requirements for a fiduciary's best-interest 
determination regarding VA benefit funds under management. We would 
prescribe that beneficiaries in the fiduciary program are entitled to 
the same standard of living as a beneficiary with comparable resources 
who is not in the program, and that the fiduciary program is not for 
the purpose of preserving funds ``for the beneficiary's heirs or 
disbursing funds according to the fiduciary's own beliefs, values, 
preferences, and interests.'' We intend that these provisions will have 
a positive effect on the well-being of beneficiaries in the program by 
proscribing unreasonable conservation of funds.
    Proposed paragraph (c) would prescribe fiduciaries' non-financial 
responsibilities. These responsibilities generally concern a 
fiduciary's obligation to monitor the beneficiary's well-being and 
report any concerns to appropriate authorities, including any legal 
guardian for the beneficiary. It would also reinforce VA's view that a 
fiduciary must maintain regular contact with a beneficiary and be 
responsive to beneficiary requests. Without such contact, a fiduciary 
could not reasonably determine whether a beneficiary's needs are being 
met by the fiduciary's disbursement of funds.
    Proposed paragraph (d) would prescribe fiduciaries' 
responsibilities to VA under its oversight function. This paragraph 
would generally prescribe fiduciary compliance with VA's part 13 
fiduciary regulations, such as the proposed accounting and face-to-face 
interview requirements. It would also require fiduciaries to keep VA 
apprised of any change in the beneficiary's circumstances which might 
adversely impact the beneficiary's well-being. VA needs this 
information for purposes of coordinating a proper response to the 
beneficiary's benefit or other needs, to include referral to the 
Veterans Health Administration or other public or private agencies for 
delivery of services.

13.200 Fiduciary accounts

    In section 5502(a)(1), Congress authorized VA to pay benefits to a 
VA-appointed fiduciary for the use and benefit of the beneficiary, and 
in section 5509(a), Congress authorized VA to require fiduciaries to 
file reports or

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accountings regarding the management of funds by the fiduciary on 
behalf of the beneficiary. Under 38 U.S.C. 5711, VA has authority to 
require the production of any documentation or other evidence and to 
conduct investigations relating to any matter under VA's jurisdiction. 
However, Congress has not prescribed the types of accounts that VA-
appointed fiduciaries must establish for purposes of managing 
beneficiary funds and complying with annual accounting requirements.
    Although current regulations prescribe the payment of benefits to 
certain individuals or entities on behalf of a beneficiary who cannot 
manage his or her VA benefits and address certain fund-management 
matters, no current regulation prescribes the requirements for 
fiduciary accounts. We propose to prescribe those requirements in Sec.  
13.200 as described below.
    Proposed paragraph (a) would require a fiduciary to establish a 
separate Federally-insured account, if VA benefit funds under 
management qualify for such deposit insurance, in a Federally-insured 
financial institution for each beneficiary whom the fiduciary serves. 
However, it would not prohibit establishment of multiple accounts for 
the same beneficiary if the fiduciary deems it necessary for proper 
management of beneficiary funds. It would prohibit the commingling of 
beneficiary funds with the fiduciary's or any other beneficiary's funds 
at any time, prescribe direct deposit of VA benefits, and prescribe a 
standard for identifying ownership of the account and the fiduciary's 
relationship with the beneficiary. We intend that these account-
establishment requirements will assist VA in overseeing fiduciaries, 
specifically with respect to auditing fiduciary accountings under 
proposed Sec.  13.280, and make it harder for fiduciaries to conceal 
the misuse of benefits in pooled accounts or through transfer of 
beneficiary funds between accounts.
    Proposed paragraph (b) would exempt VA-appointed spouses, State or 
local Government entities, institutions in which beneficiaries receive 
care or that have custody of beneficiaries, nursing homes, and a trust 
company or a bank with trust powers organized under the laws of the 
United States or a state from this separate account requirement 
prescribed in proposed paragraph (a). Regarding spouses, it is VA's 
policy to minimize the Government's intrusion into the marital 
relationship and avoid dictating requirements for property that is 
jointly owned by a beneficiary and spouse. The listed organizations 
would be exempt from the requirement because VA's experience in 
administering the program indicates that the burden of establishing 
separate accounts would outweigh by far the risk of fund exploitation.

13.210 Fiduciary investments

    In 38 U.S.C. 5502(a), Congress authorized VA to pay benefits to a 
fiduciary on behalf of a beneficiary if it appears to VA that it would 
serve the beneficiary's interest. However, Congress did not prescribe 
how fiduciaries should manage beneficiary funds. VA filled this gap in 
the legislation in current 38 CFR 13.103 regarding investments by 
``Federal'' fiduciaries and current 38 CFR 13.106 regarding investments 
by ``court-appointed'' fiduciaries. Current Sec.  13.103(a) prescribes 
the types of investments that fiduciaries may use, specifically United 
States savings bonds or interest or dividend-paying accounts in State 
or Federally-insured institutions. Paragraph (a) also prescribes 
exceptions for fiduciaries who are spouses or chief officers of 
institutions. Current paragraph (b) prescribes specific 
``registration'' requirements for authorized investments, to include 
the beneficiary's name and Social Security number, the fiduciary's 
name, and specific language regarding ``custodianship by designation of 
the Department of Veterans Affairs.'' Paragraph (c) authorizes 
fiduciaries to purchase pre-need burial plans.
    Current Sec.  13.106 provides a general policy statement regarding 
prudent investment by fiduciaries. It also states that it is the 
Veterans Service Center Manager's responsibility to review and 
determine the legality of investments by court-appointed fiduciaries, 
and prescribes referral to the VA Regional Counsel for action regarding 
investments that appear to be inconsistent with VA policy.
    As noted in this preamble, we propose to discontinue the 
distinction between ``Federal'' fiduciaries and ``court-appointed'' 
fiduciaries, and instead refer only to ``fiduciary'' or ``fiduciaries'' 
in VA's part 13 fiduciary regulations. It is VA's long-standing 
interpretation of current law and its practice to appoint and conduct 
oversight regarding all individuals and entities who provide fiduciary 
services for beneficiaries. Therefore, the proposed rules would be 
uniform for all fiduciaries appointed by VA to manage VA benefit 
payments on behalf of a beneficiary. We intend to apply this approach 
to our regulation regarding fiduciary investments effective with 
investments acquired after the effective date of the final rule. We 
propose to remove current Sec. Sec.  13.103 and 13.106 and replace them 
with a new Sec.  13.210 as described below.
    Proposed paragraph (a) would prescribe the general rule that a 
fiduciary must conserve or invest any funds under management that the 
beneficiary or the beneficiary's dependents do not immediately need for 
maintenance, reasonably foreseeable expenses, or reasonable 
improvements in the beneficiary's and the beneficiary's dependents' 
standard of living. We would clarify that the limited purpose of 
conservation of beneficiary funds is to provide the fiduciary the means 
to address unforeseen circumstances or plan for future care needs in 
light of the beneficiary's circumstances and disabilities. We would 
prohibit the conservation of funds based upon the interests of the 
beneficiary's heirs or according to the fiduciary's own belief, values, 
preferences, and interests. Our intent in proposing these rules is to 
change the culture in the fiduciary program, to the extent it still 
exists, under which a fiduciary may accumulate an extraordinary amount 
of funds in a beneficiary's account which the beneficiary is not able 
to use in his or her lifetime. Under current VA policy, the purpose of 
the fiduciary program is to provide beneficiaries and their dependents 
the best possible standard of living that funds under management will 
reasonably allow. A beneficiary in the fiduciary program should be 
allowed the same standard of living as a beneficiary with comparable 
resources who is not in the fiduciary program. Finally, we note that 
the fiduciary program is not an estate planning program for a 
beneficiary's heirs. We propose to expressly prohibit the management of 
funds for that purpose.
    Proposed paragraph (b) would restate without substantive change the 
provisions of current regulations requiring prudent investment and 
generally limiting investments to Federally-insured interest or 
dividend-paying accounts. It would also restate the current 
``registration'' requirements. However, in administering the program, 
we have learned that some institutions will not permit the 
establishment of accounts using the exact language prescribed in 
current Sec.  13.103. Accordingly, we propose to prescribe only that 
the account must be clearly titled in the beneficiary's and fiduciary's 
names and identify the fiduciary relationship.
    Proposed paragraph (c) would restate without substantive change the 
exceptions in current regulations for

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fiduciaries who are spouses or chief officers of institutions.

13.220 Fiduciary fees

    In 38 U.S.C. 5502(a)(2), in cases in which VA determines that a 
commission is necessary to obtain a fiduciary in the best interests of 
a beneficiary, Congress authorized ``a reasonable commission for 
fiduciary services rendered'' to be paid from the beneficiary's VA 
funds, but such commissions for any year may not exceed 4 percent of 
the beneficiary's monetary VA benefits paid to the fiduciary during the 
year. VA implemented this authority in current 38 CFR 13.64 regarding 
fiduciary commissions. Section 13.64 authorizes the Veterans Service 
Center Manager to determine when it is necessary to authorize a 
commission, tracks the language of section 5502(a)(2) regarding the 
maximum commission that may be deducted from a beneficiary's estate, 
and requires the Veterans Service Center Manager to furnish appropriate 
notice to beneficiaries regarding such deductions. It also prohibits 
commissions for beneficiaries' dependents or other close relatives of 
beneficiaries acting as fiduciary.
    We have determined that Sec.  13.64 is inconsistent with current VA 
policy and does not provide clear rules regarding the circumstances 
under which VA may authorize a fiduciary commission or the limitations 
on such commissions. In particular, the current rule does not address 
whether a commission may be computed based upon retroactive, lump-sum, 
or other one-time benefit payments to fiduciaries. Nor does it address 
computation based upon surplus funds maintained by the fiduciary in the 
beneficiary's account or funds transferred to the fiduciary by a 
predecessor fiduciary for the beneficiary. Finally, the current rule 
does not address the circumstances under which there would be a bar to 
deducting a commission for a given month. Accordingly, we propose to 
replace current Sec.  13.64 with proposed Sec.  13.220 as described 
below.
    We propose to discontinue use of the term ``commission'' in VA's 
part 13 fiduciary regulations and instead use the term ``fee'' or 
``fees'' when referring to the payment made from a beneficiary's VA 
funds to a fiduciary for fiduciary services. This is not a substantive 
change; it is for the limited purpose of simplifying our regulations 
through the use of common terms and plain language.
    In proposed paragraph (a), we would authorize the Hub Manager with 
jurisdiction over the appointment to determine whether a fee is 
necessary in a particular case. Consistent with current VA policy, the 
Hub Manager would appoint a paid fiduciary as a last resort and only if 
the Hub Manager determines that such appointment would serve the 
beneficiary's interest and that no other person or entity is qualified 
and willing to serve without a fee. Consistent with section 5502(a)(2) 
as interpreted by current Sec.  13.64, proposed paragraph (a) would 
prohibit fees for dependents or relatives of the beneficiary, or any 
other person who will receive any other compensation of any kind for 
providing fiduciary services for the beneficiary. We do not intend a 
substantive change in paragraph (a) but note that the current 
regulation is unclear to the extent that it refers to ``close'' 
relatives. We propose to clarify that the bar applies to the 
beneficiary's ``relatives'' and define the term in proposed Sec.  
13.20.
    Proposed paragraph (b) would prescribe the limitations applicable 
to fiduciary fees. We interpret ``a reasonable commission [not to 
exceed 4 percent of monetary benefits] for fiduciary services 
rendered'' in section 5502(a)(2) to mean that Congress intended the 4-
percent ceiling to permit a moderate fee to be paid on a periodic basis 
from an ongoing award and that the fee would bear a relation to the 
amount of benefits being received on an ongoing basis. To read the 
statute otherwise would permit a fiduciary to receive a windfall fee in 
a particular year that bears no relation to what the fiduciary could 
receive in other years or what other fiduciaries are receiving for 
providing comparable services to other beneficiaries. Further, a fee 
computed on the basis of a retroactive award would bear little relation 
to the ``services rendered'' by the fiduciary, which would generally be 
the same from year to year, regardless of whether the beneficiary 
happened to receive a lump-sum payment in a particular year. We also 
note that VA generally awards entitlement to retroactive benefits to a 
beneficiary before the appointment of a fiduciary, but pays the 
retroactive benefits following the appointment of a fiduciary. Allowing 
a fiduciary to deduct up to 4 percent of such an award simply because 
the funds are transferred to the fiduciary and deposited in a fiduciary 
account would amount to unjust enrichment of the fiduciary at the 
beneficiary's expense and with no fiduciary services rendered by the 
fiduciary.
    Consistent with our interpretation of section 5502(a)(2), proposed 
paragraph (b)(1) would define ``reasonable monthly fee'' to mean a 
monetary amount authorized by the Hub Manager that does not exceed 4 
percent of the beneficiary's monthly VA benefits. Upon authorization, 
the fiduciary would have permission to deduct the fee from the 
beneficiary's account for each month in which the fiduciary is eligible 
for a fee under paragraph (b)(2). As a general rule, eligibility would 
exist in each month in which the fiduciary receives a benefit payment 
on behalf of the beneficiary and provides fiduciary services.
    Proposed paragraph (b)(3) would prescribe limitations on the 
computation of fees. In proposed paragraph (b)(3)(i), we would bar the 
computation of a fee upon one-time, retroactive, or lump-sum benefit 
payments. As described above, this rule is consistent with the plain 
language of section 5502(a)(2), which authorizes VA to allow a 
reasonable fee for ``fiduciary services rendered.'' Allowing fees on 
these types of payments would amount to paying a fiduciary for services 
the fiduciary did not provide to the beneficiary.
    Proposed paragraph (b)(3)(ii) would prohibit computing a fee upon 
any funds conserved by the fiduciary in the beneficiary's account under 
proposed Sec.  13.200 or invested by the fiduciary under proposed Sec.  
13.210, to include any interest income and return on investment derived 
from any account. Any funds conserved do not constitute a running 
monthly benefit award upon which a fiduciary may calculate a fee. As 
noted above, we interpret section 5502(a)(2) to mean that the total fee 
payable to a fiduciary for all fiduciary services rendered, including 
the management of conserved funds, is a percentage of the monthly 
benefit payments made.
    In proposed paragraph (b)(3)(iii) we would prohibit computing a fee 
upon any funds transferred to the fiduciary by a prior fiduciary. 
Again, consistent with section 5502(a)(2), this would ensure that 
fiduciaries are allowed fees from beneficiary accounts only for 
fiduciary services rendered.
    Proposed paragraph (b)(4)(i) would restate and implement 38 U.S.C. 
6106, which prohibits a fiduciary from collecting a fee for any month 
for which VA or a court with jurisdiction determines that the fiduciary 
misused benefits. The statute also authorizes VA to treat any fees 
collected by a fiduciary during a month in which VA or a court finds 
that the fiduciary misused benefits as being misused benefits. In 
addition, we propose to prohibit fees for any month in which VA or a 
court with jurisdiction determines that a fiduciary

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has misappropriated benefits, as defined in 38 U.S.C. 6101.
    Proposed paragraph (b)(4)(ii) would clarify that the Hub Manager 
may retroactively authorize a fee for a month in which the beneficiary 
did not receive a benefit payment if VA later issues a payment for that 
month and the fiduciary continued to provide fiduciary services. 
Consistent with the provisions of this proposed regulation on payment 
of fees to fiduciaries, paragraph (b)(4)(ii) would ensure that 
fiduciaries are paid for the services they provide to beneficiaries 
during a temporary suspension of benefits.

13.230 Protection of beneficiary funds

    Under 38 U.S.C. 5507(a)(3), ``[a]ny certification of a person for 
payment of benefits of a beneficiary to that person as such 
beneficiary's fiduciary . . . shall be made on the basis of,'' among 
other things, ``the furnishing of any bond that may be required by 
[VA].'' Section 5507(a)(3) essentially codified a VA preexisting 
regulation regarding surety bonds, current 38 CFR 13.105.
    Current Sec.  13.105 authorizes the Veterans Service Center Manager 
to require a fiduciary to furnish a surety bond in an amount sufficient 
to protect the interest of the beneficiary. It also authorizes the 
Veterans Service Center Manager to require an ``agreement in lieu of a 
surety bond or additional surety bond'' in cases where the fiduciary 
has deposited beneficiary funds in an account with a State- or 
Federally-insured institution. Finally, it authorizes the Veterans 
Service Center Manager to take necessary action to protect beneficiary 
funds when a surety company ceases to do business in a State, to 
include referring matters to the VA Regional Counsel with jurisdiction.
    We have determined that current Sec.  13.105 uses unclear 
terminology and is inconsistent with current VA policy. Further, we 
note that Veterans Service Center Managers have discretion to require a 
bond under the current regulation, but there are no criteria to guide 
them in exercising that discretion. Finally, current Sec.  13.105 is 
silent regarding who must bear the expense of obtaining a bond for fund 
protection purposes. Accordingly, we propose to replace current Sec.  
13.105 with proposed Sec.  13.230 as described below.
    Proposed paragraph (a) would state the general rule that a 
fiduciary must within 60 days of appointment furnish to the fiduciary 
hub a surety bond conditioned upon faithful discharge of all of the 
responsibilities of a fiduciary if the VA benefit funds that are due 
and to be paid will exceed $25,000. We note that VA generally awards 
entitlement to retroactive benefits to a beneficiary before the 
appointment of a fiduciary but withholds payment until the appointment 
is complete and the fiduciary obtains a surety bond. It would prohibit 
the payment of any retroactive, one-time, or other pending lump-sum 
benefit amount to the fiduciary on behalf of the beneficiary until the 
fiduciary has furnished the prescribed bond. Our intent is to require 
certain fiduciaries who manage accumulated funds to obtain additional 
protection of those funds on behalf of their beneficiaries before 
receiving large, lump-sum benefit payments. While it would be 
impossible to determine the exact amount of accumulated benefits at 
which a beneficiary might be significantly more at risk of fund 
exploitation by a fiduciary, we propose to use $25,000 as the threshold 
because, based upon our experience in administering the program, we 
have determined that the cost of obtaining a bond for smaller amounts 
of accumulated funds under management would outweigh any benefit to the 
beneficiary. For the same reasons, proposed paragraph (b) would apply 
this rule to a fiduciary who is not initially required to obtain a bond 
but later accumulates funds on behalf of a beneficiary that exceed the 
$25,000 threshold.
    Proposed paragraph (c) would prescribe several exceptions to the 
general rule regarding surety bonds in proposed paragraphs (a) and (b). 
We propose to limit these exceptions because a proposed fiduciary's 
ability to obtain a surety bond is an important, additional screening 
tool for VA. If a proposed fiduciary cannot obtain a bond based upon a 
bonding company's assessment of risk, VA should weigh that information 
in deciding whether to continue the appointment or appoint a successor 
fiduciary. First, we would not require a surety bond from a VA-
appointed trust company or bank that has adequate protection of funds 
under management such as an umbrella bond or insurance required under 
Federal or state law. Second, consistent with VA's long-standing policy 
of requiring less intrusive oversight of spouse fiduciaries, we would 
not require spouses to obtain a surety bond.
    It has been VA's practice to occasionally allow a fiduciary, 
generally a family member or other close acquaintance of the 
beneficiary, to enter into a restricted withdrawal agreement with the 
beneficiary and VA regarding accumulated funds under management in lieu 
of obtaining a surety bond. However, we have determined that the use of 
restricted withdrawal agreements is generally inconsistent with VA 
policy regarding the role of VA and fiduciaries in the fiduciary 
program. In our view, it is the fiduciary's obligation to make best-
interest determinations regarding beneficiary funds under management. 
The use of a restricted withdrawal agreement may improperly insert VA 
into matters reserved for fiduciaries. Nevertheless, we have determined 
to use restricted withdrawal agreements for fiduciaries in locations 
where obtaining an adequate surety bond is not practicable. Under 
proposed paragraph (c), the Hub Manager would have discretion to waive 
the bond requirement and enter into a restricted withdrawal agreement 
regarding accumulated funds in cases where the location of the 
fiduciary precludes obtaining adequate bonding. Currently, adequate 
bonding may not be available in Puerto Rico, other territories of the 
United States, and the Philippines.
    Under proposed paragraph (c)(2), the Hub Manager would be 
authorized to require a bond at any time, without regard to the amount 
of funds under management, if the Hub Manager determines that special 
circumstances indicate that obtaining a bond would be in the 
beneficiary's interest. Among other things, such circumstances would 
include a marginal credit report regarding the fiduciary or a 
fiduciary's misdemeanor criminal conviction for any criminal offense 
listed in proposed Sec.  13.130(a)(2)(ii) regarding bars to serving as 
a fiduciary.
    Proposed paragraph (d) would prescribe the requirements for a bond. 
This paragraph would generally restate and clarify the provisions of 
current Sec.  13.105 without substantive change but would add a new 
rule regarding adjustment of bonds. We propose to require the fiduciary 
to adjust the bond to account for significant changes in amount of 
funds managed to ensure adequate protection of funds under management 
and in some cases to save the beneficiary the cost of unnecessary fund 
protection. The fiduciary would be required to make such an adjustment 
any time the funds under management increase or decrease by 20 percent 
or more. We propose 20 percent because our experience in administering 
the program indicates that a smaller fluctuation in funds under 
management might require frequent adjustments with only minimal added 
protection or cost savings for beneficiaries.
    Proposed paragraph (e) would require that the fiduciary must submit 
proof of adequate bonding with each annual accounting and at any other 
time the Hub Manager requests proof. This requirement, which is not in 
the current

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regulation, would facilitate VA's oversight regarding the fund 
protection requirements prescribed in proposed Sec.  13.230.
    Proposed paragraph (f) would provide notice regarding joint and 
several liability of sureties and fiduciaries for any misappropriation 
or misuse of beneficiary funds by fiduciaries, and that VA may collect 
on the bond regardless of any prior VA reissuance of benefits under 
proposed Sec.  13.410. These provisions are consistent with current 
policy and the protection generally afforded by surety bonds. However, 
we propose to expressly state the policy and scope of bond protection 
in our regulations for purposes of notice.
    Under 38 U.S.C. 5507(a)(3), VA's certification of a prospective 
fiduciary as a fiduciary ``shall be made on the basis of . . . the 
furnishing of any bond that may be required by the Secretary.'' 
Congress did not address whether the beneficiary or the fiduciary must 
pay for the bond. However, we interpret the requirement to mean that 
the certification of any person as a fiduciary must be based in part 
upon the proposed fiduciary's ability to qualify for and purchase a 
bond. In this regard, the requirement is a screening tool for VA to use 
in confirming an appointment decision before releasing a lump-sum, 
retroactive payment to a fiduciary. If a fiduciary cannot obtain a bond 
because the bonding company considers the risk of fund exploitation too 
high, VA should not appoint the prospective fiduciary and appoint an 
individual or entity who can obtain the necessary fund protection. 
Proposed paragraph (g) would clarify that the fiduciary may deduct the 
cost of a surety bond from the VA benefit funds under management by the 
fiduciary for the beneficiary.
    Regarding payment from beneficiary funds, we have determined that 
requiring fiduciaries to bear the cost of a surety bond would create a 
disincentive for both volunteer and paid fiduciaries, and would 
significantly impair VA's ability to find qualified fiduciaries for the 
beneficiaries who need them. Approximately 90,000 of the current 95,000 
fiduciaries in VA's program have a one-on-one relationship with the 
beneficiary. Most of these fiduciaries are family members, friends, and 
other individuals who have expressed a willingness to serve an 
individual beneficiary without charge. Even in paid fiduciary cases, 
which currently comprise less than 10 percent of all beneficiaries in 
the program, Congress has limited fiduciary fees to 4 percent or less 
of the beneficiary's annual benefit payments, and under current VA 
policy a Hub Manager may not authorize calculation of a fee based upon 
a retroactive, lump-sum, or other one-time payment of benefits to the 
beneficiary. Under these circumstances, a fiduciary might be required 
to incur significant out-of-pocket expenses to provide fiduciary 
services.
    As a general rule, bonding companies charge approximately $100 
annually for every $10,000 under management by a fiduciary. This means 
that the annual out-of-pocket expense for a volunteer family member 
fiduciary who manages $100,000 in accumulated VA funds for a 
beneficiary would be $1,000 if VA determined that the fiduciary must 
pay for the bond. In a paid fiduciary case, assume that the beneficiary 
has $100,000 in accumulated VA benefit funds under management for the 
beneficiary and receives a $1,500 monthly VA benefit payment. The 
fiduciary's maximum monthly 4-percent fee would be $60 or $720 
annually, while the fiduciary would incur a $1,000 annual surety bond 
expense. In this case, the fiduciary will incur a loss of $280 per 
year. Therefore, it would not be reasonable for VA to require the 
fiduciary to bear the cost of a surety bond, which would essentially 
eliminate any incentive for serving vulnerable veterans and their 
survivors.
    For the above reasons, it is VA's long-standing policy to require 
fiduciaries to purchase a surety bond and permit them to use 
beneficiary funds to pay the expense. Given the nature of the fiduciary 
program and the statutory context in which Congress enacted section 
5507, we believe that Congress intended a continuation of this policy. 
In addition, we note that deducting bond expenses from beneficiary 
funds would be consistent with the protection of funds in guardianships 
under State and uniform laws. See, e.g., Fla. Stat. Sec.  744.641 
(2012); Ga. Code Ann. Sec.  29-7-15 (2012); Mo. Rev. Stat. Sec.  
475.100 (2012); N.J. Stat. Ann. Sec.  3B:13-17 (2012); N.C. Gen. Stat. 
Sec.  34-12 (2012); Wis. Stat. Sec.  54.852 (2012); Unif. Guardianship 
and Protective Proceedings Act Sec.  416 cmt. (1997); Unif. Veterans' 
Guardianship Act Sec.  35.78 (1937).

13.240 Funds of beneficiaries less than 18 years old

    Under 38 U.S.C. 5502(a)(1), VA has authority to pay benefits to a 
fiduciary on behalf of a beneficiary who is a minor. VA implemented 
this authority in current 38 CFR 13.101, which generally prescribes 
that such payments should be used for the minor's benefit and only to 
the extent that the person or persons responsible for the minor's needs 
are unable to provide for them. The current regulation prescribes one 
exception for VA education benefits, which the fiduciary may disburse 
without regard to the ability of responsible persons to provide for the 
minor's needs.
    We propose to replace current Sec.  13.101 with proposed Sec.  
13.240 without making any substantive change. We would make only minor 
plain language changes and reorganize the regulation text.

13.250 Funds of deceased beneficiaries

    Under 38 U.S.C. 5502(e), ``[a]ny funds in the hands of a fiduciary 
. . . derived from benefits payable under laws administered by [VA], 
which under the law of the State wherein the beneficiary had last legal 
residence would escheat to the State, shall escheat to the United 
States and shall be returned by such fiduciary.'' In section 5502(e), 
Congress also authorized fiduciaries to deduct from the funds under 
management the cost of determining whether such escheat to the State 
would occur under State law.
    VA implemented this authority in current 38 CFR 13.110(a), which 
restates the provisions of section 5502(e). Current paragraph (b) 
requires fiduciaries to account for and turn over to VA the personal 
property owned by a veteran who dies intestate and without heirs while 
receiving care in a VA facility. Current paragraph (c) requires the 
submission of a report to the VA Regional Counsel with jurisdiction if 
a fiduciary refuses to comply with the requirements of Sec.  13.110.
    We have determined that current Sec.  13.110 does not provide clear 
rules for fiduciaries to close out the accounts of deceased 
beneficiaries. It does not provide time limits for the return of funds 
to VA or prescribe final accounting rules, and clarity is needed 
regarding the property in the possession of a fiduciary that must be 
returned to VA. Accordingly, we propose to remove current Sec.  13.110 
and replace it with proposed Sec.  13.250 as described below.
    Section 5502(e) is applicable to ``funds in the hands of'' a 
fiduciary which are ``derived from [VA] benefits.'' We interpret this 
language in section 5502(e) to mean VA benefit funds under management 
by the fiduciary for the beneficiary, as defined in proposed Sec.  
13.20, on the date of the beneficiary's death. In proposed paragraph 
(a), we would essentially restate section 5502(e) and require the 
return of VA benefit funds under management by a fiduciary to VA when a 
beneficiary for whom the fiduciary provides fiduciary services dies 
without a valid will and without

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heirs if such funds would escheat to the State under State law. For 
purposes of plain language, we replace the word ``escheat'' with ``be 
forfeited.''
    Proposed paragraph (b) would prescribe the circumstances under 
which a fiduciary must submit a final accounting to VA. We propose to 
require a final accounting in cases where the fiduciary determines that 
the VA benefit funds under management by the fiduciary would be 
forfeited to a State and thus must be returned to VA under proposed 
paragraph (a). In this situation, VA needs to confirm that the 
fiduciary properly managed funds after the beneficiary's death and 
returned all funds under management to the Government. We also propose 
to require a final accounting in any case in which the fiduciary was 
required to submit an annual accounting under proposed Sec.  13.280 
prior to the beneficiary's death regardless of whether funds under 
management would be forfeited to a State. This final accounting is 
necessary for purposes of VA's oversight of fiduciaries, to include 
detecting misuse of benefits.
    Under section 5502(e), the fiduciary for a deceased beneficiary may 
deduct ``legal expenses of any administration necessary to determine 
that an escheat is in order.'' Proposed paragraph (c) would restate 
this provision and clarify that the fiduciary may deduct a reasonable 
fee or pay a reasonable charge from the beneficiary's account to cover 
the expense of determining whether forfeiture to a State would occur. 
We recognize that a fiduciary may have the authority under State law or 
pursuant to State licensure to make this decision without referring the 
matter. However, upon the death of the beneficiary, a paid fiduciary's 
authority to collect a fee for fiduciary services under proposed Sec.  
13.220 expires. In such cases, we interpret section 5502(e) as 
authorizing the fiduciary to deduct a reasonable fee for separate 
services associated with determining whether forfeiture would occur. We 
also interpret section 5502(e) as authorizing the fiduciary to incur a 
reasonable third-party fee for determining whether forfeiture would 
occur, and to pay that expense from the deceased beneficiary's account. 
For purposes of paragraph (c), we propose to define ``reasonable fee,'' 
whether charged by the fiduciary or a third party, as an amount 
customarily charged by persons authorized to do such work, such as 
attorneys or other professionals, in the State where the deceased 
beneficiary resided.
    Proposed paragraph (d) would clarify that in all cases in which the 
deceased beneficiary has a valid will or heirs, such that the VA 
benefit funds under management by the fiduciary will not be forfeited 
to a State, the fiduciary must hold the funds in trust for the 
beneficiary's estate. In these cases, the fiduciary's responsibilities 
to the deceased beneficiary's estate are defined by applicable State 
law.

13.260 Personal funds of patients

    Under 38 U.S.C. 5502(d), Congress prescribed the procedure for VA 
distribution of funds held in trust for a veteran in a personal funds 
of patients account at a VA facility upon the veteran's death. Congress 
decided that VA should not pay such funds to the deceased veteran's 
personal representative, but should instead pay them to certain 
individuals in the order of preference prescribed by Congress. These 
are the ``surviving spouse, the children (without regard to age or 
marital status) in equal parts, and the dependent parents of such 
veteran, in equal parts.'' Congress further prescribed that any balance 
remaining in the account after VA's attempt to distribute it according 
to the statute must be deposited to the credit of the applicable VA 
appropriation, except that VA has authority to reimburse a person who 
bore the expenses of last sickness or burial of the veteran for such 
expenses. Any disbursement of funds according to the priority 
established by Congress or for expenses related to the veteran's last 
sickness or burial must be based upon a claim filed with VA within 5 
years after the veteran's death. This 5-year limitation period may be 
tolled based upon an eligible person being under legal disability at 
the time of the veteran's death.
    VA's current part 13 fiduciary regulations do not address the 
distribution of funds under section 5502(d). However, we propose to 
restate the statutory requirements in proposed Sec.  13.260 without 
substantive change but reorganized to make them easier to read and 
understand.

13.270 Creditors' claims

    Under 38 U.S.C. 5301(a)(1), VA benefits generally cannot be 
assigned and are exempt from taxation and the claims of creditors. They 
are also not ``liable to attachment, levy, or seizure by or under any 
legal or equitable process whatever, either before or after receipt by 
the beneficiary.'' The exemptions in section 5301 do not apply to debts 
owed to the United States arising in a VA benefits program or to the 
use of benefits for the repayment of loans made to beneficiaries.
    VA provides fiduciaries notice of these exemptions in current Sec.  
13.111, which restates the generally applicable statutory provisions, 
advises fiduciaries to invoke the exemptions where applicable, and 
prescribes referral to the VA Regional Counsel if a fiduciary does not 
properly invoke them. We propose to restate the current regulation 
without substantive change in proposed Sec.  13.270.

13.280 Accountings

    Under 38 U.S.C. 5509(a), VA has authority to require fiduciaries to 
file accountings regarding funds under management. Such accounting may 
include disclosure of ``any additional financial information concerning 
the beneficiary (except for information that is not available to the 
fiduciary).'' 38 U.S.C. 5502(b). Under 38 U.S.C. 6101(b), the willful 
neglect or refusal to file proper accountings ``shall be taken to be 
sufficient evidence prima facie of . . . embezzlement or 
misappropriation.''
    VA implemented the authority to require submission of accountings 
in current 38 CFR 13.102, 13.104 and 13.107. Current Sec.  13.102(a) 
requires the fiduciaries of certain veterans to provide VA an 
accounting when requested. Current Sec.  13.104 requires fiduciaries 
who are also court-appointed to arrange for the provision to VA of 
copies of their State-court-prescribed accountings. It also exempts, in 
the Veterans Service Center Manager's discretion, fiduciaries and 
beneficiaries who permanently reside in a jurisdiction other than the 
United States, the Commonwealth of Puerto Rico, or the Republic of the 
Philippines, if the fiduciary appointment occurred in the foreign 
jurisdiction. Current Sec.  13.107 requires the chief officer of a non-
Federal institution appointed as fiduciary for a beneficiary to render 
to VA an accounting if the Service Center Manager requests one.
    We have determined that Sec. Sec.  13.102, 13.104, and 13.107 do 
not provide clear rules for fiduciaries and do not reflect current VA 
policy and procedures. Furthermore, section 6101 regarding willful 
neglect or refusal to file accountings has not been implemented in VA's 
part 13 fiduciary regulations. Therefore, to provide clear, 
comprehensive notice regarding VA's accounting policy and procedures 
and interpretation of current law, we propose to combine the fiduciary 
accounting requirements into one proposed rule, Sec.  13.280, as 
described below.
    In proposed paragraph (a), we would prescribe the general rule for 
accountings, under which each fiduciary who meets any of the criteria 
in paragraphs (a)(1) through (3) would

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be required to provide VA an annual accounting regarding funds under 
management for a beneficiary. Under current policy, VA does not require 
an accounting from every fiduciary. This policy recognizes the nature 
of the VA fiduciary program, in which most fiduciaries are volunteer 
family members or friends who have a one-on-one relationship with the 
beneficiary, and that in many cases such fiduciaries manage only small 
benefit amounts or disburse all the beneficiary's monthly benefits for 
the beneficiary's care. Further, the submission and auditing of 
accountings in every case in which a beneficiary has a family member 
fiduciary would be unduly intrusive if VA knows that there is very 
little risk of exploitation of funds. Current policy also recognizes, 
based upon VA's experience in administering the program, that the 
burden of preparing, submitting, and auditing accountings outweighs any 
oversight benefit for many beneficiaries and VA. Accordingly, we 
propose to continue to generally require accountings only when the 
amount of VA benefit funds under management by the fiduciary exceeds 
$10,000, the fiduciary receives a fee deducted from the beneficiary's 
account under proposed Sec.  13.220, or the beneficiary is being paid 
monthly benefits in an amount equal to or greater than the rate for 
service-connected disability rated totally disabling. Under this 
policy, VA currently audits more than 30,000 accountings each year.
    Proposed paragraph (b) would define accounting to mean the 
fiduciary's written report of his or her management of the 
beneficiary's income and accumulated funds. We would further prescribe 
that an accounting pertains to all activity in the beneficiary's 
accounts, regardless of the source of income. While VA's authority is 
limited to appointing fiduciaries for purposes of managing VA benefits, 
for accounting purposes, Congress has authorized VA to request 
information regarding all activity in a beneficiary's account. It would 
be very difficult to detect misuse of benefits, if VA were required to 
limit its audit to activity related only to income and expenditures 
actually derived from VA benefits. Instead, consistent with our 
authority and current practice, we would prescribe the scope of an 
accounting, including a beginning and ending inventory or account 
balance, in proposed paragraphs (b)(1) through (6).
    In proposed paragraph (c) we would prescribe the procedures for 
submitting an annual accounting. As a general rule, accountings would 
be due not later than 30 days after the end of the accounting period 
prescribed by the Hub Manager. Consistent with current VA policy, 
proposed paragraph (d) would prescribe exceptions to the general 
accounting rules. First, no spouse would be required to submit an 
annual accounting. It is VA's long-standing policy to avoid undue 
intrusion in the relationship between a beneficiary and the 
beneficiary's spouse. We propose to continue that policy. Second, we 
would not require the chief officer of a Federal institution to account 
because such officers generally do not disburse funds, disburse only 
small fund amounts for the beneficiary's personal use, or disburse 
funds according to the discretion delegated to the Secretary of 
Veterans Affairs by law. Third, we would not require an accounting from 
the chief officer of a non-VA institution when the cost of the monthly 
care and maintenance of the beneficiary in the institution exceeds the 
beneficiary's monthly benefit and the beneficiary's funds under 
management by the fiduciary do not exceed $10,000. Finally, we would 
restate the provisions of current Sec.  13.104, which exempt certain 
foreign fiduciaries, without substantive change.
    Proposed paragraph (e) would implement section 6101(b), under which 
the willful neglect or refusal to comply with the accounting 
requirements prescribed by VA is prima facie evidence of embezzlement 
or misappropriation of benefits. We propose to restate the statutory 
provision and provide notice that such evidence is grounds for starting 
a VA misuse investigation under proposed Sec.  13.400.

13.300 Onsite reviews

    Under 38 U.S.C. 5508, VA must conduct periodic onsite reviews of 
any fiduciary who is located in the United States and serving more than 
20 beneficiaries and who has total VA funds under management for 
beneficiaries in excess of $50,000, as adjusted under 38 U.S.C. 5312. 
The purpose of section 5508 is to create a mechanism by which the 
Secretary can fulfill his statutory oversight responsibility. Section 
5312 prescribes an increase in the payment rates and dollar limitations 
applicable to certain need-based VA benefits whenever there is an 
increase in benefit amounts payable under title II of the Social 
Security Act. In section 5508, Congress also authorized VA to conduct 
onsite reviews of fiduciaries under other circumstances as VA deems 
appropriate, regardless of the number of beneficiaries served by the 
fiduciary or the amount of funds under management for beneficiaries. 
The plain language of section 5508, ``[i]n addition to such other 
reviews of fiduciaries as the Secretary may otherwise conduct,'' 
indicates that VA may conduct onsite reviews of fiduciaries as 
necessary to ensure the well-being of beneficiaries or prevent 
exploitation of beneficiary funds.
    VA implemented section 5508 based upon the statutory requirements 
but has since determined that regulations are necessary to remove 
ambiguity regarding the $50,000 threshold for mandatory onsite reviews, 
provide VA's interpretation of current law, and prescribe the scope of 
onsite reviews. Accordingly, we propose to add a new Sec.  13.300 
regarding onsite reviews as described below.
    Proposed paragraph (a) would require the Hub Manager to conduct 
periodic, scheduled onsite reviews of certain fiduciaries. Proposed 
paragraph (a) would prescribe routine, periodic onsite reviews for all 
fiduciaries that meet the requirements of section 5508 as interpreted 
by VA in this proposed rule. Although section 5508 refers to a 
``fiduciary serving in that capacity with respect to more than 20 
beneficiaries,'' we propose to require a periodic onsite review if a 
``fiduciary serves 20 or more beneficiaries.'' This difference from the 
statutory reference is authorized by section 5508's reference to ``such 
other reviews of fiduciaries as the Secretary may otherwise conduct.'' 
We interpret ``total annual amount of such benefits exceeds $50,000'' 
to mean the total amount of recurring monthly VA benefits paid to the 
fiduciary for all of the beneficiaries served by the fiduciary during a 
year. To read the statute otherwise might result in VA providing onsite 
reviews of fiduciaries based solely on a beneficiary's receipt of a 
retroactive, lump-sum, or one-time benefit payment. In our view, 
Congress intended that VA would conduct onsite reviews of fiduciaries 
who manage recurring monthly benefit payments that exceed the statutory 
threshold during a given year. We would not prescribe in the regulation 
the applicable monetary threshold for periodic onsite reviews, which, 
based upon the application of section 5312, would soon be out of date 
and require amendment. The current threshold for periodic onsite 
reviews is available on VA's Web site at https://www.benefits.va.gov/fiduciary/fiduciary.asp. Proposed paragraph (a)(3) would prescribe 
procedures for providing the fiduciary notice of the date for which VA 
has scheduled a periodic onsite review and the documents that VA will 
inspect.

[[Page 445]]

    Although Congress required ``periodic'' onsite reviews in section 
5508, it did not specify the length of the period. However, we 
interpret section 5508 to mean that Congress intended a regular 
schedule of reviews, such that each fiduciary that meets the 
requirements for the reviews receives a visit from VA auditors 
according to the schedule. Based upon our experience in administering 
the program and conducting such reviews in conjunction with other 
oversight activities, we propose to require a periodic onsite review of 
every fiduciary that meets the requirements of paragraph (a)(1) 
triennially. We have determined that this schedule is feasible with 
current resources and is a reasonable interpretation of Congress's 
intent that we enhance oversight of certain fiduciaries who serve 
multiple beneficiaries.
    Consistent with our interpretation of section 5508, proposed 
paragraph (b) would authorize the Hub Manager to conduct unscheduled 
onsite reviews, without regard to the number of beneficiaries served by 
the fiduciary or the amount of funds under management by the fiduciary, 
if the circumstances meet any one of the criteria in proposed 
paragraphs (b)(1) through (4). Such unscheduled onsite reviews are 
necessary to immediately respond to information indicating that the 
well-being of a beneficiary may be in jeopardy or that exploitation of 
beneficiary funds has occurred or may occur. Accordingly, we propose to 
authorize such unscheduled reviews if VA receives from any source 
credible information that a fiduciary has misused or is misusing VA 
benefits, the fiduciary has failed to file a required accounting not 
later than 120 days after the end of the accounting period, VA receives 
credible information that the fiduciary is not adequately performing 
the responsibilities of a fiduciary under proposed Sec.  13.140, or the 
Hub Manager determines that an unscheduled onsite review is necessary 
to ensure that the fiduciary is acting in the interest of the 
beneficiary or beneficiaries the fiduciary serves.
    Proposed paragraph (c) would prescribe the procedures for 
conducting onsite reviews, to include the scope of such reviews. 
Although VA has internal guidelines and policies regarding the scope of 
onsite reviews, we have determined that general rules regarding these 
reviews should be promulgated in regulations for purposes of enforcing 
compliance, limiting VA discretion, and providing legal notice. We have 
determined that industry standards and other agencies' practices, such 
as Social Security Administration's manner of conducting onsite 
reviews, would accomplish Congress's intent that VA enhance its 
oversight of certain fiduciaries. Specifically, reviewing records and 
conducting interviews with the beneficiary and third parties (to 
determine, among other things, accurate record keeping, reliable 
reporting, compliance with laws and regulations, and whether the 
beneficiary needs are met) are common oversight measures for ensuring 
that fiduciaries are satisfactorily performing their duties and 
beneficiaries are protected from misuse of their benefits by 
fiduciaries. Accordingly, we propose to prescribe a face-to-face 
meeting with the fiduciary, review of records, and interviews of other 
persons as determined necessary by the Hub Manager.
    Proposed paragraph (c) would also prescribe the procedures for 
notifying fiduciaries of deficiencies. We would require the Hub Manager 
to provide the fiduciary a report regarding onsite review findings, 
including any deficiencies or request for additional information, not 
later than 30 days after completing the review. Unless the fiduciary 
establishes good cause for an extension, the fiduciary would be 
required to respond with information regarding correction of the 
deficiencies or provide requested information not later than 30 days 
after the date the Hub Manager mailed VA's report. Paragraph (c) would 
also require the Hub Manager to remove a fiduciary who does not 
cooperate in the onsite review process, is unable to produce required 
documents during the onsite review, fails to respond to a VA request 
for additional information or recommendation for corrective action, or 
is found during an onsite review to have misused benefits.
    These provisions are necessary to ensure that fiduciaries have 
notice of VA's policies and procedures regarding onsite reviews, and to 
establish binding rules for VA personnel and fiduciaries. We also 
intend that they will promote consistency and predictability in VA's 
oversight activities.

13.400 Misuse of benefits

    Under 38 U.S.C. 6106(a), a fiduciary may not collect a fee for 
providing fiduciary services for a beneficiary for any month for which 
VA or a court finds that the fiduciary misused the beneficiary's 
benefits. Under section 6106(b), misuse of benefits by a fiduciary 
occurs in any case in which the fiduciary receives payment of VA 
benefits for the ``use and benefit'' of a beneficiary and uses such 
payment, or any part of the payment, for a use other than the use and 
benefit of the beneficiary or the beneficiary's dependents. Section 
6106(c) authorizes VA to prescribe the meaning of ``use and benefit'' 
in regulations. In 38 U.S.C. 6107, Congress authorized VA to reissue 
certain benefits to a beneficiary based upon a determination that the 
beneficiary's fiduciary misused benefits.
    VA implemented the misuse provisions of section 6106 based upon the 
statutory language and does not currently have a regulation that 
prescribes binding rules for VA, beneficiaries, and fiduciaries. 
Consistent with current law and VA policy, we propose to implement 
section 6106 in a new Sec.  13.400 as described below.
    Proposed paragraph (a) would restate the statutory definition of 
misuse and define ``use and benefit'' as ``any expenditure reasonably 
intended for the care, support, or maintenance of the beneficiary or 
the beneficiary's dependents.'' This definition would be consistent 
with current VA policy and would facilitate VA's identification of 
possible misuse. Furthermore, this definition would prevent a fiduciary 
from being held liable for misuse of benefits if an expenditure 
resulted in economic loss, but at the time of expenditure, it appeared 
to be reasonably intended for the care, support, or maintenance of the 
beneficiary or the beneficiary's dependents. In using the word 
``support,'' we intend to authorize the fiduciary to take any steps the 
fiduciary deems necessary, given the beneficiary's VA benefit funds 
under management by the fiduciary and the beneficiary's circumstances, 
to improve the beneficiary's and the beneficiary's dependents' standard 
of living. A fiduciary's efforts to ensure that a beneficiary in the 
fiduciary program has the same standard of living as a beneficiary who 
is not in the program and has comparable resources would not be misuse 
of benefits.
    Proposed paragraph (b) would prescribe the procedures for misuse 
determinations by VA and authorize the Hub Manager to make such 
determinations. The Hub Manager would be authorized to start a misuse 
investigation based upon receipt of credible information from any 
source. The results of the investigation and the Hub Manager's 
determination would be issued in a decision that meets the requirements 
in proposed paragraph (b). We propose to standardize the requirements 
for such determinations to ensure consistency and predictability for 
fiduciaries and beneficiaries.
    In proposed paragraph (c), we would prescribe specific notice 
procedures for

[[Page 446]]

misuse determinations by the Hub Manager. This notice is necessary 
because we have decided to continue the practice of allowing 
fiduciaries and beneficiaries to request reconsideration of misuse 
determinations, and we provide the right to appeal misuse 
determinations. See proposed 38 CFR 13.600. We propose that 
beneficiaries and fiduciaries may both request reconsideration of 
initial misuse determinations, but these requests are intended for 
different reasons. Beneficiaries may request reconsideration because 
they may have information to support an initial finding of misuse or a 
finding of additional misuse. Depending upon the number of 
beneficiaries that the fiduciary serves or any VA negligence in 
appointing and monitoring the fiduciary, such a beneficiary might be 
entitled to reissuance of benefits. On the other hand, fiduciaries may 
seek reconsideration after receiving notice regarding the initial 
misuse decision because the determination may result in a bar to future 
service, be the basis for the creation of a debt to the Government, or 
be the subject of a criminal proceeding. We propose to continue this 
current policy to ensure that we have sound reasons for removing a 
fiduciary from service for other beneficiaries. Such removals are 
disruptive for beneficiaries in the program and redirect limited 
fiduciary program recourses to successor appointments. We would not 
afford a fiduciary the right to appeal a misuse determination.
    In spite of section 5507(d)'s reference to the appeal of a misuse 
determination by a fiduciary and the appointment of a temporary 
fiduciary during this period, we do not interpret section 5507(d) as 
expressing Congress' intent to authorize a right of appeal for 
fiduciaries. In fact, in a compromise agreement regarding the 
predecessor bill, the Committees intentionally omitted a provision that 
would have granted a right of appeal to fiduciaries accused of misuse. 
The Committees concluded that they needed to ``assess further the 
appropriateness of requiring a fiduciary accused of misuse by the 
Secretary to appeal such a finding in the appeals venue established for 
adjudicating veterans' entitlement claims.'' Thus, in our view, any 
``appeal'' that a fiduciary might have pending regarding a misuse 
matter would likely be in a criminal proceeding.
    In addition, in proposed Sec.  13.410, we would delegate to the 
Director of VA's Pension and Fiduciary Service the authority for 
determining whether VA was negligent for purposes of reissuance of 
benefits. Proposed paragraph (c) would require notice of the Hub 
Manager's misuse determination to the Director for this purpose.
    Proposed paragraph (d) would prescribe the procedure for 
reconsideration of the Hub Manager's misuse determination. While there 
is no right to act as a fiduciary for a beneficiary and VA's misuse 
determinations are not appealable by the fiduciary, we continue to 
believe that a reconsideration procedure ensures that VA has all of the 
information necessary to make the best possible decisions regarding 
misuse of benefits. Accordingly, we propose to allow fiduciaries and 
beneficiaries, using the procedure prescribed in proposed paragraph 
(d), to seek reconsideration of a Hub Manager's misuse determination. 
To obtain reconsideration of a Hub Manager's misuse determination, the 
fiduciary or the beneficiary would have to file a written request for 
reconsideration, not later than 30 days after the date on which the Hub 
Manager provides notice of his or her misuse decision under paragraph 
(c). Reconsideration of a misuse decision would be delegated to the VA 
Regional Office Director who has jurisdiction over the fiduciary hub 
and would be based upon a review of information of record as of the 
date of the Hub Manager's decision and any new information submitted 
with the written reconsideration request. For purposes of consistency 
in decision-making, proposed paragraph (d) would also prescribe the 
requirements for the Regional Office Director's decision and require 
the same notice as prescribed for the initial misuse determination.
    It is current VA policy to seek the prosecution of fiduciaries who 
misuse VA benefits. Prosecution is a deterrent for acting fiduciaries 
and may provide a basis for a restitution order that will return 
misused benefits to the beneficiary. In proposed 13.400, we would 
provide a cross reference to 38 CFR 1.204, which requires VA employees 
to immediately refer to the VA Office of Inspector General possible 
criminal matters involving felonies, i.e., serious crimes, to include 
theft of Government funds in excess of $1,000. This regulation requires 
VA management officials to immediately report certain criminal matters 
to the Inspector General. Thus, in the fiduciary misuse context, Sec.  
1.204 requires the Hub Manager to report information regarding 
suspected misuse of beneficiary funds to the Office of Inspector 
General long before the notice prescribed in paragraph (e). We also 
propose to codify VA's current practice in proposed paragraph (e), 
under which the Regional Office Director reports final misuse 
determinations, whether made by the Hub Manager or the Director upon 
reconsideration, to the VA Office of Inspector General not later than 
30 days after a final determination for evaluation by the Inspector 
General for further action notwithstanding the 30-day notice 
requirement. We also note that VA must occasionally withhold taking 
action regarding misuse and reissuance of benefits while the Office of 
Inspector General completes an investigation or while a matter is being 
prosecuted. However, VA has a legal obligation to reissue misused 
benefits in certain cases and must act promptly in restoring benefits 
to beneficiaries upon the completion of an Inspector General evaluation 
or a prosecution. Accordingly, proposed paragraph (e) would also 
require the Office of Inspector General to advise the Director of the 
Pension and Fiduciary Service of any final decision regarding 
prosecution of a fiduciary who misused VA benefits and any final 
judgment of a court in such a prosecution not later than 30 days after 
the decision or judgment.

13.410 Reissuance and recoupment of misused benefits

    Under 38 U.S.C. 6107(a) through (c), VA has authority to reissue 
misused benefits when VA is negligent in administering aspects of the 
fiduciary program or, without regard to negligence, when the fiduciary 
is an entity who provides fiduciary services for one or more 
beneficiaries or an individual who provides fiduciary services for 10 
or more beneficiaries. Section 6107(d) requires VA to make a ``good 
faith effort to obtain recoupment'' from fiduciaries who misuse 
benefits. VA implemented its authority under section 6107 based upon 
the statutory provisions and does not currently have a regulation 
governing reissuance of benefits. However, the statute does not 
prescribe the procedures that VA is to use in reissuance cases, the 
scope of VA's negligence determinations, or the extent to which VA is 
to seek recoupment of benefits from certain fiduciaries. Accordingly, 
we propose to implement section 6107 in proposed Sec.  13.410 as 
described below.
    Proposed paragraph (a) restates section 6107(b) without substantive 
change as the general rule in reissuance cases. Under this rule, which 
would be administered at the local level by the VA Regional Office 
Director who has jurisdiction over the fiduciary hub in which the 
misuse case arose, VA would reissue benefits if the fiduciary is an

[[Page 447]]

individual who served 10 or more beneficiaries during any month in 
which the misuse occurred, or is a corporation or other entity serving 
one or more beneficiaries. Consistent with section 6107(c) and VA's 
policy requiring removal of fiduciaries who misuse benefits, we would 
clarify in proposed paragraph (a) that the Regional Office Director 
will reissue benefits in the amount equal to the amount of funds 
misused to the beneficiary's successor fiduciary.
    Proposed paragraph (b) implements the provisions of section 6107(a) 
regarding reissuance of benefits based upon a determination that VA 
negligence resulted in misuse of benefits. The proposed rule is 
intended to make clear that the relevant statutory and regulatory 
provisions are applicable in cases of misuse by an individual fiduciary 
who has funds under management for fewer than 10 beneficiaries during 
any month in which misuse occurred. One of the criteria in section 
6107(a) for reissuance of benefits based upon a negligence 
determination is that ``actual [VA] negligence is shown.'' We interpret 
this provision to mean that Congress did not intend to limit the 
criteria for reissuance of benefits based upon negligence to the 
circumstances in section 6107(a)(2)(A) and (B) regarding review of 
accountings and misuse allegations. Rather, Congress intended to 
authorize VA to reissue benefits in any case in which VA negligence 
proximately caused misuse. We propose to define ``actual negligence'' 
using a common legal definition of ``negligence'' and prescribe the 
criteria for making such a determination.
    We have determined that VA should not prescribe local 
administration of reissuance of benefits under section 6107(a). Program 
integrity requires that someone other than the Regional Office Director 
or Hub Manager determine whether VA's field fiduciary personnel were 
negligent in administering the program. Accordingly, in proposed 
paragraph (b), we would require the Hub Manager to refer all final 
misuse determinations that meet the criteria in section 6107(a) to the 
Director of the Pension and Fiduciary Service for a negligence 
determination. The Regional Office Director would be required to 
reissue benefits if the Pension and Fiduciary Service Director 
determines that VA negligence caused the misuse.
    Proposed paragraph (c) would implement section 6107(d), which 
requires VA to ``make a good faith effort to obtain recoupment'' of 
misused benefits from the fiduciary in any case in which VA reissues 
benefits. Congress did not address how VA would accomplish such 
recoupment of benefits. We do not interpret section 6107(d) as limiting 
VA's authority under 38 U.S.C. chapters 55 and 61 to generally make a 
good faith effort to recoup benefits in all cases of misuse, 
particularly in cases where VA is not authorized to reissue benefits. 
Accordingly, the introductory text in proposed paragraph (c) would 
prescribe the general rule that VA will make a good faith effort to 
recoup benefits from the fiduciary in every misuse case. In proposed 
paragraph (c)(1), we would define ``good faith effort'' to mean that 
the Hub Manager will attempt to recoup benefits from the surety company 
if a bond was in place. If a bond was not in place, the Hub Manager 
will request the creation of a debt to the United States in the amount 
of any misused benefits, and coordinate further recoupment or debt 
collection action with the appropriate Federal and State agencies. 
Consistent with VA's current policy of removing fiduciaries who misuse 
benefits, proposed paragraph (c)(2) would prescribe repayment of any 
recovered benefits to the beneficiary's successor fiduciary after 
deducting any amount reissued under proposed paragraph (a) or (b).
    Proposed paragraph (d) would prescribe written notice to the 
beneficiary or the beneficiary's legal guardian, and the beneficiary's 
accredited representative, attorney, or claims agent regarding any 
matter governed by proposed Sec.  13.410.
    Although VA does not have authority to reissue benefits to all 
beneficiaries who are victims of misuse, we intend that proposed Sec.  
13.410 would implement the broadest possible interpretation of current 
law, such that every beneficiary who qualifies has the benefit of 
reissuance or recoupment procedures.

13.500 Removal of fiduciaries

    Under 38 U.S.C. 5502(a)(1), when a fiduciary is acting in such a 
number of cases that the fiduciary is not able to properly perform the 
responsibilities of a fiduciary for each beneficiary, VA may ``refuse 
to make future payments in such cases.'' Also, under section 5502(b), 
VA may suspend payments to any fiduciary who does not comply with VA's 
accounting requirements or ``who shall neglect or refuse to administer 
the estate according to law.'' Congress otherwise delegated authority 
to VA to determine the circumstances under which it would be 
appropriate to remove a fiduciary. VA implemented this authority in 
current 38 CFR 13.100, which generally prescribes that the Veterans 
Service Center Manager may remove a fiduciary and appoint a successor 
fiduciary when it is in the beneficiary's interest. Current Sec.  
13.100(b) distinguishes fiduciaries who are also appointed by the court 
by requiring that the Service Center Manager will ``take such informal 
action as may be necessary'' to meet the needs of the beneficiary.
    We have determined that current Sec.  13.100 does not provide clear 
notice regarding all of the circumstances under which VA will remove a 
fiduciary. Further, as noted in this preamble, VA appoints and oversees 
all fiduciaries, regardless of whether the fiduciary is also appointed 
by a court. In attempting to distinguish between ``Federal'' 
fiduciaries and VA-appointed fiduciaries who are also appointed by a 
court, the current regulations needlessly add complexity and ambiguity 
for users. As noted above in this preamble, we propose to generally 
refer to ``fiduciaries'' and apply our proposed rules uniformly to all 
fiduciaries. For these reasons, we propose to remove current Sec.  
13.100 and replace it with proposed Sec.  13.500 as described below.
    In proposed Sec.  13.500(a), we would authorize the Hub Manager to 
remove a fiduciary. The regulation would then be organized to provide 
notice regarding the reasons for removal that may be attributed to the 
beneficiary or the fiduciary, followed by applicable removal 
procedures. We do not intend any substantive change by listing in one 
section the reasons and procedures for removal. Our intent is to 
provide beneficiaries and fiduciaries notice regarding the grounds for 
removal and references to the regulations that contain substantive 
provisions or additional procedures.
    Proposed paragraph (a)(1), regarding beneficiary reasons for 
removal, would authorize removal if the beneficiary is subsequently 
rated as being able to manage his or her own VA benefits, requests 
appointment of a successor fiduciary, requests supervised direct 
payment of his or her VA benefits under proposed Sec.  13.110, or dies 
while receiving fiduciary services.
    Proposed paragraph (a)(2), regarding fiduciary reasons for removal, 
would authorize removal when further service is barred or the fiduciary 
is not adequately performing the responsibilities of a fiduciary. These 
reasons, listed under proposed paragraph (a)(2)(i) through (viii) 
include, among other things, the fiduciary's failure to follow 
accounting requirements, misuse of benefits, failure to obtain a surety 
bond, or inability to continue the management of beneficiary funds.

[[Page 448]]

    Current Sec.  13.100 does not prescribe the procedures for removal 
of a fiduciary. This has led to inconsistency in the manner in which VA 
ensures that beneficiary needs are being met during the removal of a 
fiduciary and appointment of a successor fiduciary. To ensure 
consistency in VA's removal actions and continuity of service for 
beneficiaries, proposed paragraph (b)(1) would require the Hub Manager 
to provide the fiduciary and the beneficiary written notice of the 
removal and to instruct the fiduciary regarding the fiduciary's 
responsibilities prior to transfer of funds to a successor. In proposed 
paragraph (b)(2), we would require the fiduciary to continue as 
fiduciary for the beneficiary until the Hub Manager instructs the 
fiduciary to transfer funds to the successor fiduciary. Finally, we 
would generally require the removed fiduciary to submit a final 
accounting to the fiduciary hub not later than 30 days after the date 
on which the fiduciary transferred funds to the successor.
    We intend that the provisions of proposed Sec.  13.500 would 
provide clear notice regarding the grounds for removal and the 
procedures for transitioning to a successor fiduciary.

13.510 Fiduciary Withdrawals

    In administering the fiduciary program, we have encountered cases 
in which a fiduciary chooses to withdraw from service for a beneficiary 
and discontinues such service with very little notice to VA or the 
beneficiary. In these circumstances, VA may be unable to expeditiously 
appoint a successor fiduciary and arrange for transfer of accumulated 
funds, which could harm the beneficiary to the extent that a fiduciary 
is not available to meet immediate needs or ensure payment of recurring 
bills. While Congress gave VA broad authority to appoint and remove 
fiduciaries, it did not address whether a fiduciary may withdraw from 
service for a beneficiary at any time without regard to the impact on 
the beneficiary. Current VA regulations also do not address the 
circumstances under which a fiduciary may withdraw from service or the 
procedures for such withdrawal. We interpret VA's authority under 38 
U.S.C. chapters 55 and 61 as also authorizing VA to establish 
withdrawal procedures for fiduciaries to ensure continuity of service. 
Accordingly, we propose to add a new Sec.  13.510 as described below.
    Proposed paragraph (a) would prescribe the general rule that a 
fiduciary may not voluntarily withdraw from service for a beneficiary 
until the fiduciary receives notice from the Hub Manager regarding 
transfer of the beneficiary's funds to a successor fiduciary. The Hub 
Manager would provide such notice after having arranged for transfer of 
VA benefit funds under management by the fiduciary and the 
establishment of recurring payments to a successor fiduciary. While we 
recognize that there is no right to act as a fiduciary for a 
beneficiary and that VA cannot force an individual or entity to provide 
fiduciary services, VA has authority under our interpretation of 
current law to require individuals and entities that choose to provide 
fiduciary services to continue those services until VA appoints a 
successor. An alternative interpretation, under which a fiduciary may 
withdraw at any time and without regard to VA's appointment of a 
successor, would be unreasonable because it would jeopardize the well-
being of the beneficiaries whom Congress sought to protect when it 
created the fiduciary program. Nonetheless, we recognize that there may 
be circumstances under which a fiduciary would need to withdraw as 
quickly as possible. We therefore propose to establish a withdrawal 
procedure that requires the Hub Manager to expeditiously process a 
withdrawal request.
    Proposed paragraph (b) would prescribe the applicable withdrawal 
procedure. We would require the fiduciary to provide the Hub Manager 
written notice of the fiduciary's intent to withdraw as fiduciary for a 
beneficiary. To facilitate the appointment of a successor and ensure 
continuity of service for the beneficiary, we would require the 
fiduciary to describe the reasons for withdrawal and to continue 
service until the Hub Manager arranges for transfer of services to a 
successor fiduciary. Not later than 30 days after transferring the 
beneficiary's funds to the successor, the former fiduciary would be 
required to submit a final accounting to the fiduciary hub. The 30-day 
requirement is consistent with the current practice for submission of 
annual accountings and would ensure the timely transfer of funds to the 
successor fiduciary for the benefit of a beneficiary whose basic needs 
may depend on the services of a fiduciary.
    To protect the interests of fiduciaries seeking to withdraw, 
proposed paragraph (b)(2) would require the Hub Manager to make a 
reasonable effort under the circumstances to expedite the appointment 
of a successor fiduciary. In our view, this ``under the circumstances'' 
determination would require a case-by-case analysis. For example, a 
corporate fiduciary that serves many beneficiaries might not be able to 
withdraw as quickly as a family member fiduciary who serves only one 
beneficiary and who will be replaced by another family member. We would 
prescribe criteria for the Hub Manager to use in determining the extent 
to which the processing of a withdrawal request must be expedited, 
including the fiduciary's stated reasons for the withdrawal request, 
the number of beneficiaries affected, the relationship between the 
fiduciary and the affected beneficiary or beneficiaries, and whether 
expedited withdrawal is necessary to protect the interests of the 
beneficiary or beneficiaries.
    Proposed paragraph (c) would require the Hub Manager to provide the 
beneficiary or beneficiary's legal guardian, and the beneficiary's 
accredited representative, attorney, or claims agent written notice of 
the withdrawal request and the procedures for appointment of a 
successor fiduciary.

13.600 Appeals

    In Freeman v. Shinseki, the Veterans Court held that a beneficiary 
may appeal VA's fiduciary appointment decisions to the Board of 
Veterans' Appeals (Board) and, consequently, to the Veterans Court and 
the U.S. Court of Appeals for the Federal Circuit. Although a fiduciary 
appointment decision is not a decision on a claim for benefits, the 
Veterans Court concluded that a fiduciary appointment decision is made 
under a law that affects the provision of benefits, which places it 
within the Board's jurisdiction.
    Prior to the Veterans Court's decision, VA's longstanding 
interpretation of the law was that fiduciary appointments are committed 
to the Secretary of Veterans Affairs' discretion by law and could not 
be appealed. VA policy recognized that beneficiaries rated by VA as 
being unable to manage their own VA benefits had already been afforded 
the right of appeal regarding that rating. It also recognized that 
affording an additional right of appeal regarding the individual or 
entity best suited to handle financial matters for the beneficiary 
would be inconsistent with the fact that the beneficiary had already 
been found incapable of managing financial matters. Accordingly, VA did 
not promulgate regulations regarding appeals in fiduciary appointments 
prior to the Freeman decision. We propose to implement the court's 
decision in Sec.  13.600 regarding appeals as described below.
    The introductory text to proposed Sec.  13.600 would prescribe the 
general rule that fiduciary matters are committed to the Secretary of 
Veterans Affairs' discretion by law and cannot be

[[Page 449]]

appealed to the Board or any court. Consistent with VA's interpretation 
of the Freeman decision, the exceptions to this general rule would be 
prescribed in proposed paragraph (a).
    Although the court's holding in Freeman was limited to fiduciary 
appointments under section 5502, we interpret it to mean that there is 
a right to appeal any fiduciary decision that is made under a law that 
affects the provision of benefits to veterans or to the dependents or 
survivors of veterans. Accordingly, we propose to extend this right to 
removal decisions. We also propose to permit appeals of VA's 
reissuance-of-benefits decisions under proposed Sec.  13.410. Thus, any 
decision that VA will not reissue benefits, regardless of the bases for 
that decision, could be appealed by the beneficiary to the Board. 
However, a finding of misuse is a prerequisite to reissuance of 
benefits under proposed Sec.  13.410, and a finding that VA negligence 
caused fiduciary misuse of benefits is an additional prerequisite for 
reissuance of benefits under proposed Sec.  13.410(b). For these 
reasons, proposed paragraphs (a)(1) through (5) would list the various 
appointment, removal, misuse, and negligence decisions that may be 
appealed by beneficiaries in the fiduciary program.
    Proposed paragraph (b)(1) would prescribe that VA decisions 
regarding fiduciary matters are final, subject only to the 
beneficiary's right of appeal as further prescribed in section 13.600. 
We would also prescribe that the record regarding these final decisions 
will close on the date the decision is made. As noted in this preamble, 
decisions on fiduciary matters are not decisions on claims for benefits 
and would not be afforded the same procedures as prescribed by VA for 
benefit claims under 38 CFR part 3. We intend that appeals in fiduciary 
matters would be processed expeditiously to avoid delaying VA's effort 
to resolve the beneficiary's disagreement with an appointment or issue 
a statement of the case or certify an appeal to the Board.
    Except as prescribed in proposed paragraph (b)(1), VA's appeal 
regulations in 38 CFR parts 19 and 20 would be applicable to the 
appeals authorized in this regulation. We would provide notice 
regarding the applicability of these provisions in proposed paragraph 
(b)(2). Although we would close the record regarding appealable 
decisions under paragraph (b)(1), we would clarify that such action 
would not limit the Board's authority to remand a matter to the Hub 
Manager, Regional Office Director, or Director of the Pension and 
Fiduciary Service under 38 CFR 19.9 for any action necessary for an 
appellate decision or the issuance of a supplemental statement of the 
case under 38 CFR 19.31(b)(2), (b)(3), or (c).

Paperwork Reduction Act

    This proposed rule contains provisions constituting collection of 
information under the provisions of the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501-3521), at 38 CFR 13.30, 13.140, 13.230, 13.280 and 
13.600.
    The information collection requirements for Sec. Sec.  13.280 and 
13.600 are currently approved by the Office of Management and Budget 
(OMB) and have been assigned OMB Control Nos. 2900-0017 and 2900-0085. 
The proposed rule at Sec. Sec.  13.30, 13.140, and 13.230 contains 
collections of information that require approval by OMB. The collection 
required by Sec.  13.30, while implicit in the plan of collection 
approved by OMB control number 2900-0017, would now become an explicit 
requirement under the proposed rule. Accordingly, under 44 U.S.C. 
3507(d), VA has submitted a copy of this rulemaking to OMB for review. 
OMB assigns a control number for each collection of information it 
approves. VA may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid OMB control number. If OMB does not approve the 
collection of information as requested, VA will immediately remove the 
provisions containing a collection of information or take such other 
action as is directed by OMB.
    Comments on the collections of information contained in this 
proposed rule should be submitted to the Office of Management and 
Budget, Attention: Desk Officer for the Department of Veterans Affairs, 
Office of Information and Regulatory Affairs, Washington, DC 20503, 
with copies sent by mail or hand delivery to: Director, Office of 
Regulation Policy and Management (02REG), Department of Veterans 
Affairs, 810 Vermont Ave, NW., Room 1068, Washington, DC 20420; fax to 
(202) 273-9026 (this is not a toll-free number); or email comments 
through www.Regulations.gov. Comments should indicate that they are 
submitted in response to ``RIN 2900-AO53.''
    OMB is required to make a decision concerning the collections of 
information contained in this proposed rule between 30 and 60 days 
after publication of this document in the Federal Register. Therefore, 
a comment to OMB is best assured of having its full effect if OMB 
receives it within 30 days of publication. This does not affect the 
deadline for the public to comment on the proposed rule. VA requests 
comments by the public on proposed collections of information in--
     Evaluating whether the proposed collections of information 
are necessary for the proper performance of the functions of VA, 
including whether the information will have practical utility;
     Evaluating the accuracy of VA's estimate of the burden of 
the proposed collections of information, including the validity of the 
methodology and assumptions used;
     Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
     Minimizing the burden of the collections of information on 
those who are to respond, including through the use of appropriate 
automated electronic, mechanical, or other technological collection 
techniques or other form of information technology, e.g., permitting 
electronic submission of responses.
    The collection of information contained in 38 CFR 13.30, 13.140, 
and 13.230 is described immediately following this paragraph, under 
their respective titles.
    Title: Beneficiary rights.
    Summary of collection of information: Under proposed 38 CFR 
13.30(b)(6), a beneficiary has the right to obtain from his or her 
fiduciary a copy of the fiduciary's VA-approved annual accounting. 
Although the collection requirement of the annual accounting itself is 
already authorized under OMB Control No. 2900-0017, the proposed rule 
would make explicit the fiduciary's duty to provide a copy of such 
accounting to the beneficiary upon request. A fiduciary could provide 
this copy to the beneficiary by mail, email, or in person. The required 
form is authorized under OMB Control No. 2900-0017.
    Description of the need for information and proposed use of 
information: This information is needed for purposes of keeping the 
beneficiary informed as to the status of his or her VA benefit funds 
under management.
    Description of likely respondents: Fiduciaries appointed by VA to 
manage VA benefit payments on behalf of a beneficiary.
    Estimated number of respondents per year: 33,000.
    Estimated frequency of responses: Once per year.
    Estimated total annual reporting and recordkeeping burden: 5,550 
additional hours.

    Title: Responsibilities of fiduciaries.
    Summary of collection of information: Under proposed 38 CFR 13.140, 
a

[[Page 450]]

fiduciary is required to keep VA apprised of any change in the 
beneficiary's circumstances which might adversely impact the 
beneficiary's well-being. A fiduciary could report any change 
telephonically or in writing. No form is required for the submission of 
this information.
    Description of the need for information and proposed use of 
information: This information is needed for purposes of coordinating a 
proper response to the beneficiary's benefit or other needs, to include 
referral to the Veterans Health Administration or other public or 
private agencies for delivery of services.
    Description of likely respondents: Fiduciaries appointed by VA to 
manage VA benefit payments on behalf of a beneficiary.
    Estimated number of respondents per year: 37,500.
    Estimated frequency of responses: Once per year.
    Estimated total annual reporting and recordkeeping burden: 1,875 
additional hours.

    Title: Protection of beneficiary funds.
    Summary of collection of information: Under proposed 38 CFR 13.230, 
a fiduciary is required to submit proof of adequate bonding with each 
annual accounting and at any other time the Hub Manager requests such 
proof. The proof could be a copy of the bond certificate or the 
contractual agreement between the fiduciary and the bonding company. No 
form is required.
    Description of the need for information and proposed use of 
information: The information is needed to facilitate VA's oversight 
regarding the funds under management protection requirements prescribed 
in proposed Sec.  13.230.
    Description of likely respondents: Certain fiduciaries appointed by 
VA who manage VA benefit funds in excess of $25,000.
    Estimated number of respondents per year: 10,000.
    Estimated frequency of responses: Once per year.
    Estimated total annual reporting and recordkeeping burden: 167 
additional hours.

Regulatory Flexibility Act

    The Secretary hereby certifies that this proposed rule would not 
have a significant economic impact on a substantial number of small 
entities as they are defined in the Regulatory Flexibility Act, 5 
U.S.C. 601-612. The proposed rule would primarily affect individual 
beneficiaries and fiduciaries. It would not cause a significant 
economic impact on fiduciaries since VA generally appoints individual 
family members, friends, or caretakers, who provide fiduciary services 
for beneficiaries. Further, only a small portion of the business of 
entities that provide fiduciary services concerns VA beneficiaries. 
Therefore, pursuant to 5 U.S.C. 605(b), this proposed rule is exempt 
from the initial and final regulatory flexibility analysis requirements 
of sections 603 and 604.

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess the 
costs and benefits of available regulatory alternatives and, when 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, and other advantages; distributive impacts; 
and equity). Executive Order 13563 (Improving Regulation and Regulatory 
Review) emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
Executive Order 12866 (Regulatory Planning and Review) defines a 
``significant regulatory action,'' which requires review by the Office 
of Management and Budget (OMB), as ``any regulatory action that is 
likely to result in a rule that may: (1) Have an annual effect on the 
economy of $100 million or more or adversely affect in a material way 
the economy, a sector of the economy, productivity, competition, jobs, 
the environment, public health or safety, or State, local, or tribal 
governments or communities; (2) Create a serious inconsistency or 
otherwise interfere with an action taken or planned by another agency; 
(3) Materially alter the budgetary impact of entitlements, grants, user 
fees, or loan programs or the rights and obligations of recipients 
thereof; or (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
this Executive Order.
    The economic, interagency, budgetary, legal, and policy 
implications of this proposed rule have been examined and it has been 
determined to be a significant regulatory action under Executive Order 
12866.

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in expenditure by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year. This proposed rule would have no such 
effect on State, local, or tribal governments, or on the private 
sector.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance program number and title 
for this proposed rule are as follows: 64.104, Pension for Non-Service-
Connected Disability for Veterans; 64.105, Pension to Veterans 
Surviving Spouses, and Children; 64.109, Veterans Compensation for 
Service-Connected Disability; and 64.110, Veterans Dependency and 
Indemnity Compensation for Service-Connected Death.

Signing Authority

    The Secretary of Veterans Affairs, or designee, approved this 
document and authorized the undersigned to sign and submit the document 
to the Office of the Federal Register for publication electronically as 
an official document of the Department of Veterans Affairs. Jose D. 
Riojas, Interim Chief of Staff, Department of Veterans Affairs, 
approved this document on May 20, 2013 for publication.

List of Subjects

38 CFR part 3

    Administrative practice and procedure, Claims, Disability benefits, 
Health care, Pensions, Radioactive materials, Veterans, and Vietnam.

38 CFR part 13

    Surety bonds, Trusts and trustees, and Veterans.

    Dated: December 12, 2013.
Robert C. McFetridge,
Director, Office of Regulation Policy and Management, Office of the 
General Counsel, Department of Veterans Affairs.
    For the reasons stated in the preamble, VA proposes to amend 38 CFR 
parts 3 and 13 to read as follows:

PART 3--ADJUDICATION

Subpart A--Pension, Compensation, and Dependency and Indemnity 
Compensation

0
1. The authority citation for part 3, subpart A continues to read as 
follows:

    Authority:  38 U.S.C. 501(a), unless otherwise noted.


Sec.  3.353  [Amended]

0
2. Amend Sec.  3.353 by:
0
a. In paragraph (b)(1), removing ``Sec.  13.56'' and adding, in its 
place, ``Sec.  13.110''.

[[Page 451]]

0
b. In paragraph (b)(2), removing ``Sec.  13.55'', ``Sec.  13.56'', and 
``Sec.  13.57'' and adding, in each place, ``Sec.  13.100''.


Sec.  3.401  [Amended]

0
3. Amend Sec.  3.401 by removing and reserving paragraph (d).
0
4. In Sec.  3.403, revise the paragraph heading for paragraph (a)(2) to 
read as follows:


Sec.  3.403  Children.

    (a) * * *
    (2) Majority (Sec.  13.100). * * *
* * * * *
0
5. In Sec.  3.452, revise the CROSS REFERENCES immediately after 
paragraph (d) to read as follows:


Sec.  3.452  Situations when benefits may be apportioned.

* * * * *
    CROSS REFERENCES: Disappearance of veteran. See Sec.  3.656. 
Reduction because of hospitalization. See 3.551. Penal institutions. 
See Sec.  3.666.


Sec.  3.500  [Amended]

0
6. In Sec.  3.500, remove and reserve paragraphs (l) and (m).


Sec.  3. 501   [Amended]

0
7. In Sec.  3.501, remove and reserve paragraph (j) and remove 
paragraph (n).
    Sec. Sec.  3.850 through 3.857 [Removed]
0
8. Remove Sec. Sec.  3.850 through 3.857 and the undesignated center 
heading ``INCOMPETENTS, GUARDIANSHIP AND INSTITUTIONAL AWARDS'' 
immediately preceding Sec.  3.850.
0
9. Part 13 is revised to read as follows:

PART 13--FIDUCIARY ACTIVITIES

Sec.
13.10 Purpose and applicability of other regulations.
13.20 Definitions.
13.30 Beneficiary rights.
13.40 Representation of beneficiaries in the fiduciary program.
13.50 Suspension of benefits.
13.100 Fiduciary appointments.
13.110 Supervised direct payment.
13.120 Field examinations.
13.130 Bars to serving as a fiduciary.
13.140 Responsibilities of fiduciaries.
13.200 Fiduciary accounts.
13.210 Fiduciary investments.
13.220 Fiduciary fees.
13.230 Protection of beneficiary funds.
13.240 Funds of beneficiaries less than 18 years old.
13.250 Funds of deceased beneficiaries.
13.260 Personal funds of patients.
13.270 Creditors' claims.
13.280 Accountings.
13.300 Onsite reviews.
13.400 Misuse of benefits.
13.410 Reissuance and recoupment of misused benefits.
13.500 Removal of fiduciaries.
13.510 Fiduciary withdrawals.
13.600 Appeals.

    Authority:  38 U.S.C. 501, 5502, 5506-5510, 6101, 6106-6108, and 
as noted in specific sections.


Sec.  13.10  Purpose and applicability of other regulations.

    (a) Purpose. The regulations in this part implement the Department 
of Veterans Affairs (VA) fiduciary program, which is authorized by 38 
U.S.C. chapters 55 and 61. The purpose of the fiduciary program is to 
protect certain VA beneficiaries who, as a result of injury, disease, 
or infirmities of advanced age, or by reason of being less than 18 
years of age, cannot manage their VA benefits. Under this program, VA 
oversees these vulnerable beneficiaries to ensure their well-being, and 
appoints and oversees fiduciaries who manage these beneficiaries' 
benefits.
    (b) Applicability of other regulations. Fiduciary matters arise 
after VA has determined that a beneficiary is entitled to benefits, and 
decisions on fiduciary matters are not decisions on claims for VA 
benefits. Accordingly, VA's regulations governing the adjudication of 
claims for benefits, see 38 CFR part 3, do not apply to fiduciary 
matters unless VA has prescribed applicability in this part.

(Authority: 38 U.S.C. 501)

Sec.  13.20  Definitions.

    The following definitions apply to this part:
    Dependent means a beneficiary's spouse as defined by this section, 
a beneficiary's child as defined by Sec.  3.57 of this chapter, or a 
beneficiary's parent as defined by Sec.  3.59 of this chapter, who does 
not have an income sufficient for reasonable maintenance and who 
obtains support for such maintenance from the beneficiary.
    Fiduciary means an individual or entity appointed by VA to receive 
VA benefits on behalf of a beneficiary for the use and benefit of the 
beneficiary and the beneficiary's dependents.
    Hub Manager means the individual who has authority to oversee the 
activities of a VA Fiduciary Hub or the Veterans Service Center Manager 
of the VA Manila Regional Office.
    In the fiduciary program means, with respect to a beneficiary, that 
the beneficiary:
    (i) Has been rated by VA as incapable of managing his or her own VA 
benefits as a result of injury, disease, or the infirmities of advanced 
age;
    (ii) Has been determined by a court with jurisdiction as being 
unable to manage his or her own financial affairs; or
    (iii) Is less than 18 years of age.
    Rating authority means VA employees who have authority under Sec.  
3.353 of this chapter to determine whether a beneficiary can manage his 
or her VA benefits.
    Relative means a person who is an adopted child or is related to a 
beneficiary by blood or marriage.
    Restricted withdrawal agreement means a written contract between 
VA, a fiduciary, and a financial institution in which the fiduciary has 
VA benefit funds under management for a beneficiary, under which 
certain funds cannot be withdrawn without the consent of the Hub 
Manager.
    Spouse means a husband or wife whose marriage, including ``common 
law'' marriage and same-sex marriage, meets the requirements of 38 
U.S.C. Sec.  103(c).
    VA benefit funds under management means the combined value of the 
VA funds maintained in a fiduciary account or accounts managed by a 
fiduciary for a beneficiary under Sec.  13.200 and any VA funds 
invested by the fiduciary for the beneficiary under Sec.  13.210, to 
include any interest income and return on investment derived from any 
account.

(Authority: 38 U.S.C. 501)

Sec.  13.30  Beneficiary rights.

    Except as prescribed in this part, a beneficiary in the fiduciary 
program is entitled to the same rights afforded any other VA 
beneficiary.
    (a) General policy. Generally, a beneficiary has the right to 
manage his or her own VA benefits. However, due to a beneficiary's 
injury, disease, or infirmities of advanced age or by reason of being 
less than 18 years of age, VA may determine that the beneficiary is 
unable to manage his or her benefits without VA supervision or the 
assistance of a fiduciary. Or a court with jurisdiction might determine 
that a beneficiary is unable to manage his or her financial affairs. 
Under any of these circumstances, VA will apply the provisions of this 
part to ensure that VA benefits are being used to maintain the well-
being of the beneficiary and the beneficiary's dependents.
    (b) Specific rights. The rights of beneficiaries in the fiduciary 
program include, but are not limited to, the right to:
    (1) Receive direct payment of recurring monthly benefits until VA 
appoints a fiduciary if the beneficiary is 18 years of age or older;
    (2) Receive notice regarding VA's appointment of a fiduciary or any 
other decision on a fiduciary matter that affects VA's provision of 
benefits to the beneficiary;

[[Page 452]]

    (3) Appeal to the Board of Veterans' Appeals VA's appointment of a 
fiduciary;
    (4) Be informed of the fiduciary's name, telephone number, mailing 
address, and email address;
    (5) Contact his or her fiduciary and request a disbursement of 
funds for current or foreseeable needs or consideration for payment of 
previously incurred expenses, account balance information, or other 
information or assistance consistent with the responsibilities of the 
fiduciary prescribed in Sec.  13.140;
    (6) Obtain from his or her fiduciary a copy of the fiduciary's VA-
approved annual accounting;
    (7) Have VA reissue benefits misused by a fiduciary if VA is 
negligent in appointing or overseeing the fiduciary or if the fiduciary 
who misused the benefits meets the criteria prescribed in Sec.  13.410;
    (8) Appeal to the Board of Veterans' Appeals VA's determination 
regarding its own negligence in misuse and reissuance of benefits 
matters;
    (9) Submit to VA a reasonable request for appointment of a 
successor fiduciary. For purposes of this paragraph, reasonable request 
means a good faith effort to seek replacement of a fiduciary, if:
    (i) The beneficiary's current fiduciary receives a fee deducted 
from the beneficiary's account under Sec.  13.220 and the beneficiary 
requests an unpaid volunteer fiduciary who ranks higher in the order of 
preference under Sec.  13.100(e);
    (ii) The beneficiary requests removal of his or her fiduciary under 
Sec.  13.500(a)(1)(iii) and supervised direct payment of benefits under 
Sec.  13.110; or
    (iii) The beneficiary provides credible information that the 
current fiduciary is not acting in the beneficiary's interest or is 
unable to effectively serve the beneficiary due to a personality 
conflict or disagreement and VA is not able to obtain resolution;
    (10)(i) Be removed from the fiduciary program and receive direct 
payment of benefits without VA supervision provided that the 
beneficiary:
    (A) Is rated by VA as able to manage his or her own benefits; or
    (B) Is determined by a court with jurisdiction as able to manage 
his or her financial affairs; or
    (C) Attains the age of 18 years;
    (ii) Have a fiduciary removed and receive direct payment of 
benefits with VA supervision as prescribed in Sec.  13.110 regarding 
supervised direct payment and Sec.  13.500 regarding removal of 
fiduciaries generally, provided that the beneficiary establishes the 
ability to manage his or her own benefits with limited and temporary VA 
supervision; and
    (11) Be represented by a VA-accredited attorney, claims agent, or 
representative of a VA-recognized veterans service organization. This 
includes the right to have a representative present during a field 
examination and the right to be represented in the appeal of a 
fiduciary matter under Sec.  13.600.

(Authority: 38 U.S.C. 501)

Sec.  13.40  Representation of beneficiaries in the fiduciary program.

    The provisions of 38 CFR 14.626 through 14.629 and 14.631 through 
14.637 regarding accreditation and representation of VA claimants and 
beneficiaries in proceedings before VA are applicable to representation 
of beneficiaries before VA in fiduciary matters governed by this part.
    (a) Accreditation. Only VA-accredited attorneys, claims agents, and 
accredited representatives of VA-recognized veterans service 
organizations who have complied with the power-of-attorney requirements 
in Sec.  14.631 of this chapter may represent beneficiaries before VA 
in fiduciary matters.
    (b) Standards of conduct. Accredited individuals who represent 
beneficiaries in fiduciary matters must comply with the general and 
specific standards of conduct prescribed in Sec.  14.632(a) through (c) 
of this chapter, and attorneys must also comply with the standards 
prescribed in Sec.  14.632(d). For purposes of this section:
    (1) A fiduciary matter is not a claim for VA benefits. However, the 
term claimant in Sec.  14.632 of this chapter includes VA beneficiaries 
who are in the fiduciary program, and the term claim in Sec.  14.632 
includes a fiduciary matter that is pending before VA.
    (2) The provisions of Sec.  14.632(c)(7) through (9) of this 
chapter mean that an accredited individual representing a beneficiary 
in a fiduciary matter may not:
    (i) Delay or refuse to cooperate in the processing of a fiduciary 
appointment or any other fiduciary matter, including but not limited to 
a field examination prescribed by Sec.  13.120 and the investigation of 
a proposed fiduciary prescribed by Sec.  13.100;
    (ii) Mislead, threaten, coerce, or deceive a beneficiary in the 
fiduciary program or a proposed or current fiduciary regarding payment 
of benefits or the rights of beneficiaries in the fiduciary program; or
    (iii) Engage in, or counsel or advise a beneficiary or proposed or 
current fiduciary to engage in, acts or behavior prejudicial to the 
fair and orderly conduct of administrative proceedings before VA.
    (3) The Hub Manager will submit a written report regarding an 
alleged violation of the standards of conduct prescribed in this 
section to the VA Assistant General Counsel who administers the 
accreditation program for a determination regarding further action, 
including suspension or cancellation of accreditation under Sec.  
14.633 of this chapter, and notification to any agency, court, or bar 
to which the attorney, agent, or representative is admitted to 
practice.
    (c) Fees. Except as prescribed in paragraphs (c)(1)(i) through 
(iii) of this section, an accredited attorney or claims agent may 
charge a reasonable fixed or hourly fee for representation services 
provided to a beneficiary in a fiduciary matter, provided that the fee 
meets the requirements of Sec.  14.636 of this chapter.
    (1) The following provisions of Sec.  14.636 of this chapter do not 
apply in fiduciary matters:
    (i) Fees under Sec.  14.636(e) of this chapter, to the extent that 
the regulation authorizes a fee based on a percentage of benefits 
recovered;
    (ii) The presumptions prescribed by Sec.  14.636(f) of this chapter 
based upon a percentage of a past-due benefit amount. In fiduciary 
matters, the reasonableness of a fixed or hourly-rate fee will be 
determined based upon application of the reasonableness factors 
prescribed in Sec.  14.636(e); and
    (iii) Direct payment of fees by VA out of past-due benefits under 
Sec.  14.636(g)(2) and (h) of this chapter.
    (2) An accredited attorney or claims agent who wishes to charge a 
fee for representing a beneficiary in a fiduciary matter must comply 
with the fee agreement filing requirement prescribed in Sec.  
14.636(g)(3) of this chapter.
    (3) VA, the beneficiary, or the beneficiary's fiduciary may 
challenge the reasonableness of a fee charged by an accredited attorney 
or claims agent using the procedures prescribed in Sec.  14.636(i) of 
this chapter.

(Authority: 38 U.S.C. 501, chapter 59)

Sec.  13.50  Suspension of benefits.

    (a) Notwithstanding the beneficiary rights prescribed in Sec.  
13.30, the Hub Manager will temporarily suspend payment of benefits and 
hold such benefits in the U.S. Treasury to the credit of the 
beneficiary or take other action that the Hub Manager deems appropriate 
to prevent exploitation of VA benefit funds or to ensure that the 
beneficiary's needs are being met, if:
    (1) The beneficiary or the beneficiary's attorney, claims agent, or

[[Page 453]]

representative withholds cooperation in any of the appointment and 
oversight procedures prescribed in this part; or
    (2) VA removes the beneficiary's fiduciary for any reason 
prescribed in Sec.  13.500(b) and is unable to appoint a successor 
fiduciary before the beneficiary has an immediate need for disbursement 
of funds.
    (b) All or any part of the funds held in the U.S. Treasury to the 
beneficiary's credit under paragraph (a) of this section will be 
disbursed under the order and in the discretion of the VA Regional 
Office Director who has jurisdiction over the fiduciary hub or regional 
office for the benefit of the beneficiary or the beneficiary's 
dependents.

(Authority: 38 U.S.C. 501, 512, 5502, 5504)

Sec.  13.100  Fiduciary appointments.

    (a) Authority. Except as prescribed in paragraph (b) of this 
section, the Hub Manager will appoint a fiduciary for a beneficiary 
who:
    (1) Has been rated by VA as being unable to manage his or her VA 
benefits,
    (2) Has been determined by a court with jurisdiction as being 
unable to manage his or her financial affairs, or
    (3) Has not reached age 18.
    (b) Exceptions. The Hub Manager will not appoint a fiduciary for a 
beneficiary who:
    (1) Is eligible for supervised direct payment under Sec.  13.110, 
or
    (2) Is not a beneficiary described in paragraph (a)(1) or (a)(2) of 
this section and has not reached age 18, and
    (i) Is serving in the Armed Forces of the United States,
    (ii) Has been discharged from service in the Armed Forces of the 
United States, or
    (iii) Qualifies for survivors' benefits as a surviving spouse.
    (c) Retroactive benefit payments. The Hub Manager will withhold any 
retroactive, one-time, or other lump-sum benefit payment awarded to a 
beneficiary described in paragraph (a) of this section until the Hub 
Manager has appointed a fiduciary for the beneficiary and, if 
applicable, the fiduciary has obtained a surety bond under Sec.  
13.230.
    (d) Initial appointment. In appointing a fiduciary, the Hub Manager 
will make every effort to appoint the person, agency, organization, or 
institution that will best serve the interest of the beneficiary. The 
Hub Manager will consider the results of a field examination, which 
will include a face-to-face meeting with the beneficiary and the 
beneficiary's dependents at their residence when practicable, and will 
conduct the investigation prescribed in paragraph (f) of this section. 
The Hub Manager will also consider whether:
    (1) VA benefits can be paid directly to the beneficiary with 
limited and temporary supervision by VA, as prescribed in Sec.  13.110;
    (2) The circumstances require appointment of a temporary fiduciary 
under paragraph (h) of this section; and
    (3) The proposed fiduciary is complying with the responsibilities 
of a fiduciary prescribed in Sec.  13.140 with respect to all 
beneficiaries in the fiduciary program currently being served by the 
proposed fiduciary and whether the proposed fiduciary can handle an 
additional appointment without degrading service for any other 
beneficiary.
    (e) Order of preference in appointing a fiduciary. The Hub Manager 
will consider individuals and entities for appointment in the following 
order of preference, provided that the proposed fiduciary is qualified 
and willing to serve and the appointment would serve the beneficiary's 
interest:
    (1) The preference stated by the beneficiary in the fiduciary 
program, if the beneficiary has the capacity to state such a 
preference. If the beneficiary has a legal guardian appointed to handle 
the beneficiary's affairs, the Hub Manager will presume that the 
beneficiary does not have the capacity to state a preference and will 
consider individuals and entities in the order of preference prescribed 
in paragraphs (e)(2) through (10) of this section;
    (2) The beneficiary's spouse;
    (3) A relative who has care or custody of the beneficiary or his or 
her funds;
    (4) Any other relative of the beneficiary;
    (5) Any friend, acquaintance, or other person who is willing to 
serve as fiduciary for the beneficiary without a fee;
    (6) The chief officer of a public or private institution in which 
the beneficiary receives care or which has custody of the beneficiary;
    (7) The bonded officer of an Indian reservation, if applicable;
    (8) An individual or entity who has been appointed by a court with 
jurisdiction to handle the beneficiary's affairs;
    (9) An individual or entity who is not willing to serve without a 
fee; or
    (10) A temporary fiduciary, if necessary.
    (f) Investigation of a proposed fiduciary. Except as prescribed in 
paragraph (f)(3) of this section, before appointing a fiduciary for a 
beneficiary in the fiduciary program, the Hub Manager will conduct an 
investigation regarding the proposed fiduciary's qualifications.
    (1) The investigation will include:
    (i) To the extent practicable, a face-to-face interview of the 
proposed fiduciary;
    (ii) A review of a credit report on the proposed fiduciary issued 
by a credit reporting agency no more than 30 days prior to the date of 
the proposed appointment;
    (iii) A criminal background check to determine whether the proposed 
fiduciary has been convicted of any offense which would be a bar to 
serving as a fiduciary under Sec.  13.130 or which the Hub Manager may 
consider and weigh under the totality of the circumstances regarding 
the proposed fiduciary's qualifications;
    (iv) Obtaining proof of the proposed fiduciary's identity and 
relationship to the beneficiary, if any; and
    (v) A determination regarding the need for surety bond under Sec.  
13.230 and the proposed fiduciary's ability to obtain such a bond.
    (2) The Hub Manager may, at any time after the initial appointment 
of the fiduciary for a beneficiary, repeat all or part of the 
investigation prescribed by paragraph (f)(1) of this section to ensure 
that the fiduciary continues to meet the qualifications for service and 
there is no current bar to service under Sec.  13.130.
    (3) VA will not conduct the investigation prescribed by paragraph 
(f) of this section if the proposed fiduciary is an entity, such as the 
trust department of a bank that provides fiduciary services.
    (g) Expedited appointment. The Hub Manager may waive the 
requirements of paragraphs (f)(1)(i) through (iii) of this section and 
expedite the appointment of a proposed fiduciary if the Hub Manager 
determines that an expedited appointment would be in the beneficiary's 
interest and:
    (1) The proposed fiduciary is:
    (i) The beneficiary's parent (natural, adopted, or step-parent) and 
the beneficiary is less than 18 years old, or
    (ii) The beneficiary's spouse; or
    (2) The annual amount of VA benefits the proposed fiduciary would 
manage for the beneficiary does not exceed the amount specified in 38 
U.S.C. 5507(c)(2)(D), as adjusted by VA pursuant to 38 U.S.C. 5312.
    (h) Temporary fiduciary appointments. (1) The Hub Manager may 
appoint a temporary fiduciary for a period not to exceed 120 days in 
any of the following circumstances:
    (i) The beneficiary is appealing a VA rating that the beneficiary 
cannot manage his or her own VA benefits;
    (ii) VA has removed a fiduciary for cause under Sec.  13.500 and 
cannot

[[Page 454]]

expedite the appointment of a successor fiduciary, and the beneficiary 
has an immediate need for fiduciary services; or
    (iii) The Hub Manager determines that the beneficiary has an 
immediate need for fiduciary services and it would not be in the 
beneficiary's or the beneficiary's dependents' interest to pay benefits 
to the beneficiary until a fiduciary is appointed.
    (2) Any temporary fiduciary appointed under this paragraph (h) must 
be:
    (i) An individual or entity that has already been subject to the 
procedures for appointment in paragraphs (d) and (f) of this section, 
and
    (ii) Performing satisfactorily as a fiduciary for at least one 
other VA beneficiary for whom the fiduciary has submitted an annual 
accounting that VA has approved.
    (i) Authorization for disclosure of information. The Hub Manager 
will:
    (1) Obtain from every proposed fiduciary who is an individual a 
written authorization for VA to disclose to the beneficiary information 
regarding any fiduciary matter that may be appealed under Sec.  13.600, 
including but not limited to the fiduciary's qualifications for 
appointment under Sec.  13.100 or misuse of benefits under Sec.  
13.400. Such disclosures may occur in VA's correspondence with the 
beneficiary, in a VA fiduciary appointment or misuse of benefits 
decision, in a statement of the case for purposes of appeal under Sec.  
13.600, or upon request by the beneficiary, the beneficiary's guardian, 
or the beneficiary's accredited attorney, claims agent, or 
representative;
    (2) Notify the proposed fiduciary that the disclosed information 
may be used by the beneficiary in appealing a VA appointment or misuse 
decision to the Board of Veterans' Appeals under Sec.  13.600; and
    (3) Terminate consideration of a proposed fiduciary if the 
individual refuses to provide the authorization prescribed in paragraph 
(i)(1) of this section. Such refusal is a bar to serving as a fiduciary 
for a beneficiary under Sec.  13.130(b).

(Authority: 38 U.S.C. 501, 5502, 5506, 5507)

Sec.  13.110  Supervised direct payment.

    (a) Authority. The Hub Manager may authorize the payment of VA 
benefits directly to an adult beneficiary in the fiduciary program 18 
years of age or older if the Hub Manager determines, based upon a field 
examination, that the beneficiary can manage his or her VA benefits 
with limited and temporary VA supervision. In making this 
determination, the Hub Manager will consider:
    (1) Whether the beneficiary is aware of his or her monthly income;
    (2) Whether the beneficiary is aware of his or her fixed monthly 
expenses such as rent, mortgage, utilities, clothing, food, and medical 
bills;
    (3) The beneficiary's ability to:
    (i) Allocate appropriate funds to fixed monthly expenses and 
discretionary items;
    (ii) Pay monthly bills in a timely manner; and
    (iii) Conserve excess funds; and
    (4) Any other information that demonstrates the beneficiary's 
actual ability to manage his or her VA benefits with limited VA 
supervision.
    (b) Supervision. The limited and temporary supervision of 
beneficiaries receiving direct payment under paragraph (a) of this 
section will consist of:
    (1) Assistance in the development of a budget regarding the 
beneficiary's income and expenses,
    (2) Assistance with creating a fund usage report to aid the 
beneficiary in tracking his or her income and expenses, and
    (3) Periodic reviews of the beneficiary's fund usage report, as 
required by the Hub Manager.
    (c) Reassessment. The Hub Manager will reassess the beneficiary's 
ability to manage his or her VA benefits at or before the end of the 
first 12-month period of supervision. Based upon a field examination, 
an evaluation of the factors listed in paragraph (a) of this section, 
and the results of the supervision prescribed in paragraph (b) of this 
section, the Hub Manager will determine whether the beneficiary can 
manage his or her benefits without VA supervision.
    (1) If the beneficiary demonstrates the ability to manage his or 
her VA benefits without supervision, the Hub Manager will prepare a 
report that summarizes the findings and refer the matter with a 
recommendation and supporting evidence to the rating authority for 
application of Sec.  3.353(b)(3) of this chapter regarding reevaluation 
of ability to manage VA benefits and Sec.  3.353(d) of this chapter 
regarding the presumption of ability to manage VA benefits without 
restriction.
    (2) If the beneficiary does not demonstrate the ability to manage 
his or her VA benefits without VA supervision, the Hub Manager will:
    (i) Appoint a fiduciary, or
    (ii) Continue supervised direct payment for not longer than one 
additional 12-month period based upon evidence that additional 
supervision might assist the beneficiary in developing the ability to 
manage his or her own VA benefits. At the conclusion of the additional 
period of supervised direct payment, the Hub Manager will conduct the 
reassessment prescribed by paragraph (c) of this section and either 
recommend reevaluation under paragraph (c)(1) of this section or 
appoint a fiduciary under paragraph (c)(2)(i) of this section.

(Authority: 38 U.S.C. 501, 5502)

Sec.  13.120  Field examinations.

    (a) Authority. The Hub Manager will order a field examination 
regarding fiduciary matters within the Hub Manager's jurisdiction for 
any of the reasons prescribed in paragraph (c) of this section. For 
purposes of this section, field examination means the inquiry, 
investigation, or monitoring activity conducted by designated fiduciary 
hub or other qualified VA personnel who are authorized to:
    (1) Interview beneficiaries, dependents, and other interested 
persons regarding fiduciary matters;
    (2) Interview proposed fiduciaries and current fiduciaries 
regarding their qualifications, performance, or compliance with VA 
regulations;
    (3) Conduct investigations and examine witnesses regarding any 
fiduciary matter;
    (4) Take affidavits;
    (5) Administer oaths and affirmations;
    (6) Certify copies of public or private documents; and
    (7) Aid claimants and beneficiaries in the preparation of claims 
for VA benefits or other fiduciary or claim-related material.
    (b) Scope of field examinations. Field examinations may include, 
but are not limited to:
    (1) Assessing a beneficiary's and the beneficiary's dependents' 
welfare and physical and mental well-being, environmental and social 
conditions, and overall financial situation, based upon visiting the 
beneficiary's current residence and conducting a face-to-face interview 
of the beneficiary and the beneficiary's dependents, when practicable;
    (2) Assessing the beneficiary's ability to manage his or her own VA 
benefits with only limited VA supervision (see Sec.  13.110 regarding 
supervised direct payment);
    (3) Collecting and reviewing financial documentation, including 
income and expenditure information;
    (4) Providing any necessary assistance to the beneficiary with 
issues affecting current or additional VA benefits, claims, and non-VA 
matters that may affect or conflict with VA benefits;

[[Page 455]]

    (5) Making appropriate referrals in cases of actual or suspected 
physical or mental abuse, neglect, or other harm to a beneficiary;
    (6) Investigating, when necessary, allegations that a beneficiary's 
fiduciary has engaged in misconduct or misused VA benefits to include 
but not limited to allegations regarding:
    (i) Theft or misappropriation of funds,
    (ii) Failure to comply with the responsibilities of a fiduciary as 
prescribed in Sec.  13.140,
    (iii) Other allegations of inappropriate fund management by a 
fiduciary, and
    (iv) Other special circumstances which require a visit with or 
onsite review of the fiduciary, such as a change in an award of 
benefits or benefit status, or non-fiduciary program matters.
    (c) Reasons for conducting field examinations. A Hub Manager will 
order a field examination to:
    (1) Determine whether benefits should be paid directly to a 
beneficiary under Sec.  13.110 or to a fiduciary appointed for the 
beneficiary under Sec.  13.100;
    (2) Determine whether benefit payments should continue to be made 
directly to a beneficiary under Sec.  13.110 or to a fiduciary on 
behalf of a beneficiary; or
    (3) Ensure the well-being of a beneficiary in the fiduciary program 
or to protect a beneficiary's VA benefit funds.

(Authority: U.S.C. 501, 512, 5502, 5506, 5507, 5711)

Sec.  13.130  Bars to serving as a fiduciary.

    (a) An individual or entity may not serve as a fiduciary for a VA 
beneficiary if the individual or entity:
    (1) Misused or misappropriated a beneficiary's VA benefits while 
serving as the beneficiary's fiduciary;
    (2) Has been convicted of a felony offense. For purposes of this 
paragraph, felony offense means a criminal offense for which the 
minimum period of imprisonment is 1 year or more, regardless of the 
actual sentence imposed or the actual time served. However, such 
conviction is not a bar to serving as a fiduciary for a beneficiary if 
all of the following conditions are met:
    (i) The conviction occurred more than 10 years preceding the 
proposed date of appointment;
    (ii) The conviction did not involve any of the following offenses:
    (A) Fraud,
    (B) Theft,
    (C) Bribery,
    (D) Embezzlement,
    (E) Identity theft,
    (F) Money laundering,
    (G) Forgery,
    (H) The abuse of or neglect of another person, or
    (I) Any other financial crime;
    (iii) There is no other person or entity who is willing and 
qualified to serve; and
    (iv) The Hub Manager determines that the nature of the conviction 
is such that appointment of the individual poses no risk to the 
beneficiary and is in the beneficiary's interest;
    (b) An individual may not serve as a fiduciary for a VA beneficiary 
if the individual:
    (1) Refuses or neglects to provide the authorization for VA 
disclosure of information prescribed in Sec.  13.100(i);
    (2) Is unable to manage his or her own Federal or State benefits 
and is in a Federal or State agency's fiduciary, representative 
payment, or similar program;
    (3) Has been adjudicated by a court with jurisdiction as being 
unable to manage his or her own financial affairs;
    (4) Is incarcerated in a Federal, State, local, or other penal 
institution or correctional facility, sentenced to home confinement, 
released from incarceration to a half-way house, or on house arrest or 
in custody in any facility awaiting trial on pending criminal charges;
    (5) Has felony charges pending;
    (6) Is under 18 years of age; or
    (7) Knowingly violates or refuses to comply with the regulations in 
this part.

(Authority: 38 U.S.C. 501, 5502, 5506, 5507, 6101, 6106.)

Sec.  13.140  Responsibilities of fiduciaries.

    Any individual or entity appointed by VA as a fiduciary to receive 
VA benefit payments on behalf of a beneficiary in the fiduciary program 
must fulfill certain responsibilities associated with the services of a 
fiduciary. These responsibilities include:
    (a) General. (1) Fiduciaries appointed by VA to manage the VA funds 
of a beneficiary are also responsible for monitoring the beneficiary's 
well-being and using available funds to ensure that the beneficiary's 
needs are met. In all cases, the fiduciary must disburse or otherwise 
manage funds according to the best interests of the beneficiary and the 
beneficiary's dependents and in light of the beneficiary's unique 
circumstances, needs, desires, beliefs, and values.
    (2) The fiduciary must take all reasonable precautions to protect 
the beneficiary's private information contained in the fiduciary's 
paper and electronic records.
    (i) For purposes of this section:
    (A) Reasonable precautions means protecting against any 
unauthorized access to or use of the beneficiary's private information 
that may result in substantial harm or inconvenience to the 
beneficiary; and
    (B) Private information means a beneficiary's first name and last 
name or first initial and last name in combination with any one or more 
of the following data elements that relate to such beneficiary: VA 
claim number, Social Security number, date of birth, address, driver's 
license number or State-issued identification card number, or financial 
account number or credit card or debit card number, with or without any 
required security code, access code, personal identification number, or 
password, that would permit access to the beneficiary's account.
    (ii) At a minimum, fiduciaries must place reasonable restrictions 
upon access to paper records containing the beneficiary's private 
information, including storage of such records in locked facilities, 
storage areas, or containers.
    (iii) For electronic records containing the beneficiary's private 
information, the fiduciary must:
    (A) Use unique identifications and passwords, which are not vendor-
supplied default identifications and passwords, for computer, network, 
or online site access that are reasonably designed to maintain the 
security of the beneficiary's information and the fiduciary's financial 
transactions;
    (B) Control access to data security passwords to ensure that such 
passwords are kept in a location and format that do not compromise the 
security of the beneficiary's private information; and
    (C) For records containing private information on a computer system 
that is connected to the Internet, keep reasonably up-to-date firewall 
and virus protection and operating system security patches to maintain 
the integrity of the beneficiary's private information and prevent 
unauthorized disclosure. For purposes of this section, a system is 
reasonably updated if the fiduciary installs software updates 
immediately upon release by the original equipment or software 
manufacturer, uses internet browser security settings suitable for 
transmission of private information, and maintains password-protected 
wireless connections or other networks;
    (iv) The fiduciary must keep all paper and electronic records 
relating to the fiduciary's management of VA benefit funds for the 
beneficiary for the duration of service as fiduciary for the 
beneficiary and for a minimum of 2 years from the date that VA removes 
the fiduciary under Sec.  13.500 or from the

[[Page 456]]

date that the fiduciary withdraws as fiduciary for the beneficiary 
under Sec.  13.510.
    (b) Financial responsibilities. The fiduciary's primary financial 
responsibilities include, but are not limited to:
    (1) The use of the beneficiary's VA benefit funds under management 
only for the care, support, education, health, and welfare of the 
beneficiary and his or her dependents. Except as authorized under Sec.  
13.220 regarding fiduciary fees, a fiduciary may not derive a personal 
financial benefit from management or use of the beneficiary's funds;
    (2) Protection of the beneficiary's VA benefits from loss or 
diversion;
    (3) Except as prescribed in Sec.  13.200 regarding fiduciary 
accounts, maintenance of separate financial accounts to prevent 
commingling of the beneficiary's funds with the fiduciary's own funds 
or the funds of any other beneficiary for whom the fiduciary has funds 
under management;
    (4) Determination of the beneficiary's just debts. For purposes of 
this section, just debts means the beneficiary's legitimate, legally 
enforceable debts;
    (5) Timely payment of the beneficiary's just debts, provided that 
the fiduciary has VA benefit funds under management for the beneficiary 
to cover such debts;
    (6) Providing the beneficiary with information regarding VA benefit 
funds under management for the beneficiary, including fund usage, upon 
request;
    (7) Providing the beneficiary with a copy of the annual accounting 
approved by VA under Sec.  13.280;
    (8) Ensuring that any best-interest determination regarding the use 
of funds is consistent with VA policy, which recognizes that 
beneficiaries in the fiduciary program are entitled to the same 
standard of living as any other beneficiary with the same or similar 
financial resources, and that the fiduciary program is not for the 
purpose of preserving funds for the beneficiary's heirs or disbursing 
funds according to the fiduciary's own beliefs, values, preferences, 
and interests; and
    (9) Protecting the beneficiary's funds from the claims of creditors 
as described in Sec.  13.270 of this section.
    (c) Non-financial responsibilities. The fiduciary's primary non-
financial responsibilities include, but are not limited to:
    (1) Contacting social workers or mental health professionals 
regarding the beneficiary, when necessary;
    (2) To the extent possible, ensuring the beneficiary receives 
appropriate medical care;
    (3) Correcting any discord or uncomfortable living or other 
situations when possible;
    (4) Acknowledging and addressing any complaints or concerns of the 
beneficiary to the best of the fiduciary's ability;
    (5) Reporting to the appropriate authorities, including any legal 
guardian, any type of known or suspected abuse of the beneficiary;
    (6) Maintaining contact with the beneficiary for purposes of 
assessing the beneficiary's capabilities, limitations, needs, and 
opportunities; and
    (7) Being responsive to the beneficiary and ensuring the 
beneficiary and his or her legal guardian have the fiduciary's current 
contact information.
    (d) The fiduciary's responsibilities to VA. Any fiduciary who has 
VA benefit funds under management on behalf of a beneficiary in the 
fiduciary program must:
    (1) If the fiduciary is also appointed by a court, annually provide 
to the fiduciary hub with jurisdiction a certified copy of the 
accounting provided to the court or facilitate the hub's receipt of 
such an accounting;
    (2) Notify the fiduciary hub regarding any change in the 
beneficiary's circumstances, to include the beneficiary's relocation, 
the beneficiary's serious illness, or any other significant change in 
the beneficiary's circumstances which might adversely impact the 
beneficiary's well-being;
    (3) Provide documentation or verification of any records concerning 
the beneficiary or matters relating to the fiduciary's responsibilities 
within 30 days of a VA request, unless otherwise directed by the Hub 
Manager;
    (4) When necessary, appear before VA for face-to-face meetings; and
    (5) Comply with the policies and procedures prescribed in this 
part.

(Authority: 38 U.S.C. 501, 512, 5502, 5507, 5509, 5711)

Sec.  13.200  Fiduciary accounts.

    Except as prescribed in paragraph (b) of this section, any 
fiduciary appointed by VA to receive payments on behalf of a 
beneficiary must deposit the beneficiary's VA benefits in a fiduciary 
account that meets the requirements prescribed in paragraph (a) of this 
section.
    (a) Separate accounts. Except as prescribed in paragraph (b) of 
this section, a fiduciary must establish and maintain a separate 
financial institution account(s) for each VA beneficiary that the 
fiduciary serves. The fiduciary must not commingle a beneficiary's 
funds with the fiduciary's funds or any other beneficiary's funds, 
either upon or after receipt. The account must be:
    (1) Established for direct deposit of VA benefits,
    (2) Established in a Federally-insured financial institution, and 
in Federally-insured accounts when funds qualify for such deposit 
insurance, and
    (3) Titled in the beneficiary's and fiduciary's names and note the 
existence of the fiduciary relationship.
    (b) Exceptions. The general rule prescribed in paragraph (a) of 
this section regarding establishment and maintenance of separate 
accounts does not apply to the following fiduciaries:
    (1) The beneficiary's spouse,
    (2) State or local Government entities,
    (3) Institutions, such as public or private medical care 
facilities, nursing homes, or other residential care facilities, when 
an annual accounting is not required. See Sec.  13.280 regarding 
accounting requirements, or
    (4) A trust company or a bank with trust powers organized under the 
laws of the United States or a state.

(Authority: U.S.C. 501, 5502, 5509, 5711)

Sec.  13.210  Fiduciary investments.

    (a) General. A fiduciary must conserve or invest any VA benefits 
that the fiduciary receives on behalf of a beneficiary, whether such 
benefits are in the form of recurring monthly payments or a one-time 
payment, if the beneficiary or the beneficiary's dependents do not need 
the benefits for current maintenance, reasonably foreseeable expenses, 
or reasonable improvements in the beneficiary's and the beneficiary's 
dependents' standard of living. Conservation of beneficiary funds is 
for the purpose of addressing unforeseen circumstances or planning for 
future care needs given the beneficiary's disabilities, circumstances, 
and eligibility for care furnished by the Government at Government 
expense. Fiduciaries will not conserve VA benefit funds under 
management for a beneficiary based upon the interests of the 
beneficiary's heirs or according to the fiduciary's own beliefs, 
values, preferences, and interests.
    (b) Types of investments. An investment must be prudent and in the 
best interest of the beneficiary. Authorized investments include United 
States savings bonds or interest or dividend-paying accounts insured 
under Federal law. Any such investment must be clearly titled in the 
beneficiary's and fiduciary's names and identify the fiduciary 
relationship.
    (c) Exceptions. The general rules regarding investment of VA 
benefits do not apply to the following fiduciaries:
    (1) The beneficiary's spouse, and

[[Page 457]]

    (2) The chief officer of an institution in which the beneficiary is 
being furnished hospital treatment or institutional, nursing, or 
domiciliary care. VA benefits paid to the chief officer may not be 
invested.

(Authority: 38 U.S.C. 501, 5502)

Sec.  13.220  Fiduciary fees.

    (a) Authority. The Hub Manager with jurisdiction over a fiduciary 
appointment may determine whether a fee is necessary to obtain the 
services of a fiduciary. A fee is necessary only if no other person or 
entity is qualified and willing to serve without a fee and the 
beneficiary's interests would be served by the appointment of a 
qualified paid fiduciary. The Hub Manager will not authorize a fee if 
the fiduciary:
    (1) Is a spouse, dependent, or other relative of the beneficiary; 
or
    (2) Will receive any other form of payment in connection with 
providing fiduciary services for the beneficiary.
    (b) Limitation on fees. The Hub Manager will authorize a fiduciary 
to whom a fee is payable under paragraph (a) of this section to deduct 
from the beneficiary's account a reasonable monthly fee for fiduciary 
services rendered.
    (1) For purposes of this section, reasonable monthly fee means a 
monetary amount that is authorized by the Hub Manager and does not 
exceed 4 percent of the monthly VA benefit paid to the fiduciary on 
behalf of the beneficiary for a month in which the fiduciary is 
eligible under paragraph (b)(2) of this section to collect a fee.
    (2) A monthly fee may be collected for any month during which the 
fiduciary:
    (i) Provides fiduciary services on behalf of the beneficiary,
    (ii) Receives a recurring VA benefit payment for the beneficiary, 
and
    (iii) Is authorized by the Hub Manager to receive a fee for 
fiduciary services.
    (3) Fees may not be computed based upon:
    (i) Any one-time, retroactive, or lump-sum payment made to the 
fiduciary on behalf of the beneficiary;
    (ii) Any funds conserved by the fiduciary for the beneficiary in 
the beneficiary's account under Sec.  13.200 or invested by the 
fiduciary for the beneficiary under Sec.  13.210, to include any 
interest income and return on investment derived from any account; or
    (iii) Any funds transferred to the fiduciary by a prior fiduciary 
for the beneficiary, or from the personal funds of patients or any 
other source.
    (4) The Hub Manager will not authorize a fee for any month for 
which:
    (i) VA or a court with jurisdiction determines that the fiduciary 
misused or misappropriated benefits, or
    (ii) The beneficiary does not receive a VA benefit payment. 
However, the Hub Manager may authorize a fee for a month in which the 
beneficiary did not receive a benefit payment if VA later issues 
benefits for that month and the fiduciary:
    (A) Receives VA approval to collect a fee for the month for which 
payment was made,
    (B) Provided fiduciary services during the month for which payment 
was made, and
    (C) Was the beneficiary's fiduciary when VA made the retroactive 
payment.

(Authority: 38 U.S.C. 501, 5502, 6101, 6106)

Sec.  13.230  Protection of beneficiary funds.

    (a) General. Except as prescribed in paragraph (c) of this section, 
within 60 days of appointment, the fiduciary must furnish to the 
fiduciary hub with jurisdiction a corporate surety bond that is 
conditioned upon faithful discharge of all of the responsibilities of a 
fiduciary prescribed in Sec.  13.140 and meets the requirements of 
paragraph (d) of this section, if the VA benefit funds that are due and 
to be paid for the beneficiary will exceed $25,000 at the time of 
appointment. The Hub Manager will not authorize the release of a 
retroactive, one-time, or other pending lump-sum benefit payment to the 
fiduciary until the fiduciary has furnished the bond prescribed by this 
section.
    (b) Accumulated funds. The provisions of paragraph (a) of this 
section which require a fiduciary to furnish a surety bond apply in any 
case in which the accumulation over time of VA benefit funds under 
management by a fiduciary for a beneficiary exceeds $25,000. Except as 
prescribed in paragraph (c) of this section, within 60 days of 
accumulated funds exceeding the prescribed threshold, the fiduciary 
will furnish to the fiduciary hub a bond that meets the requirements of 
paragraph (d) of this section.
    (c) Exceptions. (1) The provisions of paragraphs (a) and (b) of 
this section do not apply to:
    (i) A fiduciary that is a trust company or a bank with trust powers 
organized under the laws of the United States or a State;
    (ii) A fiduciary who is the beneficiary's spouse; or
    (iii) A fiduciary in the Commonwealth of Puerto Rico, Guam, or 
another territory of the United States, or in the Republic of the 
Philippines, who has entered into a restricted withdrawal agreement in 
lieu of a surety bond.
    (2) The Hub Manager may, at any time, require the fiduciary to 
obtain a bond described in paragraph (a) of this section and meeting 
the requirements of paragraph (d) of this section, without regard to 
the amount of VA benefit funds under management by the fiduciary for 
the beneficiary, if special circumstances indicate that obtaining a 
bond would be in the beneficiary's interest. Such special circumstances 
may include but are not limited to:
    (i) A marginal credit report for the fiduciary; or
    (ii) A fiduciary's misdemeanor criminal conviction either before or 
after appointment for any offense listed in Sec.  13.130(a)(2)(ii);
    (d) Bond requirements. A bond furnished by a fiduciary under 
paragraph (a) or (b) of this section must meet the following 
requirements:
    (1) The bond must be a corporate surety bond in an amount 
sufficient to cover the value of the VA benefit funds under management 
by the fiduciary for the beneficiary.
    (2) After furnishing the prescribed bond to the fiduciary hub, the 
fiduciary must:
    (i) Adjust the bond amount to account for any increase or decrease 
of more than 20 percent in the VA benefit funds under management by the 
fiduciary for the beneficiary, and
    (ii) Furnish proof of the adjustment to the fiduciary hub not later 
than 60 days after a change in circumstance described in paragraph 
(d)(2)(i) of this section.
    (3) The bond furnished by the fiduciary must also:
    (i) Identify the fiduciary, the beneficiary, and the bonding 
company; and
    (ii) Contain a statement that the bond is payable to the Secretary 
of Veterans Affairs.
    (e) Periodic proof of bond. A fiduciary must furnish proof of 
adequate bonding:
    (1) With each annual accounting prescribed by Sec.  13.280, and
    (2) At any other time the Hub Manager with jurisdiction requests 
proof.
    (f) Liability. (1) Except as otherwise provided by the terms of the 
bond, the surety and the fiduciary guaranteed by the surety are jointly 
and severally liable for any misappropriation or misuse of VA benefits 
by the fiduciary.
    (2) VA may collect on the bond regardless of any prior reissuance 
of benefits by VA under Sec.  13.410 and until liability under the 
terms of the bond is exhausted.
    (g) Bond expenses. (1) Authority. The fiduciary may deduct from the 
beneficiary's account any expense related to obtaining, maintaining, or

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adjusting a bond prescribed by this section.
    (2) Notice. The Hub Manager will provide the beneficiary written 
notice regarding any bond furnished at the beneficiary's expense under 
paragraph (a), (b), or (c)(2) of this section or adjusted under 
paragraph (d)(2) of this section.

(Authority: 38 U.S.C. 501, 5502, 5507)

Sec.  13.240  Funds of beneficiaries less than 18 years old.

    (a) General. Except as prescribed in paragraph (b) of this section, 
a fiduciary who receives VA benefits on behalf of a beneficiary who is 
less than 18 years old may use the benefits only for the use and 
benefit of that beneficiary and only if the fiduciary first determines 
that the person or persons who have custody of the beneficiary and are 
responsible for the beneficiary's needs are unable to provide for those 
needs.
    (b) Education benefits. A fiduciary who receives VA education 
benefits on behalf of a beneficiary who is less than 18 years old may 
use the benefits for the beneficiary's education regardless of the 
ability of the person or persons who have custody of the beneficiary to 
pay for the beneficiary's education.

(Authority: 38 U.S.C. 501, 5502)

Sec.  13.250  Funds of deceased beneficiaries.

    (a) General. When a beneficiary who has a fiduciary dies without 
leaving a valid will and without heirs, all VA benefit funds under 
management by the fiduciary for the deceased beneficiary on the date of 
death, less any deductions authorized by paragraph (c) of this section, 
must be returned to VA if such funds would be forfeited to a State.
    (b) Accountings. Upon the death of a beneficiary described in 
paragraph (a) for whom the fiduciary must return to VA all benefit 
funds under management, less any deductions authorized under paragraph 
(c) of this section, or upon the death of any beneficiary for whom a 
fiduciary was required to submit an annual accounting to VA under Sec.  
13.280, the fiduciary must submit a final accounting to the fiduciary 
hub with jurisdiction within 90 days of the beneficiary's death.
    (c) Expenses. The fiduciary may deduct a reasonable fee from the 
deceased beneficiary's account for purposes of determining whether the 
beneficiary's funds under management would be forfeited to a State 
under State law or whether the deceased beneficiary left a valid will 
or is survived by heirs. For the purpose of this section, reasonable 
fee means an amount customarily charged by attorneys or other 
professionals authorized to do such work in the State where the 
deceased beneficiary had his or her permanent place of residence.
    (d) Estate matters. Upon the death of a beneficiary who has a valid 
will or heirs, the fiduciary must hold the remaining funds under 
management in trust for the deceased beneficiary's estate until the 
will is probated or heirs are ascertained, and disburse the funds 
according to applicable State law.

(Authority: U.S.C. 501, 5502)

Sec.  13.260  Personal funds of patients.

    (a) Distribution of funds. Benefits deposited by VA in the personal 
funds of patients account for a veteran who was rated by VA as being 
unable to manage his or her VA benefits and who died leaving an account 
balance are payable to an eligible person. For purposes of this 
section, eligible person means an individual living at the time the 
account balance is distributed in the following order of preference:
    (1) The deceased veteran's spouse, as defined by Sec.  3.1000(d)(1) 
of this chapter;
    (2) The veteran's children (in equal shares), as defined by Sec.  
3.57 of this chapter, but without regard to age or marital status; or
    (3) The veteran's dependent parents (in equal shares) or surviving 
parent, as defined by Sec.  3.59 of this chapter, provided that the 
parents were or parent was dependent within the meaning of Sec.  3.250 
of this chapter on the date of the veteran's death.
    (4) Any balance remaining in the personal funds of patients account 
which cannot be distributed in accordance with paragraphs (a)(1) 
through (3) of this section will be used by VA to reimburse anyone who 
bore the expense of the veteran's last sickness or the veteran's burial 
or will be deposited to the credit of the applicable current VA 
appropriation.
    (b) Application. A person who seeks distribution of a deceased 
veteran's funds from the personal funds of patients account under 
paragraph (a) of this section must file an application with VA not 
later than 5 years after the veteran's death. If any person who seeks 
such distribution is under a legal disability that prevents him or her 
from filing an application at the time of the veteran's death, the 5-
year period will run from the date of termination or removal of the 
legal disability.

(Authority: 38 U.S.C. 501, 5502)

Sec.  13.270  Creditors' claims.

    Under 38 U.S.C. 5301(a)(1), VA benefit payments are exempt, both 
before and after receipt by the beneficiary, from the claims of 
creditors and taxation. The fiduciary should invoke this defense in 
applicable circumstances. If the fiduciary does not do so, the Hub 
Manager may refer the matter to the Regional Counsel for evaluation and 
appropriate legal action.

(Authority: 38 U.S.C. 501, 512, 5301)

Sec.  13.280  Accountings.

    (a) General. Except as prescribed in paragraph (d) of this section, 
a fiduciary for a beneficiary must submit to the fiduciary hub with 
jurisdiction an annual accounting regarding the VA benefit funds under 
management by the fiduciary for the beneficiary if:
    (1) The amount of VA benefit funds under management for the 
beneficiary exceeds $10,000;
    (2) The fiduciary deducts a fee authorized under Sec.  13.220 from 
the beneficiary's account; or
    (3) The beneficiary is being paid VA compensation benefits at a 
total disability rating (100 percent), whether schedular, extra-
schedular, or based on individual unemployability.
    (b) Scope of accounting. For purposes of this section, accounting 
means the fiduciary's written report regarding the income and funds 
under management by the fiduciary for the beneficiary during the 
accounting period prescribed by the Hub Manager. The accounting 
prescribed by this section pertains to all activity in the 
beneficiary's accounts, regardless of the source of funds maintained in 
those accounts. An accounting consists of:
    (1) A beginning inventory or account balance,
    (2) An itemization of income,
    (3) An itemization of expenses,
    (4) An ending inventory or account balance,
    (5) Copies of financial institution documents reflecting receipts, 
expenditures, and beginning and ending balances, and
    (6) Receipts, when required by the Hub Manager.
    (c) Submission requirements. Fiduciaries must submit annual 
accountings to the fiduciary hub as follows:
    (1) The fiduciary must submit accountings on the appropriate VA 
form not later than 30 days after the end of the accounting period 
prescribed by the Hub Manager.
    (2) The fiduciary must submit a corrected or supplemental 
accounting not later than 14 days after the date of VA notice of an 
accounting discrepancy.
    (d) Exceptions. The provisions of this section that generally 
require the submission of an annual accounting do not apply to a 
fiduciary who is:

[[Page 459]]

    (1) The beneficiary's spouse;
    (2) A chief officer of a Federal institution;
    (3) A chief officer of a non-VA facility receiving benefits for a 
beneficiary institutionalized in the facility and:
    (i) The beneficiary's monthly care, maintenance, and personal use 
expenses equal or exceed the amount of the beneficiary's monthly VA 
benefit; and
    (ii) The amount of VA benefit funds under management by the 
fiduciary does not exceed $10,000; or
    (4) A fiduciary who receives benefits on behalf of a beneficiary, 
both of whom permanently reside outside of the United States, the 
Commonwealth of Puerto Rico, or the Republic of the Philippines, and 
the fiduciary was appointed in such jurisdiction.
    (e) Failure to comply with accounting requirements. The Hub Manager 
will treat any willful neglect or refusal to file proper accountings as 
prima facie evidence of embezzlement or misappropriation of VA 
benefits. Such evidence is grounds for starting a misuse investigation 
under Sec.  13.400.

(Authority: 38 U.S.C. 501, 5502, 5509, 6101)


    (The Office of Management and Budget has approved the 
information collection requirements in this part under control 
number 2900-0017)


Sec.  13.300  Onsite reviews.

    (a) Periodic onsite reviews. (1) The Hub Manager will conduct a 
periodic, scheduled, onsite review of any fiduciary in the United 
States, whether the fiduciary is an individual or an entity, if:
    (i) The fiduciary serves 20 or more beneficiaries, and
    (ii) The total annual amount of recurring VA benefits paid to the 
fiduciary for such beneficiaries exceeds the threshold established in 
38 U.S.C. 5508 as adjusted by VA under 38 U.S.C. 5312.
    (2) The Hub Manager must complete at least one periodic onsite 
review triennially if the fiduciary meets the requirements of paragraph 
(a)(1) of this section.
    (3) VA will provide the fiduciary with written notice of the 
periodic onsite review at least 30 days before the scheduled review 
date. The notice will:
    (i) Inform the fiduciary of the pending review and the fiduciary's 
obligation under this part to cooperate in the onsite review process, 
and
    (ii) Request that the fiduciary make available for review all 
relevant records, including but not limited to case files, bank 
statements, accountings, ledgers, check registers, receipts, bills, and 
any other items necessary to determine that the fiduciary has been 
acting in the best interest of VA beneficiaries and meeting the 
responsibilities of fiduciaries prescribed in Sec.  13.140.
    (b) Unscheduled onsite reviews. The Hub Manager may conduct 
unscheduled onsite reviews of any fiduciary, regardless of the number 
of beneficiaries served by the fiduciary or the total amount of VA 
benefit funds under management by the fiduciary, if:
    (1) VA receives from any source credible information that the 
fiduciary has misused or is misusing VA benefits;
    (2) The fiduciary's annual accounting is seriously delinquent. For 
purposes of this section, seriously delinquent means the fiduciary 
failed to submit the required accounting not later than 120 days after 
the ending date of the annual accounting period;
    (3) VA receives from any source credible information that the 
fiduciary is not adequately performing the responsibilities of a 
fiduciary prescribed in Sec.  13.140; or
    (4) The Hub Manager determines that an unscheduled onsite review is 
necessary to ensure that the fiduciary is acting in the interest of the 
beneficiary or beneficiaries served by the fiduciary.
    (c) Procedures. (1) Onsite reviews will consist of the following:
    (i) A face-to-face meeting with the fiduciary. In the case of a 
fiduciary that is an entity, the face-to-face meeting will be with a 
representative of the entity;
    (ii) A review of all relevant records maintained by the fiduciary, 
including but not limited to case files, bank statements, accountings, 
ledgers, check registers, receipts, bills, and any other items 
necessary to determine whether the fiduciary has been acting in the 
interest of VA beneficiaries; and
    (iii) Interviews of beneficiaries, the fiduciary's employees, and 
other individuals as determined necessary by the Hub Manager.
    (2) Not later than 30 days after completing a periodic or 
unscheduled onsite review, the Hub Manager will provide the fiduciary a 
written report of VA's findings, recommendations for correction of 
deficiencies, requests for additional information, and notice of VA's 
intent regarding further action.
    (3) Unless good cause for an extension is shown, not later than 30 
days after the date that VA mails the report prescribed by paragraph 
(d)(2) of this section, the fiduciary must submit to the fiduciary hub 
a response to any VA request for additional information or 
recommendation for corrective action.
    (4) The Hub Manager will remove the fiduciary for all VA 
beneficiaries whom the fiduciary serves if the fiduciary:
    (i) Refuses to cooperate with VA during a periodic or unscheduled 
onsite review,
    (ii) Is unable to produce necessary records,
    (iii) Fails to respond to a VA request for additional information 
or recommendation for corrective action, or
    (iv) Is found during an onsite review to have misused VA benefits.

(Authority: 38 U.S.C. 501, 5508)

Sec.  13.400  Misuse of benefits.

    (a) Definition of misuse. Misuse of benefits by a fiduciary occurs 
in any case in which the fiduciary receives payment of benefits for the 
use and benefit of a beneficiary and the beneficiary's dependents, if 
any, and uses any part of such payment for a use other than the use and 
benefit of the beneficiary or the beneficiary's dependents. For the 
purpose of this section, use and benefit means any expenditure 
reasonably intended for the care, support, or maintenance of the 
beneficiary or the beneficiary's dependents. Such expenditures may 
include the fiduciary's efforts to improve the beneficiary's standard 
of living under rules prescribed in this part.
    (b) Misuse determinations. Upon receipt of credible information 
from any source regarding possible misuse of VA benefits by a 
fiduciary, the Hub Manager will investigate the matter and issue a 
misuse determination in writing. This decision will:
    (1) Identify the beneficiary,
    (2) Identify the fiduciary,
    (3) State whether the fiduciary is an individual fiduciary serving 
10 or more beneficiaries or a corporation or other entity serving one 
or more beneficiaries,
    (4) Identify the source of the information,
    (5) Describe in detail the facts found as a result of the 
investigation,
    (6) State the reasons for the Hub Manager's determination regarding 
whether the fiduciary misused any part of the beneficiary's benefit 
paid to the fiduciary, and
    (7) If the Hub Manager determines that the fiduciary did misuse any 
part of the beneficiary's benefit, identify the months in which such 
misuse occurred.
    (c) Notice. The Hub Manager will provide written notice of the 
misuse determination prescribed in paragraph (b) of this section, 
including a copy of the Hub Manager's written decision, an explanation 
regarding the reconsideration procedure prescribed in paragraph (d) of 
this section, and the beneficiary's right to appeal under Sec.  13.600, 
to:

[[Page 460]]

    (1) The fiduciary;
    (2) The beneficiary or the beneficiary's legal guardian, and the 
beneficiary's accredited representative, attorney, or claims agents; 
and
    (3) The Director of the Pension and Fiduciary Service.
    (d) Finality and reconsideration of misuse determinations. (1) The 
Hub Manager's misuse determination is a final decision, unless:
    (i) The Hub Manager receives a written request for reconsideration 
from the fiduciary or the beneficiary not later than 30 days after the 
date that the Hub Manager mailed notice of his or her misuse 
determination; or
    (ii) The Hub Manager receives a notice of disagreement from the 
beneficiary not later than 1 year after the date that the Hub Manager 
mailed notice of his or her misuse determination.
    (2) The fiduciary or the beneficiary may submit additional 
information pertinent to reconsideration of the misuse determination 
and not previously considered by the Hub Manager, provided that the 
additional information is submitted with the written reconsideration 
request.
    (3) The Hub Manager will close the record regarding reconsideration 
at the end of the 30-day period described in paragraph (d)(1)(i) of 
this section and furnish a timely request submitted by the fiduciary or 
the beneficiary, including any new information, to the Director of the 
VA Regional Office with jurisdiction over the fiduciary hub for a final 
decision.
    (4) In making the misuse determination on reconsideration, the 
Regional Office Director's decision will be based upon a review of the 
information of record as of the date of the Hub Manager's misuse 
determination and any new information submitted with the request. The 
decision will:
    (i) Identify the beneficiary,
    (ii) Identify the fiduciary,
    (iii) Identify the Hub Manager's prior decision,
    (iv) Describe in detail the facts found as a result of the 
Director's review of the Hub Manager's decision and any new information 
submitted with the reconsideration request, and
    (v) State the reasons for the Director's final decision, which may 
affirm, modify, or overturn the Hub Manager's decision.
    (5) The Hub Manager will provide written notice of the Regional 
Office Director's final decision on reconsideration to:
    (i) The fiduciary,
    (ii) The beneficiary or the beneficiary's legal guardian, and the 
beneficiary's accredited representative, attorney, or claims agent; and
    (iii) The Director of the Pension and Fiduciary Service.
    (e) Reporting of misuse. Except as prescribed in Sec.  1.204 of 
this chapter, which requires VA management officials to promptly report 
possible criminal matters involving felonies to the VA Office of 
Inspector General, reporting of misuse cases will occur as follows: (1) 
Not later than 30 days after a final determination is made under 
paragraph (d) of this section that a fiduciary has misused VA benefits, 
the Director of the VA Regional Office who has jurisdiction over the 
fiduciary hub will notify the VA Office of Inspector General for 
purposes of any further action that the Inspector General deems 
appropriate under separate authority.
    (2) For purposes of application of Sec.  13.410 regarding 
reissuance and recoupment of benefits, the Office of Inspector General 
will advise the Director of the Pension and Fiduciary Service of any 
final decision regarding prosecution of a fiduciary who misused VA 
benefits and any final judgment of a court in such a prosecution not 
later than 30 days after the decision is made or judgment is entered.

(Authority: 38 U.S.C. 501, 5502, 6106)

Sec.  13.410  Reissuance and recoupment of misused benefits.

    (a) General. (1) If the Hub Manager or the Regional Office Director 
upon reconsideration determines that a fiduciary described in paragraph 
(a)(2) of this section misused any part of a beneficiary's benefit paid 
to the fiduciary, the Regional Office Director will reissue benefits to 
the beneficiary's successor fiduciary in an amount equal to the amount 
of funds misused.
    (2) This paragraph (a) applies to a fiduciary that is:
    (i) An individual who served 10 or more beneficiaries during any 
month in which misuse occurred; or
    (ii) A corporation or other entity serving one or more 
beneficiaries.
    (b) Negligence. In any case in which the Hub Manager or the 
Regional Office Director upon reconsideration determines that an 
individual fiduciary who served fewer than 10 beneficiaries during any 
month in which misuse occurred misused a beneficiary's funds under 
management by the fiduciary, the Hub Manager will refer the matter to 
the Director, Pension and Fiduciary Service, for a determination of 
whether VA negligence caused the misuse. The Regional Office Director 
will reissue benefits to the beneficiary's successor fiduciary in an 
amount equal to the amount of funds misused if the Director of the 
Pension and Fiduciary Service determines that VA negligence caused the 
misuse. The Pension and Fiduciary Service Director's negligence 
determination will be based upon a review of the VA information of 
record as of the date of the Hub Manager's or Regional Office 
Director's misuse determination. For purposes of this section, VA 
negligence causes misuse when:
    (1) The Hub Manager failed to properly investigate or monitor the 
fiduciary;
    (2) The Hub Manager failed to review the fiduciary's accounting not 
later than 60 days after the date on which the accounting was scheduled 
for review. The date that an accounting is scheduled for review is the 
date the fiduciary hub receives the accounting;
    (3) The Hub Manager did not investigate an allegation of misuse not 
later than 60 days after the date that the fiduciary hub received the 
allegation; or
    (4) Actual negligence is shown. For purposes of this section, 
actual negligence means the Hub Manager's failure to exercise toward a 
beneficiary in the fiduciary program the care which a reasonable or 
prudent person would exercise in the circumstances, or the Hub 
Manager's taking action that a reasonable or prudent person would not 
take. The Regional Office Director shall reissue benefits based on 
actual negligence if the Director of the Pension and Fiduciary Service 
determines that:
    (i) The Hub Manager owed a duty to the beneficiary under this part,
    (ii) The Hub Manager's action or failure to act was negligent, and
    (iii) The Hub Manager's negligence proximately caused the misuse of 
benefits by the fiduciary. For purposes of this section, proximate 
cause means that the misuse would not have occurred but for the Hub 
Manager's negligence.
    (c) Recoupment of misused benefits. In all cases in which the Hub 
Manager or Regional Office Director upon reconsideration determines 
that a fiduciary misused benefits, VA will make a good faith effort to 
recoup the total amount of misused benefits from the fiduciary.
    (1) For purposes of this section, good faith effort means that the 
Hub Manager will:
    (i) Recover any misused benefits from the surety company, if a 
surety bond was in place under Sec.  13.230 regarding protection of 
beneficiary funds; or
    (ii) In cases in which no surety bond was in place and the 
fiduciary does not repay all misused benefits within the time 
prescribed by the Hub Manager in consultation with the fiduciary:

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    (A) Request the creation of a debt to the United States in the 
amount of any misused benefits that remain unpaid; and
    (B) Coordinate further recoupment action, including collection of 
any debt owed by the fiduciary to the United States as a result of the 
misuse, with the appropriate Federal and State agencies.
    (2) VA will pay benefits recouped under paragraph (c) of this 
section to the beneficiary's successor fiduciary after deducting any 
amount reissued under paragraph (a) or (b) of this section.
    (d) Notice. The Hub Manager, or in the case of a negligence 
determination, the Director of the Pension and Fiduciary Service, will 
provide the beneficiary or the beneficiary's legal guardian, and the 
beneficiary's accredited representative, attorney, or claims agent 
written notice of any decision regarding reissuance or recoupment of 
benefits under this section.

(Authority: 38 U.S.C. 501, 6106, 6107)

Sec.  13.500  Removal of fiduciaries.

    (a) The Hub Manager may remove a fiduciary if the Hub Manager 
determines that fiduciary services are no longer required for a 
beneficiary or removal is in the beneficiary's interest. Reasons for 
removal include, but are not limited to:
    (1) Beneficiary reasons. (i) A VA rating authority determines that 
the beneficiary can manage his or her own VA benefits without VA 
supervision or appointment of a fiduciary;
    (ii) The beneficiary requests appointment of a successor fiduciary 
under Sec.  13.100;
    (iii) The beneficiary requests supervised direct payment of 
benefits under proposed Sec.  13.110; or
    (iv) The beneficiary dies.
    (2) Fiduciary reasons. (i) The fiduciary's further service is 
barred under Sec.  13.130;
    (ii) The fiduciary fails to maintain his or her qualifications or 
does not adequately perform the responsibilities of a fiduciary 
prescribed in Sec.  13.140;
    (iii) The fiduciary fails to timely submit a complete accounting as 
prescribed in Sec.  13.280;
    (iv) VA or a court with jurisdiction determines that the fiduciary 
misused or misappropriated VA benefits;
    (v) The fiduciary fails to respond to a VA request for information 
not later than 30 days after such request is made, unless the Hub 
Manager grants an extension based upon good cause shown by the 
fiduciary;
    (vi) The fiduciary is unable or unwilling to provide the surety 
bond prescribed by Sec.  13.230 or, if applicable, enter into a 
restricted withdrawal agreement;
    (vii) The fiduciary no longer meets the requirements for 
appointment under Sec.  13.100; or
    (viii) The fiduciary is unable or unwilling to manage the 
beneficiary's benefit payments, accounts, or investments.
    (b) Procedures. (1) If the Hub Manager determines that it is 
necessary to remove a fiduciary and appoint a successor fiduciary, the 
Hub Manager will:
    (i) Provide the fiduciary and the beneficiary written notice of the 
removal; and
    (ii) Instruct the fiduciary regarding the fiduciary's 
responsibilities prior to transfer of funds to a successor fiduciary or 
as otherwise prescribed by the Hub Manager.
    (2) The fiduciary must:
    (i) Continue as fiduciary for the beneficiary until the Hub Manager 
provides the fiduciary with the name and address of the successor 
fiduciary and instructions regarding the transfer of funds to the 
successor fiduciary; and
    (ii) Not later than 30 days after transferring funds to the 
successor fiduciary or as otherwise instructed by the Hub Manager, 
provide the fiduciary hub a final accounting.

(Authority: 38 U.S.C. 501, 5502, 5507, 6106)

Sec.  13.510  Fiduciary withdrawals.

    (a) General. A fiduciary may not withdraw as fiduciary for a 
beneficiary until the fiduciary receives notice from the Hub Manager 
regarding transfer of the beneficiary's funds to a successor fiduciary.
    (b) Voluntary withdrawal. (1) Subject to the limitation prescribed 
in paragraph (a) of this section, a fiduciary who has VA benefit funds 
under management for a beneficiary may withdraw from the fiduciary 
relationship with the beneficiary at any time if the fiduciary:
    (i) Provides the fiduciary hub with jurisdiction written notice of 
the fiduciary's intent to withdraw as fiduciary for the beneficiary;
    (ii) Describes the reasons for withdrawal;
    (iii) Continues as fiduciary for the beneficiary until the Hub 
Manager provides the fiduciary with the name and address of the 
successor fiduciary and instructions regarding the transfer of funds to 
the successor fiduciary; and
    (iv) Not later than 30 days after transferring funds to the 
successor fiduciary or as otherwise instructed by the Hub Manager, 
provides the fiduciary hub with jurisdiction a final accounting.
    (2) Upon receipt of the notice of intent to withdraw prescribed in 
paragraph (b)(1)(i) of this section, the Hub Manager will make a 
reasonable effort under the circumstances to expedite the appointment 
of a successor fiduciary. In determining the extent to which the 
fiduciary hub must expedite a request to withdraw, the Hub Manager will 
consider:
    (i) The reasons for the withdrawal request provided under paragraph 
(b)(1)(ii) of this section;
    (ii) The number of beneficiaries affected;
    (iii) The relationship between the affected beneficiary or 
beneficiaries and the fiduciary; and
    (iv) Whether expedited withdrawal is necessary to protect the 
interests of the beneficiary or beneficiaries.
    (c) Notice. If a fiduciary requests to withdraw from service for a 
beneficiary, the Hub Manager will provide the beneficiary or the 
beneficiary's legal guardian, and the beneficiary's accredited 
representative, attorney, or claims agent written notice of the 
withdrawal request and the procedures for appointment of a successor 
fiduciary.

(Authority: 38 U.S.C. 501, 5502)

Sec.  13.600  Appeals.

    Except as prescribed in paragraph (a) of this section, VA decisions 
regarding fiduciary matters are committed to the Secretary of Veterans 
Affairs' discretion by law, as delegated to subordinate officials under 
this part, and cannot be appealed to the Board of Veterans' Appeals or 
any court.
    (a) Appealable decisions. A beneficiary may appeal to the Board of 
Veterans' Appeals the following decisions:
    (1) The Hub Manager's appointment of a fiduciary under Sec.  
13.100;
    (2) The Hub Manager's removal of a fiduciary under Sec.  13.500;
    (3) The Hub Manager's misuse determination under Sec.  13.400;
    (4) The VA Regional Office Director's final decision upon 
reconsideration of a misuse determination under Sec.  13.400(d); and
    (5) The Director of the Pension and Fiduciary Service's negligence 
determination for purposes of reissuance of benefits under Sec.  
13.410.
    (b) Procedures. (1) VA decisions regarding fiduciary matters are 
final, subject only to the right of appeal prescribed in this section. 
VA will close the record regarding these decisions on the date the 
decision is made.
    (2) Except for the closure of the record prescribed in paragraph 
(b)(1) of this section, the initiation and processing of appeals under 
this section are governed by parts 19 and 20 of this chapter.

[[Page 462]]

Nothing in this section will be construed to limit the Board's 
authority to remand a matter to the Hub Manager or the Director of the 
Pension and Fiduciary Service under 38 CFR 19.9 for any action that is 
essential for a proper appellate decision or the Hub Manager's or 
Director's ability to issue a supplemental statement of the case under 
38 CFR 19.31(b)(2), (b)(3), or (c).

(Authority: 38 U.S.C. 501)


(The Office of Management and Budget has approved the information 
collection requirements in this part under control number 2900-0085)

[FR Doc. 2013-29970 Filed 1-2-14; 8:45 am]
BILLING CODE 8320-01-P