Fiduciary Activities, 32716-32749 [2018-14856]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 83, Number 135 (Friday, July 13, 2018)]
[Rules and Regulations]
[Pages 32716-32749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14856]



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Vol. 83

Friday,

No. 135

July 13, 2018

Part II





Department of Veterans Affairs





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38 CFR Parts 3 and 13





Fiduciary Activities; Final Rule

Federal Register / Vol. 83 , No. 135 / Friday, July 13, 2018 / Rules 
and Regulations

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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: Final rule.

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SUMMARY: The Department of Veterans Affairs (VA) amends its fiduciary 
program regulations, which govern the oversight of beneficiaries, who 
because of injury, disease, or age, are unable to manage their VA 
benefits, and the appointment and oversight of fiduciaries for these 
vulnerable beneficiaries. The amendments will update and reorganize 
regulations consistent with current law, VA policies and procedures, 
and VA's reorganization of its fiduciary activities. They will 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. The amendments to this 
rulemaking are mostly mandatory to comply with the law. They are also 
in line with the law's goals to streamline and modernize the fiduciary 
program and process. These amendments by Congress, reduce unnecessary 
regulations, streamline and modernize processes, and improve services 
for Veterans. Furthermore, VA is unable to alter proposed amendments 
that directly implement mandatory statutory provisions.

DATES: Effective Date: The final rule is effective August 13, 2018.

FOR FURTHER INFORMATION CONTACT: Ms. Savitri Persaud, Analyst, Pension 
and Fiduciary Service, Department of Veterans Affairs, 810 Vermont 
Ave., NW, Washington, DC 20420; (202) 632-8863 (this is not a toll-free 
number).

SUPPLEMENTARY INFORMATION: In a document published in the Federal 
Register on January 3, 2014, (79 FR 430), VA proposed to amend, via a 
comprehensive rewrite and reorganization, its fiduciary program 
regulations, which govern the oversight of beneficiaries who, because 
of injury, disease, or age, are unable to manage their VA benefits, and 
the appointment and oversight of fiduciaries for these vulnerable 
beneficiaries. The 60-day public comment period ended on March 4, 2014. 
VA received 26 comments from interested individuals and organizations. 
The comments are discussed below under the appropriate section 
headings. VA made a number of revisions based on the comments received. 
Those revisions, which are primarily technical, are discussed in the 
final rule. Based on the rationale described in this document and in 
the notice of proposed rulemaking (NPRM), VA adopts the proposed rule, 
as revised in this document, as a final rule.

Section 13.10--Purpose and Applicability of Other Regulations

    This regulation will provide general notice regarding the statutory 
authority for and purpose of VA's fiduciary program. It will 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. We did not receive any comments on this section, 
but in order to clarify the scope of these regulations and the fact 
that they pertain to the oversight of VA-derived monetary benefits by 
persons who previously have been adjudicated incompetent to manage 
their VA-derived funds, we have revised the text of the regulation by 
adding the word ``monetary'' between the words ``VA'' and ``benefits'' 
in the first sentence of Sec.  13.10(b).

Section 13.20--Definitions

    We received one comment regarding the definitions in proposed Sec.  
13.20. The commenter recommended that VA recognize all legal marriages, 
domestic partnerships and civil unions for the purposes of fiduciary 
activities, thereby adding a definition of ``domestic partner'' to 
proposed Sec.  13.20. The commenter noted that the broad authority 
granted by Congress in 38 U.S.C. 5502 allows VA to add classes of 
appropriate fiduciaries, to include legally married partners and 
domestic partners to serve as fiduciaries. The commenter noted that a 
place-of-celebration rule would be consistent with other definitions 
adopted by other agencies following the Supreme Court's decision in 
United States v. Windsor, 133 S. Ct. 2675 (2013).
    On June 26, 2015, the U.S. Supreme Court held that the Fourteenth 
Amendment of the U.S. Constitution requires a state to license a 
marriage between two people of the same sex and to recognize a marriage 
between two people of the same sex when their marriage was lawfully 
licensed and performed out-of-state. See Obergefell v. Hodges, 135 S. 
Ct. 2584 (2015). As a result of this decision, VA now recognizes the 
same-sex marriage of any veteran, where the veteran or the veteran's 
spouse resided anywhere in the United States or its territories at the 
time of the marriage or at the time of application for benefits. VA has 
always determined a marriage to be valid, for the purposes of all laws 
administered by VA, according to the law of the place where the parties 
resided at the time of the marriage or the law of the place where the 
parties resided when the right to the benefits accrued. See 38 U.S.C. 
103(c). Consistent with the Supreme Court decisions in Obergefell and 
Windsor, VA recognizes the validity of same-sex marriages. Accordingly, 
this rule defines the term ``spouse'' in Sec.  13.20 to mean a husband 
or wife of any marriage, including common law marriages and same-sex 
marriages, that meets the requirements of 38 U.S.C. 103(c).
    The separate question of how to address domestic partnerships and 
civil unions (which are not considered legal marriages), within the 
scope of VA's fiduciary program, is a policy matter that was not 
considered during the development of the proposed regulation. As a 
result, expanding the definition of spouse, for purposes of VA's 
fiduciary program, to include domestic partners and/or civil union 
partners or defining those terms in this final rule would be premature. 
VA is sensitive to this issue and plans to consider whether to expand 
the ``beneficiary's spouse'' class of fiduciaries listed in Sec.  
13.20(e)(2) to explicitly include domestic partners and civil union 
partners. If VA decides to make changes, VA will promulgate a separate 
rulemaking to addresss this issue.
    We made non-substantive changes to the proposed definitions for 
``Hub Manager'' and ``spouse'' and added a definition for ``written 
notice,'' which we discuss below.

Section 13.30--Beneficiary Rights

    We received two comments regarding proposed Sec.  13.30, 
``Beneficiary rights.'' The first commenter stated that the proposed 
rule imposed ``unnecessary restrictions'' on the rights of 
beneficiaries. The commenter stated, ``We see no reason or legal 
requirement that beneficiaries under this program should have fewer 
rights or protections than any other VA beneficiary.'' The commenter 
questions whether ``the fundamental right to control one's own 
property'' should be based on the view of a single examiner and makes 
other general assertions that VA's procedures are insufficient.
    We do not agree that we proposed ``unnecessary restrictions'' on 
the rights of beneficiaries, or that these procedures violate a 
beneficiary's rights. Our intention in drafting the NPRM was to ensure 
that VA benefits are managed in

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the best interest of beneficiaries and their dependents. In that 
regard, we proposed to update and reorganize our regulations consistent 
with current laws and VA policies and procedures, and clarify the 
rights of beneficiaries in the fiduciary program. The suggestion that 
our proposed rules unnecessarily limit the rights of beneficiaries is 
incorrect. Further, assertions that determinations made in VA's 
fiduciary program are based solely on the views of ``one examiner'' 
mischaracterize the efforts expended by VA fiduciary program staff. 
While a field examiner may conduct visits with a beneficiary and make a 
recommendation, fiduciary-related decisions are not based solely on the 
views of one individual. A field examiner's recommendation is reviewed 
by a VA supervisor and action is taken based on a comprehensive view of 
which steps are in the best interest of the beneficiary.
    In drafting the rules on beneficiary rights, we focused on our 
general policy that a beneficiary in the fiduciary program has the same 
rights as any other VA beneficiary. We specifically stated in proposed 
Sec.  13.30, ``The rights of beneficiaries in the fiduciary program 
include, but are not limited to'' those listed in the regulation text. 
Thus, we did not propose to prescribe all of the rights of 
beneficiaries in the fiduciary program. We prescribed that a 
beneficiary has the right to written notice of appealable fiduciary 
decisions. However, in responding to the foregoing comment, we 
discovered that, although we prescribed that a beneficiary is entitled 
to written notice on such matters, we did not prescribe rules for the 
Hub Manager as to what such notice should include. As such, we revised 
Sec.  13.20 to include a definition of written notice.
    We prescribed the right to be informed of a fiduciary's name, 
telephone number, mailing address, and email address. We prescribed the 
right to obtain from the fiduciary a copy of the fiduciary's VA-
approved annual accounting, and other rights that we believe are basic 
to a fiduciary-beneficiary relationship and are necessary to define a 
fiduciary's role in such a relationship. See 79 FR 432. We prescribed 
rights to clarify that VA is not the beneficiary's fiduciary and that 
VA's role is limited to oversight. See 79 FR 432. In that regard, in 
Sec.  13.140(a), our core requirement for fiduciaries is to ensure that 
a beneficiary's benefits are managed in that beneficiary's interest. We 
do not agree that our proposed regulations limit the rights of 
beneficiaries and make no changes based upon the comment.
    The commenter also stated that the proposed regulation on 
beneficiary rights is incomplete and it should prescribe a statement 
regarding the reasons and bases for determining that the appointment of 
a fiduciary is in the beneficiary's interest. We did not intend that we 
would make a decision on a fiduciary matter without providing adequate 
notice to a beneficiary regarding the reasons and bases for such a 
decision. However, as stated above, we revised the proposed rule to 
include a definition of ``written notice'' and to specifically 
prescribe such notice for certain decisions.
    We proposed 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. We explained that VA 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. See 79 FR 432. 
We explained that this notice is essential because beneficiaries would 
have the right to appeal these determinations. See 79 FR 432. 
Furthermore, we specifically proposed that a beneficiary in the 
fiduciary program has the right to appeal to the Board of Veterans' 
Appeals (Board) a VA decision on a fiduciary matter that affects VA's 
provision of benefits to the beneficiary, such as VA's appointment of a 
fiduciary and its determination regarding its own negligence in misuse 
and reissuance of benefits matters. To assist the beneficiary in making 
a decision related to appealing a decision, and to facilitate review by 
the Board in the event of an appeal, any decision that affects the 
provision of benefits must be supported by reasons for our decision, as 
required under the new definition for ``written notice.'' We revised 
proposed Sec.  13.30(b)(2) to clarify that every beneficiary in the 
fiduciary program has the right to ``written 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.
    In responding to the foregoing comment, we noticed that a provision 
in proposed Sec.  13.30 needed clarification. Specifically in proposed 
Sec.  13.30(b)(10)(i)(B), we prescribed that a beneficiary has the 
right to be removed from the fiduciary program if a court of 
jurisdiction determines the beneficiary is able to manage his or her 
financial affairs. There are beneficiaries in the fiduciary program who 
are determined to be unable to manage their financial affairs by a 
court and without any rating decision by VA. It is our intent that 
these beneficiaries will have the right to be removed from the 
fiduciary program if the court makes a determination that the 
beneficiary is able to manage his or her financial affairs. 
Accordingly, we have revised proposed Sec.  13.30(b)(10)(i)(B) to 
clarify that a beneficiary who is in the fiduciary program based upon a 
court determination that he or she cannot manage financial affairs may 
be removed from the fiduciary program if the court later determines 
that the beneficiary can manage his or her financial affairs. Other 
beneficiaries, who are in the fiduciary program as a result of a VA 
rating decision, may also submit evidence from a court regarding their 
ability to manage VA benefits. However, such evidence will be forwarded 
to a VA rating authority for a decision regarding whether the 
beneficiary is able to manage his or her VA benefits, as the rating 
authority has sole responsibility for making such determinations. See 
38 CFR 3.353.
    The same commenter also stated, ``The Secretary's position that the 
VA fiduciary program regulations pre-empt state laws in this area 
deserves specific rebuttal,'' adding that ``the NPRM failed to 
establish an adequate legal basis for the disruption of a traditional 
area of state authority.'' The commenter then went on to urge that VA 
recognize state fiduciary laws, which ``offer a broad array of [ ] 
rules establishing fiduciary responsibilities.'' In the proposed rule, 
we stated 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.'' See 79 FR 430. We stand by that interpretation and make no 
changes based on this comment.
    While state law provides some guidance concerning fiduciary 
matters, those laws vary significantly from state to state and do not 
pertain to VA's fiduciary program. Further, VA does rely on state laws 
in cases where a state court has appointed a fiduciary for oversight of 
the veteran's assets and where there is no conflict between state and 
Federal law, and/or when the court-appointed fiduciary is the same as 
the VA-appointed fiduciary. State laws often provide helpful guidance; 
however, under the Supremacy Clause of the Constitution, Federal law is 
controlling. See U.S. Const. art. VI, cl 2; Crosby v. Nat'l Foreign 
Trade Council, 530 U.S. 363, 372-73 (2000). To the extent that a 
dispute arises between

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Federal and state law, Federal law establishing and governing VA's 
fiduciary program as codified in parts 55 and 61 of title 38 of the 
United States Code, as well as in regulations implementing those 
statutes, controls. See VAOPGC 3-86 (10-28-85) (citing the Supremacy 
Clause and holding that a state court lacks jurisdiction to override 
VA's authority in making determinations affecting payment of an 
incompetent veteran's VA benefits to a VA-appointed fiduciary).
    The second commenter favorably mentioned the beneficiary rights 
section described in the proposed rule, stating: ``Overall, we believe 
that VA's proposed fiduciary program regulations reflect an 
acknowledgement of the rights of veterans and other beneficiaries who 
are under the jurisdiction of the program. For example, Sec.  13.30 
enumerates the rights and benefits of veterans and other beneficiaries 
in the program.'' We make no changes based upon the comment.

Section 13.40--Representation of Beneficiaries in the Fiduciary Program

    We received two comments from the same commenter regarding Sec.  
13.40. First, the commenter quoted from the NPRM, which distinguished 
fiduciary matters from decisions on claims for benefits and noted that, 
at the time of a fiduciary appointment, ``VA has already awarded 
benefits to the beneficiary, and any 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.'' See 79 FR 432-33. This distinction will be the same for 
all fiduciary matters. Nonetheless, the commenter read this portion of 
the preamble to mean that VA had proposed to limit attorney fees to 
appointment decisions.
    We intended that the portion of the preamble quoted immediately 
above would explain applicability of the proposed fee provisions in the 
context of a fiduciary appointment. We did not intend that commenters 
would read the preamble as a general limitation on fees, such that 
beneficiaries could not pay attorneys for assistance in other fiduciary 
matters. In fact, the introductory text to proposed Sec.  13.40 was 
clear that the proposed fee provisions were applicable to 
representation of beneficiaries before VA ``in fiduciary matters 
governed by [38 CFR part 13].'' Proposed paragraph (c) was also clear 
that a VA-accredited attorney or claims agent could charge a reasonable 
fixed or hourly fee for representation of a beneficiary ``in a 
fiduciary matter,'' provided that the fee meets the requirements of 38 
CFR 14.636. We intended that beneficiaries would have the choice of 
hiring an attorney or claims agent and paying the attorney or claims 
agent a reasonable fixed or hourly fee for assistance with any 
fiduciary matter. As proposed, Sec.  13.40(c) reflected this intent and 
addressed the commenter's concerns. We will not make any changes based 
upon the comment.
    Second, the commenter suggested that VA should allow contingent 
fees on recouped past-due benefits, to include funds recovered from a 
prior fiduciary or placed under control of a successor fiduciary. 
However, as we explained in the preamble to the proposed rule, ``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.'' See 79 FR 432. We 
based this statement on the fact that fiduciary matters do not concern 
the award of past-due benefits. At the time of a fiduciary appointment 
and all other fiduciary program matters, VA has already awarded 
benefits to the beneficiary, and any representation provided by an 
accredited attorney or claims agent could relate only to the fiduciary 
matter. Even in the case of a retroactive benefit payment, see Sec.  
13.100(c), VA has already awarded the benefit pursuant to a decision on 
a benefit claim and withheld it for payment to a qualified fiduciary on 
behalf of the beneficiary. An attorney representing a beneficiary in 
the fiduciary appointment could not claim that his or her legal 
services resulted in VA's prior award of the retroactive benefit.
    The commenter also appears to assert that, independent of any 
payment of past-due benefits, a contingent fee could be calculated 
based upon the amount of funds being placed under the control of a 
fiduciary who is ``acceptable to the client,'' and that ``this 
methodology has been submitted for review to fiduciary program managers 
and was found to be compliant with regulations.'' The method proposed 
by the commenter would require a finding on the amount of the funds 
placed under the control of the successor fiduciary and a conclusion 
that the successor fiduciary was ``acceptable to the client.'' As 
mentioned above, the amount of VA benefits due to the beneficiary would 
not change. The commenter's suggested revision would add unnecessary 
complexity to fee determinations in fiduciary cases, and would risk 
creating a conflict of interest for the representative by increasing 
the chances that fees charged based upon representation on benefit 
claims are duplicated by fees charged for representation on fiduciary 
matters. As a result, we have concluded that it would not be a prudent 
revision and make no change based on this comment.

Section 13.50--Suspension of Benefits

    We received one comment regarding proposed Sec.  13.50. The 
commenter read the proposed provisions to mean that a Hub Manager may 
suspend and ``hold'' payment of benefits, and generally commented that 
VA must ensure that beneficiaries have access to their benefits when VA 
implements a suspension for the reasons prescribed in the proposed rule 
in which we agree.
    VA occasionally encounters situations in which it must suspend 
payment of benefits to a fiduciary and take appropriate action to 
ensure continuity of benefits. In the rare case where VA suspends 
benefits under proposed Sec.  13.50, the VA Regional Office Director 
who has jurisdiction over the fiduciary hub would have authority to 
ensure that the beneficiary's needs are being met through the 
appropriate coordination with the beneficiary and disbursement of the 
beneficiary's funds. We emphasized that proposed Sec.  13.50 would be 
reserved for those rare cases in which VA has no option but to take 
appropriate, temporary steps to suspend and separately manage 
disbursement of benefits on behalf of a beneficiary. To further limit 
any adverse impact that might result from such a suspension, we 
proposed to limit the Hub Manager's discretion to cases where the 
beneficiary or the beneficiary's representative withholds cooperation 
in any fiduciary matter or where VA must immediately remove the 
fiduciary for cause and is unable to appoint a successor fiduciary 
before the beneficiary has an immediate need for disbursement of funds. 
Under these two situations only, VA will be forced to take appropriate 
action and disburse funds in the beneficiary's and the beneficiary's 
dependents' interests so that the beneficiary has access to the funds 
while VA takes steps to remediate the problem. We will not make any 
changes based upon the comment because we believe that controls 
prescribed in Sec.  13.50 address the commenter's concerns.

Section 13.100--Fiduciary Appointments

    We received several comments regarding proposed Sec.  13.100. One 
commenter suggested that VA establish a maximum time period for 
appointing a fiduciary once a beneficiary has been rated as being 
unable to manage his or

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her VA benefits. The commenter stated that VA makes long-delayed 
appointments without reconsidering whether a beneficiary is able to 
manage his or her VA benefits. The commenter noted that delays in 
fiduciary appointments are disruptive because they could replace 
``well-functioning caregiving structures with adversarial 
relationships.'' Along the same lines, another commenter suggested we 
develop timelines for the completion of the investigation process to 
ensure expeditious appointment of fiduciaries.
    VA makes every effort to appoint fiduciaries in accordance with 
internal performance goals. Furthermore, VA's appointment process 
ensures that the appointment reflects the beneficiary's current 
capacity to manage his or her funds. In our experience in administering 
the fiduciary program, each fiduciary appointment is unique. The time 
it takes to appoint a fiduciary varies depending upon the facts of 
individual cases, workload, program growth, and available resources. 
Because of the foregoing factors, we cannot create a bright-line rule 
for the completion of the investigation process or the appointment of a 
fiduciary that would be enforceable. While we will not change Sec.  
13.100 to establish a timeliness rule, VA takes seriously its 
responsibility to protect beneficiaries who are unable to manage their 
benefits and will make every effort to improve the timeliness of 
fiduciary appointments.
    Regarding concerns that long delays in appointments should require 
reconsideration of medical evidence as to the beneficiary's ability to 
manage his or her VA benefits, we agree that medical evidence plays an 
important role in the determination of one's ability to manage his or 
her VA benefits and a beneficiary should have an opportunity to present 
such evidence. According to 38 CFR 3.353(c), ``[u]nless the medical 
evidence is clear, convincing and leaves no doubt as to the person's 
incompetency, the rating agency will make no determination of 
incompetency without a definite expression regarding the question by 
the responsible medical authorities.'' At the time a fiduciary is 
appointed, a field examiner performs a face-to-face interview with the 
beneficiary for the purpose of assessing the beneficiary's ability to 
manage his or her VA benefits and to afford the beneficiary the 
opportunity to submit evidence regarding his or her ability to manage 
VA benefits. Any information gathered at that face-to-face interview is 
forwarded to the rating agency for consideration as to whether the 
beneficiary has the ability to manage his or her VA benefits. This is 
consistent with a pertinent regulation that provides that if evidence 
is developed that a person is capable of managing his or her VA funds, 
that evidence is forwarded to the rating agency for a determination as 
to whether any prior decision of incompetency should remain in effect. 
See 38 CFR 3.353(b)(3). Therefore, if a beneficiary believes he or she 
is able to manage his or her VA benefits, including at the time of a 
fiduciary appointment, the beneficiary may request a review of his or 
her incompetency rating.
    Regarding the commenter's concern that delayed fiduciary 
appointments could replace ``well-functioning caregiving structures 
with adversarial relationships,'' we did not intend to disturb well-
functioning relationships with those that are adversarial. In fact, we 
did not propose to appoint a particular fiduciary if we believed such 
an appointment would create an adversarial relationship. Instead, we 
proposed to make every effort to appoint a fiduciary that would best 
serve the interest of a beneficiary, provided that the proposed 
fiduciary is qualified and willing to serve. In Sec.  13.100(e), we 
proposed to establish an order of preference for the appointment of 
fiduciaries. We proposed to first appoint the beneficiary's preference 
if the beneficiary has the capacity to state such a preference. In 
these cases, a beneficiary could request appointment of a person with 
whom he or she has a well-functioning relationship. We then proposed to 
appoint the beneficiary's spouse or other individuals or entities as 
set forth in proposed Sec.  13.100(e) that we believed would result in 
an effective beneficiary-fiduciary relationship. Furthermore, pursuant 
to Sec.  13.600, a beneficiary may appeal VA's appointment of a 
fiduciary if the beneficiary believes that the appointment is not in 
his or her best interest. When VA receives such an appeal, it will try 
to resolve the disagreement by again requesting the beneficiary's 
preference. For the foregoing reasons, we make no change based on this 
comment.
    The same commenter stated that VA should revise proposed Sec.  
13.100 to require a credit and criminal history check at each 
reappointment of a fiduciary and conduct periodic, routine credit and 
criminal history checks on fiduciaries thereafter. The commenter noted 
that such requirement would be cost-effective and identify suspicious 
financial activities.
    In Sec.  13.100, we proposed to implement 38 U.S.C. 5507 regarding 
the investigation VA must conduct of a prospective fiduciary. We 
proposed to perform a face-to-face interview, when practicable, and 
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 also proposed to conduct a 
criminal background check for the purposes of determining whether a 
proposed fiduciary was convicted of any offense that would be a bar to 
serving as a fiduciary under proposed Sec.  13.130 or that we could 
consider and weigh under the totality of the circumstances regarding 
the proposed fiduciary's qualifications.
    Regarding this investigation, we agree with the commenter and 
revised Sec.  13.100(f) to add paragraph (3), which requires the Hub 
Manager to conduct the investigation, specifically the requirements of 
paragraph (f)(1)(i) through (iii), for every subsequent appointment of 
the fiduciary for a beneficiary. These requirements must be met without 
regard to the proposed fiduciary's service to any other beneficiary. 
Regarding the commenter's suggestion that we conduct periodic, routine 
credit and criminal history checks of fiduciaries, in proposed Sec.  
13.100(f)(2), we prescribed that, at any time after the initial 
appointment of the fiduciary, the Hub Manager may repeat all or part of 
the investigation to ensure that a fiduciary continues to meet the 
qualifications for service. Although we understand the commenter's 
concern, our program administration experience suggests that periodic, 
routine checks in all fiduciary appointments would not be an efficient 
use of program resources. Instead, we have determined that the matter 
should be left to the Hub Manager's discretion on a case-by-case basis. 
In addition, we have other controls in place that will alert us 
regarding the need for a review of a fiduciary's qualifications or to 
remove him or her from service as fiduciary. For example, if a 
fiduciary is not meeting his or her accounting requirements under Sec.  
13.280, or any of his financial responsibilities under Sec.  13.140, 
based on the circumstances, we will conduct a review of his or her 
qualifications or remove him or her from service as a fiduciary. 
Although we currently do not have information to support prescribing 
mandatory periodic, routine credit and criminal history checks of VA-
appointed fiduciaries, we will continue to monitor the activities of 
fiduciaries and may address the matter in a future rulemaking. To this 
end, we added the phrase ``or reappointment'' after initial appointment 
in Sec.  13.100(f)(2) to clarify

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that Hub Managers may repeat all or part of an investigation of a 
fiduciary when the fiduciary is appointed to another VA beneficiary. At 
this time, we do not believe any additional changes are needed based on 
this comment.
    In a separate comment on proposed Sec.  13.100, the same commenter 
stated that face-to-face beneficiary interviews should be limited to 
situations where the information sought cannot be obtained by other 
means. The commenter was not aware of any statutory requirement for 
this type of beneficiary interview. The commenter suggested that 
beneficiary interviews do not provide new information and VA could 
substitute information obtained from caregivers, medical providers or 
other third parties. The commenter believed that beneficiary interviews 
are for the purpose of establishing the ``financial needs of the 
beneficiary and set[ting] the budget for the fiduciary to implement.'' 
Thus, the commenter suggested we revise proposed Sec.  13.100 to limit 
beneficiary interviews to situations where the beneficiary is the only 
source for the information we are seeking.
    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.'' 
See 38 U.S.C. 5502(a)(1). Our longstanding interpretation of this broad 
authority is that VA may establish a fiduciary program, under which it 
oversees beneficiaries who cannot manage their own VA benefits. 
Congress generally deferred to VA to determine the appropriate program 
requirements. With respect to specific statutory requirements for 
fiduciary appointments, VA must conduct the investigation prescribed in 
38 U.S.C. 5507 and then conduct sufficient oversight to determine 
whether fiduciaries are properly providing services for beneficiaries. 
While Congress specifically mandated the foregoing provisions, Congress 
did not address how VA should conduct the various activities required 
for proper administration of the fiduciary program, to include aspects 
of oversight to ensure that a beneficiary's benefits are used for the 
``benefit of the beneficiary.'' However, in 38 U.S.C. 5711(a)(5), 
Congress authorized VA to, among other things, ``make investigations 
and examine witnesses upon any matter within the jurisdiction of the 
Department.'' Under the authority in sections 5502 and 5711, we conduct 
face-to-face visits with beneficiaries to assess their well-being and 
oversee the fiduciaries we appoint to ensure they are meeting the 
beneficiaries' needs.
    Contrary to the commenter's reading of our proposed rule, VA 
conducts face-to-face beneficiary visits for a much broader purpose. It 
is VA's statutory obligation to ensure that the fiduciaries it appoints 
on behalf of beneficiaries are fulfilling their core requirement of 
monitoring the well-being of the beneficiaries they serve and are 
disbursing funds according to the beneficiaries' needs. Speaking with 
the beneficiary and viewing that beneficiary's environment allows VA to 
confirm that the fiduciary is monitoring the beneficiary and fulfilling 
his or her responsibilities under Sec.  13.140 as the beneficiary's 
fiduciary. In addition, VA assesses the beneficiary's ability to manage 
his or her VA funds during the face-to-face visit. Thus, speaking to a 
beneficiary is crucial for obtaining information about the welfare and 
financial abilities of the beneficiary and adequacy of the fiduciary's 
services. For these reasons, we will not revise Sec.  13.100 to limit 
face-to-face visits with beneficiaries.
    One commenter noted 38 U.S.C. 5507(d), which states that temporary 
fiduciary appointments may not exceed 120 days in cases where a 
beneficiary is appealing an incompetency rating decision, and inquired 
about our policy regarding appeals of incompetency rating decisions 
that may take more than 120 days.
    Regarding the commenter's concern that a beneficiary may be without 
a fiduciary at the end of the 120-day period, we note that VA does not 
appoint a temporary fiduciary in lieu of a permanent fiduciary when the 
beneficiary is appealing an incompetency rating. Under section 5507(d), 
``[w]hen in the opinion of [VA], a temporary fiduciary is needed in 
order to protect the assets of the beneficiary while a determination of 
incompetency is being made or appealed. . . , [VA] may appoint one or 
more temporary fiduciaries for a period not to exceed 120 days.'' We 
interpret this statute to mean that VA does not have to appoint a 
temporary fiduciary in these cases, but if it does, the appointment(s) 
cannot exceed a total of 120 days. Under VA's current administration of 
the program, when a beneficiary is appealing an incompetency decision, 
the beneficiary is already rated as being unable to manage his or her 
VA benefits and is in the fiduciary program. The decision is based on 
medical evidence or a legal determination of incompetency. As a general 
rule, VA makes permanent fiduciary appointments pending a decision on 
the appeal of the incompetency decision, which may take one or more 
years. We have found that this policy best protects beneficiaries and 
is the least disruptive procedure for them. In fact, we intended that 
our proposed rules on temporary fiduciary appointments would be 
reserved for situations where VA has removed a fiduciary for the 
reasons prescribed in proposed Sec.  13.500, cannot expedite a 
successor fiduciary appointment, and the beneficiary has an immediate 
need for fiduciary services. We revised proposed Sec.  13.100 by 
removing paragraph (h)(1)(i) requiring appointment of a temporary 
fiduciary when a beneficiary is appealing an incompetency decision.
    In Sec.  13.100(h)(2), we proposed to limit appointment of 
temporary fiduciaries to individuals and entities that already 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 
audited and approved. A commenter disagreed with the proposed 
limitation on temporary appointments and suggested that our proposed 
rule would exclude family members, including spouses and other 
caregivers, from serving as temporary fiduciaries. The commenter stated 
that we did not provide a sufficient basis for not considering the 
usual order of preference, as proposed in our regulations, in temporary 
fiduciary appointments.
    In prescribing the rules on temporary fiduciary appointments, our 
intention is to expeditiously appoint a qualified, well-performing 
fiduciary, who can temporarily meet the beneficiary's immediate needs 
in rare circumstances. In that regard, we intend to ensure that the 
entity or individual we appoint as temporary fiduciary not only meets 
the qualification requirements under section 5507, but is also 
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. Both requirements are crucial in our decision to 
appoint a temporary fiduciary.
    VA needs to appoint temporary fiduciaries promptly in rare cases 
where VA has removed a fiduciary for the reasons prescribed in proposed 
Sec.  13.500, VA cannot expedite the appointment of a successor 
fiduciary, or the beneficiary has an immediate need for fiduciary 
services, and in other cases in which VA determines that it is 
necessary to protect

[[Page 32721]]

a beneficiary. Because of the urgency in ensuring that a fiduciary is 
immediately appointed in such cases, we might not be able to complete 
the qualification process prescribed by Congress in 38 U.S.C. 5507. As 
the commenter suggested, it might sometimes be ideal to appoint a 
family member as temporary fiduciary in these rare cases. While we 
implemented section 5507(c) to exempt spouses from face-to-face 
interviews, criminal background checks, and credit checks, to ensure 
adequate protection for beneficiaries, we still have an obligation to 
explain the responsibilities and requirements of service to an 
individual who has never served as a fiduciary. This would require 
scheduling and conducting an interview, and ensuring compliance of the 
spouse or family member. This would not be the case if VA appoints an 
individual or entity successfully serving as fiduciary. While these 
types of appointments are rare, they are generally time sensitive. The 
delay associated with addressing fiduciary responsibilities and 
ensuring agreement from a spouse or family member is unnecessary when 
we have a fiduciary who can serve in an emergent but temporary 
situation. A temporary fiduciary allows VA to immediately deliver 
benefits while we consider the appointment of a fiduciary in accordance 
with the priority of appointment prescribed in Sec.  13.100(a). For the 
foregoing reasons we limit our temporary fiduciary appointments as 
prescribed in Sec.  13.100(h) and make no change based on this comment.
    Under proposed Sec.  13.100(c), ``[t]he Hub Manager will withhold 
any retroactive, one-time, or other lump-sum benefit payment awarded to 
a beneficiary . . . 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.'' A commenter stated that VA should not 
withhold a beneficiary's entire retroactive benefit but should consider 
the size of the award before we make a decision to withhold. The 
commenter believed that VA should release any amount that is not larger 
than a beneficiary's monthly recurring benefits and a percentage of 
larger retroactive benefits, or provide a method for a beneficiary to 
access his or her retroactive benefits in order to ensure that his or 
her needs are being met.
    Our policy for withholding a beneficiary's retroactive benefits is 
to protect benefits 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 they were paid directly to the beneficiary prior to a fiduciary 
appointment. Under sections 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 that provides fiduciary services for one or more 
beneficiaries or an individual who provides fiduciary services for 10 
or more beneficiaries. VA has determined that it is not prudent to 
release retroactive benefits to a beneficiary prior to a fiduciary 
appointment because, at that point in the process, VA has already 
determined that the beneficiary cannot manage his or her VA benefits. 
Moreover, VA's authority to reissue benefits is limited to cases of 
fiduciary misuse. If VA released a beneficiary's retroactive award 
prior to a fiduciary appointment and a family member, care provider, or 
other person assisting the beneficiary misappropriated the funds, VA 
would be unable to reissue benefits to the beneficiary because there 
would not have been misuse by an appointed fiduciary. For this reason, 
we proposed Sec.  13.100(c) with the intent of preserving vulnerable 
beneficiaries' VA benefits for their future needs.
    Regarding the commenter's suggestion that we release smaller 
amounts of retroactive benefits and portions of larger retroactive 
benefits to the beneficiary prior to a fiduciary appointment, or add 
provisions to ensure the beneficiary's needs are being met, we have 
determined that current fiduciary program policy, under which VA 
initiates and continues payment of monthly benefits to the beneficiary 
while a fiduciary appointment is pending, strikes the proper balance 
between ensuring that beneficiaries' current needs are met with 
protection of lump-sum benefit payments for future needs. For the 
foregoing reasons we will not make any changes based on this comment.
    One commenter, a corporate fiduciary, suggested that proposed 
paragraph (d)(3) would not adequately restrict a Hub Manager's 
discretion in fiduciary appointments. In proposed Sec.  13.100(d) 
regarding initial fiduciary appointments, we did not propose to 
prescribe a specific limit on the number of beneficiaries a single 
fiduciary could serve. We had no data to support proposing a bright-
line rule for discontinuing further appointments to a fiduciary and 
determined that each Hub Manager should have discretion to determine 
whether it is in a beneficiary's interest to appoint a particular 
fiduciary. However, to avoid default appointments to certain paid 
fiduciaries in lieu of the best interest determination required by 38 
U.S.C. 5507(a)(2), we did not propose to give the Hub Managers 
unfettered discretion in such matters. First, under proposed paragraph 
(d)(3), a Hub Manager would consider whether the fiduciary could handle 
an additional appointment without degrading the service that the 
fiduciary provides to any other beneficiary who has funds under 
management with the fiduciary. Second, under proposed paragraph (e), we 
would establish an order of preference for appointing fiduciaries, with 
the result being that beneficiaries generally have a one-on-one 
relationship with a volunteer family member, friend, or caregiver 
fiduciary. In our view this placed an adequate check on the Hub 
Manager's discretion in these situations. On a case-by-case basis, a 
Hub Manager may consider appointment of a single fiduciary with 
multiple appointments if it is in the best interest of the beneficiary.
    This commenter clarified that it was not seeking a higher order of 
preference in the appointment process or a bright-line rule for the 
maximum number of beneficiaries that a fiduciary may serve, and 
understood that VA might have a valid business reason to restrict 
further appointments of a fiduciary in some cases. However, the 
commenter expressed concern that certain paid fiduciaries would not 
have an equal opportunity to compete for appointments in those cases 
where VA cannot appoint a qualified volunteer fiduciary. Although we 
considered the commenter's concerns, we believe VA's primary obligation 
is to act in the best interest of its beneficiaries and will allow Hub 
Manager discretion in the appointment process in the event a paid 
fiduciary is required. Accordingly, other than a technical change to 
Sec.  13.100(e), we are not making any changes to Sec.  13.100 based 
upon the commenter's suggestion.
    Finally, one commenter suggested that VA's fiduciary regulations 
accommodate durable power of attorneys (POAs). We interpret this to 
mean that VA should give appointment preference to the person who holds 
the beneficiary's POA.
    Based upon VA's experience, it would not be good policy to give a 
person holding a beneficiary's POA priority based only upon the 
existence of a POA. Veterans and other beneficiaries in the fiduciary 
program can be extremely vulnerable and easily coerced into signing 
documents. Additionally, a POA can be executed and revoked by the 
beneficiary at any time. If an individual is holding a POA, VA would 
have no

[[Page 32722]]

way of determining whether the POA is still in effect or if the 
beneficiary had the capacity to execute a legally enforceable POA under 
state law at the time of execution. Implementing policies and 
procedures related to the adjudication of POAs would needlessly 
complicate and delay the fiduciary appointment process. Also, under 
current law, VA has a duty to appoint, based upon a field examination 
and consideration of the totality of the circumstances, the individual 
or entity that is in the beneficiary's best interest. While such a 
determination might conclude that appointment of an individual who 
holds the beneficiary's POA is in the beneficiary's interest, VA has 
determined that it cannot give undue preference and weight to the 
existence of a POA. Accordingly, we will not make any changes to Sec.  
13.100 based upon the commenter's suggestion.

Section 13.120--Field Examinations

    In Sec.  13.120(b), we proposed to prescribe the scope of field 
examinations, which could include, but would not be limited to, 
``[a]ssessing 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.'' We also proposed that, among other things, VA would 
conduct a field examination for the purpose of making appropriate 
referrals in cases of actual or suspected physical or mental abuse, 
neglect, or other harm to a beneficiary, as well as when investigating 
allegations that a fiduciary has misused funds or failed to comply with 
the responsibilities of a fiduciary under Sec.  13.140.
    We received two comments regarding this proposed regulation. One 
commenter shared his story of his mother leaving her home to care for 
him after he was injured in combat. The commenter's mother participates 
in the VA caregiver support program administered by the Veterans Health 
Administration (VHA). The commenter recommended that VA exempt 
beneficiaries who have VHA-approved caregivers from the home visit 
component of a field examination because VHA is already monitoring the 
well-being of these beneficiaries. Another commenter had the same 
concerns. We agree that beneficiaries whose family members are actively 
participating in the VA caregiver support program, and who remain 
eligible to participate in this program, should generally be exempted 
from the home visit component of the fiduciary field examination 
because VHA is already assessing their physical well-being.
    In 2010, the President signed into law the Caregivers and Veterans 
Omnibus Health Services Act of 2010. Section 101(a)(1) of that law 
added a new 38 U.S.C. 1720G to title 38, U.S.C., which required VA to 
establish a program of comprehensive assistance for family caregivers 
of eligible veterans and a program of support services for caregivers 
of covered veterans, which are collectively referred to as the 
Caregiver Support Program. Congress mandated, among other things, that 
as part of the program of comprehensive assistance for family 
caregivers, ``[t]he Secretary shall monitor the well-being of each 
eligible veteran receiving personal care services under the program 
[and] . . . ensure appropriate follow-up regarding findings [by] . . . 
[v]isiting an eligible veteran in the eligible veteran's home to review 
directly the quality of personal care services provided to the eligible 
veteran.'' See 38 U.S.C. 1720G(a)(9)(A), (C). The statute further 
prescribes that VHA may take corrective action, including providing 
additional training or suspending or revoking the caregiver's approval 
or designation. See 38 U.S.C. 1720G(a)(9)(C)(ii). The implementing 
regulations provide: ``The primary care team will maintain the eligible 
veteran's treatment plan and collaborate with clinical staff making 
home visits to monitor the eligible veteran's well-being, adequacy of 
care and supervision being provided. This monitoring will occur no less 
often than every 90 days, unless otherwise clinically indicated, and 
will include an evaluation of the overall health and well-being of the 
eligible veteran.'' See 38 CFR 71.40(b)(2).
    Based on the foregoing oversight mandated by Congress and provided 
by VHA, we have decided to generally exempt beneficiaries who have a 
VHA-approved and monitored family caregiver from the home visit 
component of field examinations because VHA already assesses their 
physical well-being and environment. In these cases, VHA's oversight 
overlaps with the fiduciary program's oversight that we proposed. We do 
not intend to intrude on these beneficiaries, as we believe VHA 
provides ample oversight. In fact, we respect the relationship of 
veterans and their family members, and appreciate the ability to revise 
our rules to limit any unnecessary or duplicative oversight. In that 
regard, we will revise Sec.  13.120 to reflect that VA will generally 
exempt beneficiaries who have a family member participating in the VA 
caregiver support program from face-to-face visits in the home to 
assess their physical well-being and environment. Specifically, we 
revise Sec.  13.120 to add paragraph (b)(1)(i) and prescribe that the 
Hub Manager will waive the requirements of paragraph (b)(1) of this 
section if the beneficiary has a VHA-approved family caregiver and VHA 
reports that the veteran is in an excellent situation. However, we 
prescribe an exception in new paragraph (b)(1)(ii), which states that 
the provisions of paragraph (b)(1)(i) do not apply in cases where the 
Hub Manager has information concerning the beneficiary's unmet needs or 
welfare or information that the fiduciary has violated his or her 
responsibilities under Sec.  13.140. This exception allows VA to ensure 
that a fiduciary is meeting his or her obligations to the beneficiary 
based upon current information that the Hub Manager obtains in the 
course of overseeing fiduciary services. In the event there is an 
allegation of misuse of a veteran's VA funds under management or an 
allegation that a fiduciary is neglecting a beneficiary or there is 
insufficient evidence to determine the veteran's well-being, this 
exception will allow the Hub Manager to provide appropriate oversight.
    However, VA will still conduct a face-to-face visit, any necessary 
investigations, or other inquiries to confirm the qualifications of a 
family caregiver seeking to provide fiduciary services for a veteran 
prior to appointment. 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, before 
appointing a person as fiduciary.

Section 13.130--Bars to Serving as a Fiduciary

    We received two comments regarding Sec.  13.130. One commenter 
stated that his comment is specifically geared towards VA's need to 
coordinate with state courts with jurisdiction over adult guardianship 
and conservatorship. The commenter cited two U.S. Government 
Accountability Office reports--``Guardianships: Collaboration Needed to 
Protect Incapacitated Elderly People'' (2004) and ``Incapacitated 
Adult: Oversight of Federal Fiduciaries and Court-Appointed Guardians 
Needs Improvement'' (2011). Both reports discussed the lack of 
coordination in sharing information between the state courts handling 
guardianships, the VA fiduciary program, and the Social

[[Page 32723]]

Security Administrative (SSA) payee program. The commenter relied on 
these reports to propose that this lack of coordination could result in 
vital information regarding a beneficiary's welfare or the 
mismanagement of his or her VA benefits not being shared. The commenter 
singled out court information in particular, by concluding that bars to 
serving as a fiduciary should be expanded to include previous court 
sanctions or removals as a guardian or conservator and failure to file 
timely reports with the court.
    The topic of coordinating with guardianship courts and other 
governmental agencies is beyond the scope of this rulemaking. However, 
it is our current practice to coordinate with courts and other agencies 
and share information when it is appropriate or necessary. We will 
continue to work on any necessary protocols for coordinating and 
information sharing between courts, VA and other agencies. Nonetheless, 
we agree with the commenter's suggestion that VA revise Sec.  13.130 to 
bar a fiduciary from service if he or she has been removed as legal 
guardian by a court for misconduct. At this time, we decline to bar 
service as a fiduciary based solely upon a court sanction or other 
discipline short of removal. We anticipate situations where it is in 
the best interest of a particular beneficiary for VA to appoint a 
guardian, such as a family member or care provider, who has been 
disciplined by a court but not removed from service as a beneficiary's 
guardian.
    There are various reasons a court-appointed guardian may be 
sanctioned by a court and his or her appointment may not pose a risk to 
the beneficiary or still be in best interest of the beneficiary. We 
believe it is best to retain the ability to assess these situations on 
a case-by-case basis. We intend to weigh the totality of the 
circumstances regarding the proposed fiduciary's qualifications and 
other factors, including any court discipline while serving as a 
guardian, in determining whether the appointment is in the 
beneficiary's best interest.
    Also, to mitigate the risk of appointing as fiduciary a legal 
guardian who has been disciplined by a court, we proposed under Sec.  
13.140(d)(1) that a fiduciary who is also appointed by a court must 
annually provide to VA a certified copy of the accounting provided to 
the court or facilitate VA's receipt of such an accounting. In 
addition, in Sec.  13.500(a)(2)(ii), we proposed to remove a fiduciary 
if he or she fails to maintain his or her qualifications or does not 
adequately perform the responsibilities of a fiduciary prescribed in 
Sec.  13.140. Thus, a fiduciary will be removed if the continuation of 
his or her appointment poses a risk to the beneficiary.
    Accordingly, we will revise this section to add paragraph (b)(6) 
regarding a bar to service as a fiduciary if a guardian has been 
removed from service by a court for misconduct but do not make any 
additional changes based on these two comments.
    Another commenter recommended that VA expand the 10-year period in 
proposed Sec.  13.130(a)(2)(i) to 20 years following the conviction of 
a felony as a bar to appointment or continuation of service as 
fiduciary. The commenter submitted two papers in support of the 
recommendation and claimed that both support the conclusion that a 
person who is crime free for 20 years is ``less likely'' to commit a 
crime than a person who has been crime free for 10 years. However, the 
research presented does not support the recommendation that there is 
value in waiting an additional 10 years, i.e., the longer a person goes 
without committing a crime the less he or she is likely to commit a 
crime. In our view, a person who has been previously convicted of a 
felony, but has been crime free for 10 years, should not be barred from 
serving as a fiduciary.
    One of the papers submitted by the commenter cites to a 1994 Bureau 
of Justice Statistics (BJS) study, ``Recidivism of Prisoners Released 
in 1994'' (June 2002), which tracked 272,111 former inmates for 3 years 
after their release from prison in 1994. The study found that 30 
percent of the 272,111 were rearrested for a new crime within the first 
6 months of their release; 44 percent were rearrested within the first 
year; 59 percent were rearrested within the first 2 years; 68 percent 
were rearrested within 3 years.
    The BJS collects criminal history data from the Federal Bureau of 
Investigation and state record repositories to study the recidivism 
patterns of various offenders, including persons on probation or 
discharged from prison. Its latest study, ``Recidivism of Prisoners 
Released in 30 States in 2005: Patterns from 2005 to 2010'' (April 
2014), tracked the recidivism patterns of about 400,000 persons 
released from state prisons in 2005. The study found that 28 percent of 
the 400,000 were rearrested for a new crime within the first 6 months 
of their release; 44 percent were rearrested within the first year; 60 
percent were rearrested within 2 years; 68 percent were rearrested 
within 3 years; and 77 percent were rearrested within 5 years. See 
https://www.bjs.gov/content/pub/pdf/rpr94.pdf. The report concluded 
that the longer released prisoners went without being arrested, the 
less likely they were to be arrested at all during the 5-year period. 
See https://www.bjs.gov/content/pub/pdf/rprts05p0510.pdf.
    Another report, ``State of Recidivism--The Revolving Door of 
America's Prisons'' (April 2011), prepared by the Pew Center on the 
States (Pew) in collaboration with the Association of State 
Correctional Administrators was based on a survey of state corrections 
departments. This report noted that 41 states provided recidivism data 
on prisoners released in 2004, and 33 states provided data on prisoners 
released in 1999. The responding states represented 87 percent of all 
releases from state prisons in 1999 and 91 percent of all releases in 
2004. ``In the first ever state-by-state survey of recidivism rates, 
state corrections data show that nearly 43 percent of prisoners 
released in 2004, and 45 percent of those released in 1999, were 
reincarcerated within three years, either for committing a new crime or 
violating the terms of their supervised release.'' See https://www.pewtrusts.org/en/about/news-room/press-releases/0001/01/01/pew-finds-four-in-10-offenders-return-to-prison-within-three-years. Studies 
by BJS and Pew do not examine post-release recidivism for someone who 
has been crime free for 10 years or more.
    In further consideration of the comment to expand the 10-year 
period to 20 years, we looked at industry standards for guidance. There 
are no bright-line rules used by states or SSA for the appointment of 
convicted felons. Although all fifty states and the District of 
Columbia have enacted guardianship statutes, there is a lack of 
statutory consistency among the states regarding the appointment of a 
guardian who was convicted of a felony, and how long after a conviction 
one should be barred from serving. Research revealed three distinct 
categories of state laws concerning the eligibility of guardianship 
candidates with past felony convictions. Some states' statutes 
prescribed a complete disqualification of a past felon as guardian. 
See, e.g., Fla. Stat. Ann. Sec.  744.309(3) (LexisNexis 2017); Wash. 
Rev. Code Ann. Sec.  11.88.020(1)(c) (LexisNexis 2017). Some states 
require the disclosure of the prior felony with consideration given to 
the ward's best interest and no bright-line rule regarding the numbers 
of years after the conviction of a felony before appointment. See, 
e.g., Ariz. Rev. Stat. Sec.  14-5106(A)(1) (LexisNexis 2017); N.H. Rev. 
Stat. Ann. Sec.  464-A:4(V)(b) (LexisNexis 2017). Other states' 
statutes do not address the issue. See, e.g., Ala.

[[Page 32724]]

Code Sec.  26-2A-104 (LexisNexis 2017); Conn. Gen. Stat. Sec.  45a-
676(f) (LexisNexis 2017).
    SSA obtains information on whether a prospective representative 
payee was convicted of any offense under Federal or state law and 
sentenced to a period of imprisonment for more than 1 year before 
appointment. As a general rule, SSA will not appoint a convicted felon 
as a representative payee unless it cannot identify a suitable payee, 
there is no risk to the beneficiary, and the appointment is in the best 
interest of the beneficiary. Thus, although SSA considers certain 
crimes an absolute bar to service as a representative payee, it may 
still appoint a convicted felon if it determines that the appointment 
is in the best interest of the beneficiary. See 20 CFR 416.622, 
416.624.
    We proposed a 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 fraud, financial crimes, or the abuse or neglect of another person, 
all of which would be a permanent bar to serving as a fiduciary. See 79 
FR 437. The commenter's suggestion that we should revise the rule by 
lengthening the look-back period ``to a period longer than ten years'' 
because a research study on the usefulness of criminal background 
checks stated that a violent offender is ``less likely'' to commit a 
crime if he or she has been crime free for 20 years does not mean that 
it would be good policy to wait longer than 10 years to appoint a 
person VA finds appropriate to act as fiduciary for the beneficiary, 
particularly when the person is the beneficiary's choice, it is the 
least restrictive option, and in most cases is the beneficiary's family 
member.
    We proposed that we could appoint a convicted felon after 10 years 
only if we determine 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. See 79 FR 437. We intend 
with the foregoing criteria in place, we will not appoint a person that 
may pose a risk to the beneficiary. In addition, in Sec.  13.500, we 
proposed to promptly remove a fiduciary if he or she poses a risk to a 
beneficiary after appointment. We believe that the measures we have in 
place will allow us to carefully consider a prospective fiduciary, who 
was convicted of a felony more than 10 years prior to consideration for 
appointment, to determine whether it is in the beneficiary's best 
interest to have such person serve as fiduciary. Therefore, we make no 
change based on this comment.
    In Sec.  13.130, we proposed that an individual or entity may not 
serve as a fiduciary for a VA beneficiary if the individual or entity 
was convicted of a financial crime, e.g., fraud, theft, bribery, 
embezzlement, identity theft, money laundering, or forgery, or for the 
abuse of or neglect of another person. These offenses are permanent 
bars to serving as fiduciary. One commenter stated that our proposed 
list of disqualifying offenses does not include crimes related to 
dishonesty and deception, which are offenses that could place a 
beneficiary at risk for victimization. However, the commenter did not 
specifically identify the additional crimes that the commenter would 
like to see as bars to service as a fiduciary.
    The nature of specific offenses included within the phrase 
dishonesty and deception as expressed in Federal regulations and state 
rules varies. For example, banking regulations define dishonesty as the 
following: ``[D]irectly or indirectly to cheat or defraud, to cheat or 
defraud for monetary gain or its equivalent, or to wrongfully take 
property belonging to another in violation of any criminal statute. 
Dishonesty includes acts involving a want of integrity, lack of 
probity, or a disposition to distort, cheat, or act deceitfully or 
fraudulently, and may include crimes which federal, state or local laws 
define as dishonest.'' See 12 CFR 585.40. Department of Labor 
regulations define ``fraud or dishonesty'' as encompassing ``all those 
risks of loss that might arise through dishonest or fraudulent acts in 
handling of funds'' and note that, under state law, ``the term `fraud 
or dishonesty' encompasses such matters as larceny, theft, 
embezzlement, forgery, misappropriation, wrongful abstraction, wrongful 
conversion, willful misapplication or any other fraudulent or dishonest 
acts resulting in financial loss.'' See 29 CFR 453.12.
    Furthermore, crimes of dishonesty and deception can be either a 
felony or misdemeanor offense, depending on the jurisdiction and crime. 
In addition, sentences for such crimes may differ widely. As a result, 
not all crimes of dishonesty and deception will be a bar to service as 
fiduciary. For purposes of our proposed regulations, we defined a 
felony offense to mean 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. We further explained that such a 
conviction is not a bar to serving as a fiduciary if the conviction 
occurred more than 10 years preceding the proposed date of appointment 
and the crime is not one of the crimes listed in proposed Sec.  
13.130(a)(2)(ii). We believe our proposed rules on bars to service 
provide the correct level of detail to effectively consider a potential 
fiduciary's criminal background and the best interests of 
beneficiaries. Therefore, we will monitor the implementation of this 
rule to ensure that it adequately protects beneficiaries but will not 
make any changes at this time based on this comment.

Section 13.140--Responsibilities of Fiduciaries

    We received several comments regarding proposed Sec.  13.140. In 
paragraph (c) we proposed that a fiduciary's non-financial 
responsibilities, among other things, will include contacting social 
workers or mental health professionals regarding the beneficiary, when 
necessary. One commenter recommended we include as a part of this 
responsibility that a fiduciary also contact a court-appointed guardian 
or conservator regarding the beneficiary when necessary. We agree. 
Without such contact, a fiduciary might not be able to determine 
whether a beneficiary's needs are being met by the fiduciary's 
disbursement of funds. In proposing paragraph (c), we intended that 
fiduciary responsibilities would include an obligation to monitor the 
beneficiary's well-being and report any concerns to appropriate 
authorities, or anyone legally tasked with ensuring the beneficiary's 
well-being. Amending this rule to include contact with a legal guardian 
or conservator is consistent with our intent. We therefore revise 
paragraph (c)(1) to state, ``The fiduciary's primary non-financial 
responsibilities include, but are not limited to . . . Contacting 
social workers, mental health professionals, or the beneficiary's legal 
guardian regarding the beneficiary, when necessary.''
    One commenter, citing 38 U.S.C. 5507, noted that our ``principal 
responsibility in appointing a fiduciary is to determine [his or her] 
fitness to serve as a fiduciary.'' The commenter noted that we 
nonetheless tasked a fiduciary with financial and non-financial 
responsibilities, that proposed Sec.  13.140(a) calls for a fiduciary 
to monitor the beneficiary's well-being, and that proposed Sec.  
13.140(c) states that a fiduciary has non-financial responsibilities 
that ``include but are not limited to[,]'' seven specific enumerated 
responsibilities. The commenter stated that the proposed ``not limited 
to'' language is vague, particularly when the

[[Page 32725]]

non-performance of such responsibilities can subject a fiduciary to 
removal under proposed Sec.  13.500.
    The commenter is correct that under section 5507 VA has authority 
to ensure that a person or entity appointed as fiduciary for a 
beneficiary is fit to serve. However, under 38 U.S.C. 5502(a)(1) 
Congress also authorized VA to make benefit payments to a fiduciary on 
behalf of a beneficiary if it appears to VA that such payment will 
serve the interest of the beneficiary. Under this authority, it is VA's 
obligation to oversee the fiduciaries it appoints to manage VA benefits 
on behalf of beneficiaries, and this oversight includes prescribing 
fiduciary responsibilities. While we may appoint a fiduciary pursuant 
to the requirements in section 5507, and remove them pursuant to our 
oversight authority under section 5502(a)(1) and (b), prior to this 
rulemaking, we provided no binding notice to beneficiaries and 
fiduciaries regarding the responsibilities of fiduciaries in VA's 
program. For this reason, we proposed to prescribe the core 
requirements for all fiduciaries, which are to monitor the well-being 
of the beneficiaries they are appointed to serve and to disburse funds 
according to beneficiary needs. Prescribing these requirements is 
consistent with Congress' intent when it authorized VA to create the 
fiduciary program. As we explained in the proposed rule, our intention 
is to change the culture in the fiduciary program to ensure that the 
fiduciary we appoint determines the beneficiary's needs and disburses 
funds to address those needs in the beneficiary's interest. See 79 FR 
438. We explained that VA is not the fiduciary for the beneficiary and 
must defer to the fiduciary consistent with VA regulations. See 79 FR 
438.
    We also proposed to prescribe fiduciaries' specific 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. These responsibilities, among other 
things, reinforce VA's view that a fiduciary must maintain regular 
contact with a beneficiary and be responsive to beneficiary requests.
    Furthermore, we used the ``include, but are not limited to'' 
language in paragraph (c) to clarify that the relationship between the 
beneficiary and fiduciary must be defined by each beneficiary's needs. 
This rulemaking provides the minimum expectations for the fiduciaries 
whom VA appoints but recognizes that fiduciaries may have additional 
responsibilities to particular beneficiaries depending upon the 
fiduciary-beneficiary relationship and the beneficiary's individual 
needs.
    Regarding the commenter's concern that a fiduciary could be removed 
for any unknown reasons as a result of the ``include, but are not 
limited to'' language, the alternative is to list all possible non-
financial responsibilities of a fiduciary, which is impossible because 
of all the unique circumstances specific to individual beneficiaries. 
Rather, consistent with VA's intent to emphasize the fiduciary's 
responsibility for not only managing the beneficiary's VA funds, but 
also monitoring the beneficiary's general well-being, we believe Sec.  
13.140 provides sufficient guidance regarding our expectations for a 
fiduciary. Moreover, a fiduciary may always consult with a Fiduciary 
Hub regarding the scope of his or her duties and responsibilities 
relating to a particular beneficiary. Prior to initiating removal 
action, VA will thoroughly investigate any alleged misconduct or 
failure to satisfy responsibilities by a fiduciary and assess whether 
to pursue removal action. Furthermore, we explained in the preamble to 
proposed Sec.  13.600 that, although the Court of Appeals for Veterans 
Claims' holding in Freeman v. Shinseki, 24 Vet. App. 404 (2011), was 
limited to fiduciary appointments under section 5502, it would be 
consistent to interpret the court's opinion to mean that there is a 
right to appeal any VA fiduciary decision that is made under a law that 
affects the provision of benefits to a VA beneficiary. See 79 FR 449. 
We therefore proposed in Sec.  13.600 that a beneficiary could appeal 
the removal of a fiduciary. Under Sec.  13.500, VA will provide a 
beneficiary clear notice of any decision to remove a fiduciary and the 
beneficiary's right to appeal the removal. If the basis for removal 
does not involve a deficiency falling within the seven enumerated non-
financial responsibilities, again, VA will, consistent with VA's 
general fiduciary oversight authority in 38 U.S.C. 5502(a) and (b), 
thoroughly investigate any alleged misconduct or failure to satisfy 
responsibilities by a fiduciary and assess whether to pursue removal 
action prior to initiating removal action. For the foregoing reasons, 
we make no change to this proposed rule.
    One commenter cited to the preamble of the proposed rule on 
accountings, which stated that ``[c]urrent 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.'' See 79 FR 444. The 
commenter interpreted this statement as VA's acknowledgement that 
certain fiduciary responsibilities are burdensome. The commenter 
suggested that a fiduciary's financial responsibilities are burdensome 
and technical, and complained that VA would require family member 
fiduciaries to be fiscal managers, prudent investors and financial 
planners. The commenter suggested that VA instead promulgate rules 
regarding VA's responsibilities to fiduciaries, to include providing 
family member fiduciaries with technical support and software to carry 
out their financial responsibilities and protection of private 
information.
    VA's fiduciary program policies have long recognized that service 
as a fiduciary for a beneficiary includes financial and other 
obligations that may at times be burdensome, particularly for 
fiduciaries that are family members. For this reason, VA's policies 
attempt to strike the appropriate balance between oversight and 
fiduciary burden. VA must protect beneficiaries from fiduciary misuse 
of their benefits, while also promoting service by family members and 
other volunteers. We do not agree with the commenter's assertion that 
the proposed responsibilities of a fiduciary in Sec.  13.140 impose an 
unwarranted burden on family members. In our proposed rules on 
accountings we explained that we would continue to 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. See 79 FR 444. As a general rule, no other fiduciaries will 
be required to submit an annual accounting. Regarding this rule, we 
stated, ``[c]urrent 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.'' See 79 FR 444. Thus, contrary to the 
commenter's interpretation, we did not intend the quoted portion of the 
preamble to mean that our proposed rules of fiduciary responsibilities 
are burdensome.
    Furthermore, we did publish proposed rules that impose obligations 
comparable to financial management and planning. In fact, we proposed 
separate rules for fiduciary accounts

[[Page 32726]]

(Sec.  13.200), fiduciary investments (Sec.  13.210), and accountings 
(Sec.  13.280) for the express purpose of clearly notifying fiduciaries 
regarding their basic financial management and reporting obligations. 
These rules require maintenance of a separate fiduciary account, 
establish policy regarding conservation of beneficiary funds, limit 
investments to United States savings bonds or Federally-insured 
interest or dividend-paying accounts, exempt spouses and chief officers 
of institutions from the investment limitations, and, as described 
above, exempt most fiduciaries from the submission of annual audits. We 
do not agree that the responsibilities prescribed in Sec.  13.140 or 
more specifically in Sec.  13.200, Sec.  13.210, or Sec.  13.280 are 
unduly burdensome for family member fiduciaries. Rather, it is our 
intent that these rules will strike the appropriate balance between 
oversight and encouraging volunteer fiduciary service, with the 
emphasis being on allowing the fiduciary to determine the beneficiary's 
needs and disburse funds to address those.
    We also explained our intent to change the culture of the program 
to ensure that fiduciaries do not unnecessarily conserve beneficiary 
funds. We explained, ``[w]e 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.'' See 79 FR 438. We intend 
that fiduciaries will conserve or invest 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. In our view, these basic responsibilities are 
consistent with industry standards and the fiduciary-beneficiary 
relationship, protect beneficiaries while limiting the burden on family 
member and other volunteer fiduciaries, and promote policies intended 
to improve beneficiaries' standard of living.
    Regarding the responsibility of protecting a beneficiary's 
financial information, we prescribed the basic precautions, which if 
not taken, might put the beneficiary at risk of identity theft, 
misappropriation of funds, or other harm. In that regard, we prescribed 
the minimum requirements for protection of beneficiaries' private 
information. 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 did 
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. We therefore make no 
change based on this comment.
    Section 13.140(a)(2)(iv) requires a fiduciary to maintain financial 
records for a minimum of 2 years from the date VA removes the fiduciary 
under Sec.  13.500, and Sec.  13.500(a)(1)(iv) provides that VA may 
remove a fiduciary if ``[t]he beneficiary dies.'' Therefore, we note 
that Sec.  13.140(a)(2)(iv) includes the requirement that a fiduciary 
must maintain financial records for a minimum of 2 years after a 
fiduciary is removed following a beneficiary's death. This requirement 
facilitates any inquiry into the fiduciary program and allows VA to 
address questions regarding the fiduciary's past services to the 
beneficiary. We also made a few nonsubstantive changes to Sec.  13.140.

Section 13.210--Fiduciary Investments

    We made a minor revision to Sec.  13.210 by substituting 
``Fiduciaries should not conserve VA benefit funds under management for 
a beneficiary based primarily upon the interests of the beneficiary's 
heirs or according to the fiduciary's own values, preferences, and 
interests'' for ``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.'' This change is necessary to 
provide fiduciaries with some flexibility and to avoid the perception 
that belief systems are an element of VA's oversight.

Section 13.220--Fiduciary Fees

    We received three comments regarding proposed Sec.  13.220. One 
commenter agreed with our proposal to bar fiduciary fees on retroactive 
benefits payments, but suggested we explicitly preempt state laws that 
allow a higher than 4 percent fee for fiduciary services. The commenter 
stated that while we proposed that our regulations would preempt state 
laws, we failed to invoke this preemption for fiduciary fees. The 
commenter read our proposed rules on fiduciary fees to mean that a 
fiduciary can receive a higher than 4 percent fee for his or her 
services, if state laws allow such higher fees.
    The commenter may have overlooked our explicit language to preempt 
state law in fiduciary matters. We specifically stated that we 
interpret 38 U.S.C. 5502(a)(1) to mean, ``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.'' See 79 FR 430. We further explained 
that we intended to apply this approach to all fiduciary matters on the 
effective date of the final rule. See 79 FR 430. We did not propose to 
authorize a higher than 4 percent fee for services performed by a 
fiduciary even if a state authorizes a higher fee. In the preamble to 
proposed Sec.  13.220, we made it clear that when we determine that a 
fee is necessary to obtain a fiduciary in the best interests of a 
beneficiary, Congress authorized a reasonable fee to be paid from the 
beneficiary's VA funds, but such fee for any year may not exceed 4 
percent of the beneficiary's monetary VA benefits paid to the fiduciary 
during any month in which the fiduciary serves. See 79 FR 440. We will 
not make any changes based on this comment because Sec.  13.220 clearly 
prescribes that a fiduciary fee cannot exceed 4 percent of a 
beneficiary's monetary VA benefits paid to the beneficiary during any 
month in which the fiduciary serves.
    Another commenter cited to proposed Sec.  13.140(d)(1), where we 
prescribed that ``[i]f the fiduciary is also appointed by a court, [the 
fiduciary must] annually provide to [VA] a certified copy of the 
accounting provided to the court or facilitate [VA's] receipt of such 
an accounting,'' and proposed Sec.  13.30(a), which prescribed the 
circumstances in which we would appoint a fiduciary on behalf of a 
beneficiary, to include when ``a court with jurisdiction might 
determine that a beneficiary is unable to manage his or her financial 
affairs.'' The commenter appears to have read our references to 
``court'' in these sections to mean that VA would continue to recognize 
court-appointed guardians as fiduciaries, which would grant them 
certain exemptions from our proposed rules.
    It is our intent to continue to appoint a beneficiary's court-
appointed guardian to serve as VA fiduciary if we determine that no 
other appropriate person or entity is willing to serve without a fee 
and such an appointment will be in the beneficiary's interest. For 
existing court-appointed guardians who are serving satisfactorily as 
fiduciaries, we will continue their appointments as fiduciaries. 
However, in such appointments, only VA's regulations will prescribe the 
fiduciary's

[[Page 32727]]

responsibilities, as well as the fees they are authorized to receive. 
Accordingly, fees in excess of 4 percent of a beneficiary's monthly 
benefit payment are not authorized. Our proposed rules were clear that 
they would apply to existing court-appointed guardians who are also 
fiduciaries. We proposed to discontinue the distinction between 
``Federal'' fiduciaries and ``court-appointed'' fiduciaries, and 
instead refer only to ``fiduciary'' or ``fiduciaries'' in our 
regulations. We explained that it is VA's long-standing interpretation 
of current law to appoint and conduct oversight regarding all 
individuals and entities that provide fiduciary services for 
beneficiaries. See 79 FR 430. We intend to issue uniform rules for all 
VA-appointed fiduciaries, such as allowable fees, surety bond 
requirements and appropriate investments, to include fiduciaries who 
also serve as court-appointed guardians for beneficiaries. However, for 
fiduciary investments that already exist, we do not intend to disturb 
these investments, as we recognize the risks that may be involved in 
any liquidation or changes. Therefore, we intend to apply our proposed 
regulations on fiduciary investment only to those investments acquired 
after the effective date of the final rule.
    In proposed Sec.  13.140(d)(1), we prescribed that a court-
appointed guardian who is also a VA fiduciary should annually provide 
us with a certified copy of the accounting he or she provides to the 
court. We did not propose that this will be in lieu of submitting an 
accounting to VA pursuant to proposed Sec.  13.280. Fiduciaries who are 
also court-appointed guardians are required to provide VA with an 
annual accounting as prescribed in Sec.  13.280. Pursuant to our 
oversight authority, we must ensure consistency in reporting to the 
court and VA, and ensure that funds are used in the interest of 
beneficiaries.
    Furthermore, proposed Sec.  13.30(a) stated that our authority to 
appoint a fiduciary on behalf of a beneficiary includes cases in which 
``a court with jurisdiction . . . determine[s] that a beneficiary is 
unable to manage his or her financial affairs.'' This language does not 
mean that VA will continue to recognize court-appointed guardians 
without subjecting them to our rules. If VA appoints or continues the 
appointment of a court-appointed guardian as fiduciary, that fiduciary 
will be subject to VA rules only for purposes of managing the 
beneficiary's VA benefits. For the foregoing reasons, we do not make 
any changes to Sec.  13.220 based upon the commenter's inquiry.
    In proposed Sec.  13.220(b)(4), we prescribed that VA will not 
authorize fiduciary fees for any month a court with jurisdiction or VA 
determines that a fiduciary misused or misappropriated benefits. A 
commenter suggested that VA would need to coordinate with courts to 
obtain information on misuse. The commenter further stated that there 
is also a need for coordination regarding fiduciary fees, as a 
fiduciary could receive fees from both the court and VA.
    We agree with the commenter that coordination with courts is 
important to curtail misuse. It is our current practice to coordinate 
with courts and other agencies and share information when it is 
appropriate or necessary. We will continue to work on any necessary 
protocols for coordinating and information sharing between courts, VA 
and other agencies. However, the topic of coordinating with 
guardianship courts and other governmental agencies is beyond the scope 
of this rulemaking. With regard to fees, we clarify that a fiduciary, 
who is also acting as a state-appointed guardian for the beneficiary, 
may receive a fee not to exceed 4 percent of the monthly VA benefit for 
the fiduciary responsibilities but may additionally receive a fee for 
his or her responsibilities as a state-appointed guardian.

Section 13.230--Protection of Beneficiary Funds

    We received three comments regarding proposed Sec.  13.230. A 
commenter suggested that we not only exempt spouses from the surety 
bond requirements, but also exempt all family members who are 
fiduciaries. The commenter stated that requiring family members to 
obtain surety bonds to protect beneficiaries' funds is a waste of the 
beneficiary's VA funds.
    Under current law, ``[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].'' See 38 
U.S.C. 5507(a)(3). We interpret this requirement to mean that, where VA 
has imposed a bond requirement, the certification of any person as a 
fiduciary must be based in part upon the proposed fiduciary's ability 
to qualify for and purchase such bond. As such, this requirement is a 
screening tool for VA to use in confirming qualification for 
appointment before releasing any large 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 will not 
appoint the prospective fiduciary and appoint an individual or entity 
who can obtain the necessary fund protection. In addition, requiring a 
prospective fiduciary to secure a surety bond is consistent with our 
oversight obligations, which among other things, include deterring 
fiduciary misuse of benefits. VA's surety bond requirements put a 
fiduciary on notice that he or she is liable to a third party for any 
payment on the bond, and in the event a fiduciary misuses a 
beneficiary's VA benefits, the bonding requirements protect the 
beneficiary's funds.
    For the foregoing reasons, we proposed that all fiduciaries with 
the general exception of spouses must, within 60 days of appointment, 
furnish to the fiduciary hub of jurisdiction 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 also proposed to apply this rule to a fiduciary who is not 
initially required to obtain a bond but later over time accumulates 
funds on behalf of a beneficiary that exceed the $25,000 threshold. 
Based on our experience in administering the program, the risks of not 
requiring all fiduciaries, with the exception of spouses, to furnish a 
surety bond significantly outweigh any burden on a prospective 
fiduciary.
    We have exempted spouses who are fiduciaries from the surety bond 
requirements consistent with our long-standing policy of requiring less 
intrusive oversight of spouse fiduciaries. It has always been our 
policy to minimize the Government's intrusion into the marital 
relationship and to avoid dictating requirements for property that is 
jointly owned by a beneficiary and his or her spouse. We therefore make 
no changes based on this comment.
    One commenter suggested that VA should require a court-appointed 
guardian who was previously sanctioned, disciplined, or removed by a 
court to furnish a surety bond as an additional screening tool, if VA 
is considering the appointment of that guardian as a fiduciary. In 38 
U.S.C. 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. Depending on the sanction, discipline or 
removal a guardian received from a court, VA may appoint or continue 
the appointment of that fiduciary only if VA determines that there is 
no other person or entity willing and qualified to serve, there is no 
risk to the beneficiary, and the appointment is in the beneficiary's 
interest. VA will consider the totality of the circumstances before the

[[Page 32728]]

appointment or continuation of the appointment. Should VA decide to 
appoint or continue the appointment of a guardian as fiduciary, who was 
sanctioned, disciplined or removed by a court, we agree with the 
commenter that requiring a surety bond in such appointments may serve 
as an additional screening tool. Accordingly, we prescribed in Sec.  
13.230(c)(2), that ``the Hub Manager may, at any time, require the 
fiduciary to obtain a bond described in [Sec.  13.230(a)] and meeting 
the requirements of [Sec.  13.230(d)], 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 cases 
where a fiduciary was sanctioned, disciplined or removed by the court. 
We therefore make no changes based on this comment.
    One commenter stated that family caregivers who are also 
fiduciaries should be exempted from the surety bond requirements. 
Another commenter generally stated that family caregivers who are 
fiduciaries should also be exempted from the surety bond requirements 
because they are approved and monitored by VHA.
    We note that VHA does not monitor caregivers' management of 
veterans' VA benefits. Under 38 U.S.C. 1720G(a)(1)(A), VA 
``establish[ed] a program of comprehensive assistance for family 
caregivers of eligible veterans.'' As part of this program, VA has 
authority to provide family caregivers with ``instruction, preparation 
and training'' appropriate to provide services as caregivers, and to 
monitor the well-being of each eligible veteran receiving personal care 
services under the program. See 38 U.S.C. 1720G(a)(3)(A)(i)(I), 
(a)(9)(A).
    VHA's monitoring consists of maintaining a ``veteran's treatment 
plan and collaborat[ing] with clinical staff making home visits to 
monitor the eligible veteran's well-being, adequacy of care and 
supervision being provided.'' See 38 CFR 71.40(b)(2). Thus, while VHA 
provides monitoring of the adequacy of care as it pertains to the 
veteran's health and well-being, it does not provide any training or 
oversight as it pertains to the ability of a family caregiver to manage 
the veteran's VA benefits. See 38 U.S.C. 1720G(a)(9)(C); 38 CFR 71.15, 
71.25(c) and (d). The fiduciary program appoints fiduciaries on behalf 
of beneficiaries who are unable to manage their VA benefits and 
provides oversight to these fiduciaries. VA-appointed fiduciaries are 
tasked with, among other things, managing a beneficiary's monetary VA 
benefits, while family caregivers are tasked with supporting the 
veteran's health and well-being. We note further that requirements for 
caregivers are distinguishable in many ways from the requirements of 
fiduciaries. In this regard, the fact that someone may qualify as a 
family caregiver does not mean that they also would be able to serve as 
a fiduciary and/or obtain a surety bond.
    Under 38 U.S.C. 5507, VA must conduct an investigation regarding a 
proposed fiduciary before appointing the individual to serve as a 
fiduciary. This investigation must include an inquiry regarding the 
proposed fiduciary's criminal and credit history.
    See 38 U.S.C. 5507(a)(1)(C) and (b). Furthermore, under 38 U.S.C. 
5507(a), ``[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].'' In order to meet our oversight 
responsibilities and ensure that only the most qualified individuals 
are appointed as fiduciary to serve our vulnerable beneficiaries, we 
require prospective fiduciaries to furnish a surety bond consistent 
with proposed Sec.  13.230. We cannot exempt a family caregiver from 
the surety bond requirements because the VHA caregiver program does not 
provide oversight as it pertains to a beneficiary's VA benefits. We 
therefore do not make any changes based on this comment.
    One commenter did not agree with VA's proposal to generally 
eliminate the use of restricted withdrawal agreements. The commenter 
believes the process of converting restricted withdrawal agreements 
into surety bonds would result in a cost to VA by generating more work 
for VA's field fiduciary employees, to include scheduling new field 
examinations to replace fiduciaries who cannot obtain surety bonds.
    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 management of accumulated funds under 
management in lieu of obtaining a surety bond. We proposed to eliminate 
the use of withdrawal agreements in proposed Sec.  13.230, except for 
fiduciaries residing in the Commonwealth of Puerto Rico, Guam, or 
another territory of the United States, or in the Republic of the 
Philippines, where surety bonds may not be available. We have 
determined that withdrawal agreements are generally inconsistent with 
VA policy regarding the role of VA and fiduciaries in the fiduciary 
program. See 79 FR 441.
    One of the overall goals of our rewrite of VA's fiduciary 
regulations was to change the program's culture to ensure that it is 
the fiduciary, and not VA, that determines the beneficiary's needs and 
disburses funds to address those needs in the beneficiary's interest. 
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. In that regard, we proposed 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. VA is not the fiduciary for the beneficiary and must 
defer to the fiduciary consistent with VA regulations.
    We do not anticipate a change in workload or any budget increases 
with the implementation of this rule. Currently, less than 1/8th of 1 
percent of our fiduciaries have withdrawal agreements. This is a result 
of our current policy to require surety bonds in lieu of withdrawal 
agreements. For the few fiduciaries that still have withdrawal 
agreements, effective with our final rule, we will require them to 
obtain surety bonds. It will be incumbent upon the fiduciary to obtain 
a surety bond and provide VA with proof of the surety bond. If a 
fiduciary cannot obtain a surety bond because the bonding company 
considers the risk of fund exploitation too high, VA will not continue 
the appointment of the fiduciary and will instead appoint an individual 
or entity that can obtain the necessary fund protection. To the extent 
this will require additional field examinations, we expect any 
additional costs for this activity to be marginal. Consistent with 
Congress' intent, VA makes every effort to ensure that only qualified 
individuals and entities provide fiduciary services for beneficiaries. 
As such, this requirement is a screening tool for VA to use in 
confirming an appointment decision before releasing any large 
retroactive payment to a fiduciary. We make no change based on this 
comment.

Section 13.250--Funds of Deceased Beneficiaries

    We did not receive any comments on this regulation; however, we 
made a technical change consistent with governing authority. Under 38 
U.S.C. 5502(e), when a beneficiary who has a fiduciary dies without 
leaving a valid

[[Page 32729]]

will and without heirs, all VA benefits under management by the 
fiduciary for the deceased beneficiary must be returned to VA if such 
funds will ``escheat'' to the state, less any deductions of expenses to 
determine that escheat is in order. In our proposed rules, we used the 
plain language term ``forfeited'' instead of ``escheat.'' However, to 
be more precise and consistent with the governing authority, we 
replaced the term ``forfeited'' with ``escheat.''

Section 13.260--Personal Funds of Patients

    We did not receive any comments on this rule; however, we made a 
couple of nonsubstantive changes to Sec.  13.260.

Section 13.280--Accountings

    In proposed Sec.  13.280(b), we defined ``accounting'' to mean 
``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 proposed rule further 
states that, ``[t]he accounting prescribed by this section pertains to 
all activity in the beneficiary's accounts, regardless of the source of 
funds maintained in those accounts.'' One commenter questioned VA's 
authority to require accountings regarding non-VA funds that are under 
management by a VA-appointed fiduciary. The commenter also believed 
that it is VA policy to require fiduciaries to disburse non-VA funds 
before VA funds, and again questioned our authority for such actions.
    Under 38 U.S.C. 5509(a), VA has authority to require fiduciaries to 
file accountings regarding funds under management. Pursuant to 38 
U.S.C. 5502(b), such accountings may include disclosure of ``any 
additional financial information concerning the beneficiary (except for 
information that is not available to the fiduciary).'' For accounting 
purposes, VA has authority 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. Therefore, we prescribed, consistent with our statutory 
authority, that an accounting pertains to all activity in the 
beneficiary's accounts, regardless of the source of income.
    It is not VA's policy to require fiduciaries to disburse a 
beneficiary's non-VA funds before his or her VA funds. In fact, it is 
our policy as clarified in this rulemaking that it is the fiduciary who 
determines the beneficiary's needs and disburses funds to address those 
needs in the beneficiary's interest. In that regard, we specifically 
prescribed inSec.  13.140(a) that a fiduciary must disburse or 
otherwise manage funds, which would include all non-VA funds of the 
beneficiary under the fiduciary's control, 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.'' We did not propose to require fiduciaries to 
disburse funds under management in any specific order. Accordingly, we 
make no change based upon these comments.
    In Sec.  13.280, we proposed that a fiduciary would be required to 
provide VA an annual accounting regarding funds under management for a 
beneficiary 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 a service-connected disability rated totally 
disabling. We received several comments that generally suggested that 
we should exempt fiduciaries who are VHA-approved family caregivers 
from our accounting requirements because they receive ample oversight 
from the VA Caregiver Support Program. One commenter specifically 
stated that the VA Caregiver Handbook states that joint checking, 
investment, and other accounts are allowed between veterans and their 
caregivers.
    Congress granted VA the authority to ``establish a program of 
comprehensive assistance for family caregivers of eligible veterans,'' 
as well as a program of general support services for caregivers of 
``veterans who are enrolled in the health care system established under 
[38 U.S.C. 1705(a)] (including caregivers who do not reside with such 
veterans).'' See 38 U.S.C. 1720G(a), (b). VHA has since established a 
Caregiver Support Program, which provides certain medical, travel, 
training, and financial benefits to caregivers of certain veterans and 
service members who were seriously injured in the line of duty on or 
after September 11, 2001. As discussed above, neither the statute and 
implementing regulations nor the VA Caregiver Support Program provides 
for any oversight as it pertains to a veteran's VA benefits.
    For fiduciaries in the fiduciary program, VA must conduct the 
investigation prescribed in 38 U.S.C. 5507, and thereafter conduct 
sufficient oversight for the purpose of, among other things, monitoring 
a fiduciary regarding misappropriation or misuse of benefits and 
reissuance of benefits under 38 U.S.C. chapter 61. Under 38 U.S.C. 
5509(a), VA has authority to require fiduciaries to file accountings 
regarding funds under management, and it is the responsibility of the 
fiduciary program to oversee the actions of fiduciaries as it relates 
to the use of VA benefits. Accordingly, we propose to continue to 
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, 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. At this 
time, we will not exempt VHA-approved caregivers from the fiduciary 
accounting requirement because the caregiver program does not include 
alternative oversight of the caregiver's fiduciary obligations.
    While a commenter cited page 157 of the ``VA Caregiver Handbook'' 
and stated that the Caregiver Support Program allows joint accounts 
between veterans and family caregivers, a review of both the VA 
Caregiver Support Program Guidebook, which is no longer in use 
following the issuance of VHA Directive 1152, Caregiver Support Program 
(June 14, 2017), and the National Caregiver Training Program Caregiver 
Workbook did not confirm the commenter's assertion. In the 
``Resources'' module of the National Caregiver Training Program 
Caregiver Workbook, pages 153 through 168, VA outlines the resources 
that are available to family caregivers and mentions joint accounts, 
but it does not state that caregivers can open joint accounts with 
veterans. Because the VA Caregiver Support Program does not provide 
oversight of a caregiver-fiduciary's management of a veteran's VA 
benefits, we make no change based on these comments.
    Two commenters suggested that we should require accountings from 
all fiduciaries, to include spouses. The commenters generally stated 
that some family members exploit the beneficiaries they are appointed 
to serve, and requiring accountings would serve as an additional 
deterrent to the misuse of benefits. Another commenter stated that a 
spouse caregiver who is also a fiduciary should be exempted from the 
accounting requirement. As stated previously, VA proposed only to 
require accountings when the amount of VA benefit funds under 
management by the fiduciary exceeds $10,000, the fiduciary receives a 
fee deducted from

[[Page 32730]]

the beneficiary's account, or the beneficiary is being paid monthly 
benefits in an amount equal to or greater than the rate for a service-
connected disability rated totally disabling. It is our general policy 
that every fiduciary that meets the foregoing criteria must submit an 
annual accounting to VA.
    We prescribed exceptions to the general accounting rules. First, no 
spouse will be required to submit an annual accounting. As we explained 
above, it is VA's long-standing policy to avoid undue intrusion into 
the relationship between a beneficiary and the beneficiary's spouse. It 
is our 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 his or her spouse. Second, we will 
not require the chief officer of a Federal institution to submit an 
annual accounting 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 will not require an 
annual accounting from the chief officer of a non-VA facility receiving 
benefits for a beneficiary institutionalized in the facility when the 
cost of the monthly care and maintenance and personal cost expenses of 
the beneficiary in the institution equals or exceeds the beneficiary's 
monthly benefit and the beneficiary's funds under management by the 
fiduciary do not exceed $10,000. However, VA will continue to require 
accountings from all family members who serve as fiduciaries with the 
exceptions noted above. We make no change based on these comments but 
will continue to monitor the accounting requirements to ensure that we 
have the proper balance between oversight and fiduciary burden. We 
have, however, added new language in paragraph (a)(4) stating that 
accounting is required if the Hub Manager determines that it is 
necessary to ensure the fiduciary has properly managed the 
beneficiary's funds. This will allow the Hub Manager, on a case-by-case 
basis, to determine when an annual accounting is required to protect 
the beneficiary.

Section 13.400--Misuse of Benefits

    We received three comments regarding proposed Sec.  13.400. One 
commenter suggested our definition of misuse should include the failure 
of a fiduciary to distribute funds to fulfill a beneficiary's needs. 
However, VA cannot conclude, without a clear evidentiary basis, that a 
fiduciary is misusing a beneficiary's VA benefits if that fiduciary is 
not distributing funds to fulfill a beneficiary's needs. A fiduciary, 
for example, could be conserving a beneficiary's funds instead of 
distributing funds to fulfill the beneficiary's needs, or be unable to 
perform his or her duties as fiduciary for a number of reasons, which 
would not equate to misuse but might justify removing the fiduciary. 
Our definition of misuse restates the statutory definition, and 
consistent with current VA policy, will facilitate VA's identification 
of possible misuse. Nonetheless, in the event a fiduciary is not 
distributing funds to fulfill a beneficiary's needs in accordance with 
proposed Sec.  13.140, which would prescribe that a fiduciary must 
monitor the well-being of the beneficiary the fiduciary serves and 
disburse funds according to beneficiary's needs, the fiduciary will be 
removed under Sec.  13.500. We therefore make no changes based on the 
comment.
    Another commenter suggested that when we make a misuse 
determination on reconsideration, the decision should identify whether 
a fiduciary is a court-appointed guardian or conservator. We agree. We 
have amended paragraph (d)(4) to reflect that we would identify in our 
final misuse determination whether the fiduciary is a court-appointed 
guardian or conservator.
    The same commenter also suggested that VA develop protocols and 
notify the court, in addition to the beneficiary and legal guardian, of 
our misuse determinations when the fiduciary is also a court-appointed 
guardian. We agree. In cases where a fiduciary, who is also the 
beneficiary's legal guardian, misappropriates or misuses a 
beneficiary's VA benefits and there is a bond in place payable to the 
court, VA will contact the court to make it aware of the situation and 
facilitate recovery of any misappropriated or misused funds from the 
surety company. In addition, VA will put the court on notice that the 
continuation of the appointment of the legal guardian may no longer be 
in the beneficiary's interest. Accordingly, in response to this 
comment, we have revised Sec.  13.400(c) and (e)(1) by requiring the 
Director of the VA Regional Office of jurisdiction to also report 
misuse cases to ``the court of jurisdiction if the fiduciary is also 
the beneficiary's court-appointed legal guardian and/or conservator.''
    We have amended proposed Sec.  13.400(b) to clarify the 
discretionary authority of the Hub Manager to investigate or not 
investigate an allegation of misuse. The Hub Manager's decision is 
discretionary because it involves the complicated balancing of a number 
of factors, including whether the misuse allegation is likely to lead 
to a finding of misuse and whether to expend limited funds and staffing 
resources in an investigation and issuance of a formal decision in 
response to such allegation. The revised language provides that 
``[u]pon receipt of information from any source regarding possible 
misuse of VA benefits by a fiduciary, the Hub Manager may, upon his or 
her discretion, investigate the matter and issue a misuse determination 
in writing.''

Section 13.410--Reissuance and Recoupment of Misused Benefits

    Section 6107(a)(2) provides that VA negligence causes misuse when 
the Hub Manager fails to properly investigate or monitor the fiduciary, 
such as when the Hub Manager fails to timely review the fiduciary's 
accounting or receives notice of an allegation of misuse but fails to 
act within 60 days of the date of notification of the alleged misuse to 
terminate the fiduciary. We made a technical change to proposed Sec.  
13.410(b)(1) through (b)(3) to more accurately reflect 38 U.S.C. 
6107(a)(2).
    In reviewing proposed Sec.  13.410, we noticed that we failed to 
list one criterion in section 6107(a) for the reissuance of benefits 
based upon a determination that VA negligence resulted in misuse of 
benefits. As such, we are adding a new paragraph (b)(1)(iii) to make 
clear that negligence includes situations where VA received an 
allegation of misuse, decided to investigate after exercising its 
discretion, and found misuse, but failed to initiate action within 60 
days of receipt of the misuse allegation to terminate the fiduciary. We 
are also clarifying paragraph (b)(1)(ii) to state, ``The Hub Manager 
did not decide whether to investigate an allegation of misuse within 60 
days of receipt of the allegation,'' which more accurately reflects the 
responsibility of the Hub Manager to exercise his or her discretionary 
authority to investigate a misuse allegation in a timely manner.

Section 13.600--Appeals

    In proposed Sec.  13.600, we proposed to close the evidentiary 
record on an appealable fiduciary matter once we reviewed the evidence 
relating to the fiduciary matter and made a decision. See 79 FR 449. We 
explained that our intent was to expeditiously process appeals in 
fiduciary matters to avoid delaying VA's effort to resolve the 
beneficiary's disagreement with a decision or issuing a statement of 
the case or certifying an appeal to the

[[Page 32731]]

Board. See 79 FR 449. We further explained that closing the record 
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). See 79 FR 449.
    We received several comments regarding proposed Sec.  13.600 as it 
pertains to closing the record. One commenter is concerned that closing 
the record on the date our decision is made to remove a fiduciary would 
prevent a beneficiary from submitting new information about ``the 
continuation of misfeasance or malfeasance by the fiduciary.'' The 
commenter is concerned that if a fiduciary retaliates against the 
beneficiary during the appeals process, VA could be negligent for not 
having such information, as the record would be closed. The commenter 
further believes that the closing of the record would prevent a 
beneficiary from submitting additional evidence for reconsideration or 
additional misuse.
    Another commenter stated that closing the evidentiary record will 
obstruct compliance with the duty-to-assist statute, which provides 
that VA has an affirmative duty to assist a claimant in obtaining 
evidence to substantiate the claimant's claim for VA benefits, which 
may include obtaining relevant private or Government records or 
providing a medical examination or obtaining a medical opinion when 
necessary to decide the claim. See 38 U.S.C. 5103A.
    In light of the foregoing comments, we reexamined proposed Sec.  
13.600 and agreed with the commenters that closing the record could 
prevent an appellant from submitting additional evidence that could 
impact a final decision under current regulations. A reexamination of 
this regulation also led us to conclude that closing of the evidentiary 
record would interfere with the general appellate process. Under 38 CFR 
20.800, an appellant may submit additional evidence after initiating an 
appeal. Under 38 U.S.C. 7105(e), if an appellant submits additional 
evidence to the agency of original jurisdiction or the Board after the 
filing of a substantive appeal, the Board may review it for the first 
time on appeal unless the appellant specifically requests the agency of 
original jurisdiction to review it first; under 38 CFR 20.1304(a), an 
appellant may submit additional evidence within 90 days after an appeal 
is certified to the Board or before the Board issues a decision, 
whichever comes first; under Sec.  20.1304(b), an appellant may submit 
additional evidence after the 90-day period upon a showing of good 
cause. Accordingly, we have revised Sec.  13.600(b) to remove reference 
to closing the record, thus permitting the potential submission of 
additional evidence to the extent allowed by statutes and regulations 
generally governing appeals.
    Regarding the commenter's concerns that the duty to assist should 
apply to all stages of the appeal, we stated in the preamble to 
proposed Sec.  13.600 that, although decisions on fiduciary matters are 
made under laws that affect the provision of benefits and, therefore, 
fall within the scope of 38 U.S.C. 511(a) (Decisions of the Secretary; 
finality), 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. See 79 FR 449. Any duty to assist 
will be triggered at the claim development stage. Fiduciary matters 
arise after a beneficiary has established his or her claim for VA 
benefits. Therefore, the duty to assist is not applicable to fiduciary 
matters.
    Another commenter suggested that we include incompetency rating 
decisions in our list of appealable decisions. The commenter stated 
that it is unclear whether we intend to include incompetency rating 
decisions as an appealable decision in our part 13 fiduciary 
regulations or leave such decisions in VA's 38 CFR part 3 adjudication 
regulations.
    We did not propose to include incompetency rating decisions in our 
fiduciary regulations because VA determinations of incompetency are the 
subject of the adjudication regulations in part 3, see 38 CFR 3.353(e), 
which precede the appointment of a fiduciary in cases where a 
beneficiary is determined unable to manage his or her VA-derived 
monetary benefits. Beneficiaries rated by VA as being unable to manage 
their VA benefits are afforded the right of appeal regarding that 
rating through VA's regulations in 38 CFR parts 3, 19, and 20. A 
beneficiary enters the fiduciary program after he or she is rated 
unable to manage his or her VA benefits. VA's rating agencies are 
authorized to find beneficiaries incompetent for the purpose of 
disbursement of benefits, see 38 CFR 3.353(b), (c), (d), and the rules 
that govern these determinations are contained in VA's part 3 
regulations. While VA adjudication regulations trigger entry into VA's 
fiduciary program, these regulations have aspects that operate 
independently from VA's fiduciary program. Finally, we have found that 
the process described above works effectively. For the foregoing 
reasons, we did not propose to consolidate the rules applicable to 
incompetency rating decisions in our proposed part 13 regulations.
    The same commenter stated that VA did not provide any reasons for 
closing the record after we make a final decision on an appealable 
fiduciary matter. The commenter stated that because fiduciary appeals 
involve ``mentally challenged and impaired beneficiaries, the record is 
highly likely to be incomplete or otherwise in need of enhancement to 
ensure a fair and well-founded decision of appeal.'' Citing to 38 CFR 
3.103 and Cushman v. Shinseki, 576 F.3d 1290 (Fed. Cir. 2009), the 
commenter stated that existing VA appellate procedures should govern 
fiduciary appeals. The commenter further stated that an appellant's 
right to due process includes the right to a complete and accurate 
record, and closing the record amounts to a violation of a 
beneficiary's right to due process.
    As previously explained, we are amending Sec.  13.600 to remove 
reference to closing the evidentiary record.
    Regarding an appellant's right to due process in fiduciary matters, 
VA's fiduciary regulations will afford beneficiaries all of the process 
that is due to them under the law through specific notice and 
opportunity-to-be-heard provisions. After the appointment of a 
fiduciary, we will afford due process in VA decisions regarding 
fiduciary matters as prescribed in the part 13 regulations. For 
instance, VA will provide to the beneficiary a written decision and 
notice of appellate rights in a fiduciary matter that is appealable 
under Sec.  13.600. See 38 CFR 13.30(b). Regarding misuse, VA will 
issue a decision and provide the parties an opportunity to request 
reconsideration and submit any additional information, see Sec.  
13.400(c), (d), and will provide to the beneficiary a written decision 
and notice of appellate rights following reconsideration, see 
Sec. Sec.  13.400(d), 13.600(a)(4).
    For the foregoing reasons, we have changed our position regarding 
the evidentiary record on appeal. To reflect these changes, in Sec.  
13.600(b), we have removed language as it pertains to the closing of 
the record.

General Matters

    In 38 U.S.C. 5502(a)(1), Congress authorized VA to appoint a 
fiduciary for the purpose of receiving and disbursing VA benefits on 
behalf of a beneficiary: ``Where it appears to the Secretary that the 
interest of the beneficiary would be served thereby, payment of 
benefits

[[Page 32732]]

under any law administered by [VA] 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.'' In the preamble to the proposed rule, we 
explained that VA interprets ``regardless of any legal disability'' in 
section 5502(a)(1) to mean that, in creating the fiduciary program, 
Congress intended VA to preempt state laws 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. See 79 FR 430.
    One commenter disagreed with our interpretation that Congress 
intended VA to preempt state law. The commenter stated that Congress 
intended VA to utilize ``well-developed state law in this area to aid 
in the appointment, regulation, and oversight of its fiduciaries.'' 
Citing to various Supreme Court cases, the commenter generally stated 
that there is no reasonable basis for our interpretation of section 
5502(a)(1) and we did not address well-established legal tests for 
whether Congress intended a Federal statute to preempt state laws.
    Matters regarding the governance of guardianships for persons with 
legal disabilities have their jurisdiction in state courts. See, e.g., 
Neb. Rev. Stat. Ann. Sec.  30-2602(a) (LexisNexis 2017). Congress 
specifically provided that, ``regardless of any legal disability on the 
part of the beneficiary,'' VA can act and appoint a fiduciary on behalf 
of such beneficiary. Contrary to the commenter's concern, as discussed 
below, this language cannot be construed to mean that Congress 
explicitly authorized VA to create a fiduciary program whereby it 
appoints a fiduciary on behalf of a beneficiary, irrespective to any 
legal disability, and then defers to state laws for the administration 
of the fiduciary program.
    We do not disagree with the commenter that there are well-developed 
laws in matters of guardianship. We did not propose to preempt these 
state laws regarding the administration of state guardianship matters. 
When Congress enacted section 5502, it did not intend a sweeping 
preemption of state laws that govern guardianship activities. As we 
discuss further below, we believe Congress only intended for VA to 
preempt state law in guardianship matters as they relate to VA 
benefits. Under the authority granted by current law, we proposed to 
promulgate uniform rules for all fiduciaries appointed by VA to manage 
VA benefit payments on behalf of beneficiaries. As such, if we appoint 
a state-appointed guardian to serve as a fiduciary on behalf of a 
beneficiary who is receiving VA benefits, our regulations, not state 
law, are applicable to the appointment and oversight of the fiduciary 
and the fiduciary's management of VA benefits for the beneficiary, as 
Congress intended.
    In establishing the fiduciary program, Congress did not intend for 
VA to refer to various state laws for the administration of the 
fiduciary program. For example, Congress did not intend for VA to 
utilize state laws regarding fiduciary fees that are paid from a 
beneficiary's VA benefits and subject beneficiaries to the various fee 
schedules prescribed by states, such that beneficiaries will be treated 
differently depending upon state of residence. Under section 
5502(a)(2), Congress specifically mandated ``a reasonable commission 
for fiduciary services rendered'' to be paid from the beneficiary's VA 
funds, ``but the commission for any year may not exceed 4 percent of 
the monetary benefits.'' Furthermore, among other things, Congress 
authorized VA to remove any fiduciary who is not meeting the 
fiduciary's responsibilities to a beneficiary or who is not acting in 
the beneficiary's interest. See 38 U.S.C. 5502. VA's authority also 
extends to appointment of a temporary fiduciary in certain 
circumstances, suspending payments to any fiduciary who fails to 
properly submit an accounting to VA, and, with respect to the 
appointment of a fiduciary, conducting investigations of prospective 
fiduciaries. See 38 U.S.C. 5502, 5507. The foregoing statutory 
obligations demonstrate Congress' intent to create a uniform system of 
fiduciary services for VA beneficiaries, irrespective of inconsistent 
state laws.
    The commenter relied on Hines v. Stein, 298 U.S. 94 (1936), and 
stated that the United States Supreme Court addressed the matter as to 
whether Congress intended VA to preempt state laws regarding 
guardianships and rejected VA's supremacy theory 75 years ago. The 
commenter's reliance on Hines for this proposition is misplaced. In 
Hines, the then Administrator of Veterans Affairs objected to an 
attorney's fee, which was allowed by a state court for an attorney's 
special services in a guardianship matter, on the grounds that the fees 
were in excess of the amount fixed by Federal statutes. See Id. at 96-
97. The Court found that ``[n]othing brought to our attention would 
justify the view that Congress intended to deprive state courts of 
their usual authority over fiduciaries, or to sanction the promulgation 
of rules to that end by executive officers or bureaus.'' See Id. at 98. 
It accordingly affirmed the order of the court of common pleas allowing 
the attorney's fees. The Supreme Court's decision in Hines reflects 
that state courts at the time of that decision had the authority to 
make decisions in state-appointed guardianship cases involving 
veterans. This remains true in matters that do not involve matters 
affecting the payment of VA monetary benefits to persons whom VA has 
adjudicated as unable to manage these funds. In cases that involve VA's 
appointment of fiduciaries and their oversight of VA funds due to 
persons adjudicated by VA as incompetent to manage those funds, 
Congress has provided specific authority authorizing VA oversight via 
statutes now codified in chapters 55 and 61 of title 38 of the United 
States Code. Because these statutes were enacted after Hines and 
therefore were not addressed in Hines, Hines does not control in 
matters involving VA's appointment of fiduciaries and oversight of VA 
funds.
    VA's longstanding interpretation of 38 U.S.C. 5502 is that VA may 
establish a fiduciary program, under which it oversees beneficiaries 
who cannot manage their own VA benefits, and 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. It is 
reasonable to conclude that Congress had knowledge of state laws and 
Hines as they pertain to guardianship matters, when it granted VA the 
authority to administer the fiduciary program. Therefore, with its 
enactment of 38 U.S.C. 5502, Congress expressed a remedy for subjecting 
VA beneficiaries to varying state laws and intended for VA to preempt 
state law as it relates to appointment of fiduciaries to oversee the 
assets of persons whom VA adjudicated as incompetent to manage their 
VA-derived monetary benefits.
    The commenter cited various Supreme Court cases that discuss the 
methods by which the Court may discern whether Congress intended to 
preempt state law when it enacted certain Federal legislation, and the 
commenter stated that VA did not address any of the tests for 
preemption as established by the Court. There is no dispute that the 
Supreme Court has established various tests on the issue of whether a 
Federal statute preempts state laws and has discussed the various tests 
in numerous cases. The commenter cited Pharmaceutical Research and

[[Page 32733]]

Manufacturers of America v. Walsh, 538 U.S. 644 (2003), in which the 
Court noted: ``the question [in this case] is whether there is a 
probability that [a state's] program was pre-empted by the mere 
existence of the federal statute. We start therefore with a presumption 
that the state statute is valid . . . and ask whether petitioner has 
shouldered the burden of overcoming that presumption.'' See Id. at 661-
662 (citation omitted). Walsh concerned whether a Maine prescription 
drug law, under which the state attempted to renegotiate rebates with 
drug manufacturers, was preempted by the Federal Medicaid statute. See 
Id. at 650-51.
    The above-quoted statement in Walsh describes how the burden of 
showing preemption is allocated in litigation between private parties. 
It does not describe how courts determine whether an agency is correct 
in finding that Federal law preempts certain state actions. See, e.g., 
id. at 661 (stating that, if the agency had determined that the state 
law impermissibly conflicted with Federal law, the agency's ``ruling 
would have been presumptively valid''). As explained below, our 
conclusion is consistent with the general standards courts apply in 
determining that Federal law preempts any conflicting state laws as to 
matters that Congress intended would be governed by Federal law. 
Further, unlike Walsh, we are not assessing the validity or invalidity 
of a specific state statute but, rather, are merely explaining the 
basis for our conclusion that Congress authorized VA to establish 
uniform standards governing VA fiduciary matters that would preempt 
state law in the event of any conflict.
    As an initial matter, we emphasize that VA did not propose to 
intrude on state authority over a particular activity, specifically its 
governance of guardianship matters. In that regard, if a state appoints 
a person or entity to serve as legal guardian for an individual, the 
state law of jurisdiction would apply to that matter, and VA has no 
authority to interfere. VA did not propose to regulate state 
guardianships or to invalidate state laws as they apply to guardianship 
matters. However, if VA determines that it will be in a VA 
beneficiary's interest to appoint the beneficiary's state-appointed 
guardian as fiduciary over the beneficiary's VA monetary benefits, VA's 
regulations will apply to VA's appointment of that fiduciary and VA's 
oversight of the fiduciary's management of VA funds.
    The doctrine of preemption has its roots in the Supremacy Clause, 
U.S. Const., art. VI, cl. 2, and requires courts to examine 
congressional intent. Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 
U.S. 141, 152-53 (1982). The Supreme Court has held that preemption 
``may be either express or implied, and is compelled whether Congress' 
command is explicitly stated in the statute's language or implicitly 
contained in its structure and purpose. Absent explicit pre-emptive 
language, Congress' intent to supersede state law altogether may be 
inferred because the scheme of federal regulation may be so pervasive 
as to make reasonable the inference that Congress left no room for the 
states to supplement it, because the Act of Congress may touch a field 
in which the federal interest is so dominant that the federal system 
will be assumed to preclude enforcement of state laws on the same 
subject, or because the object sought to be obtained by federal law and 
the character of obligations imposed by it may reveal the same 
purpose.'' See Id. (citations and quotations omitted). Further, 
``[e]ven where Congress has not completely displaced state regulation 
in a specific area, state law is nullified to the extent that it 
actually conflicts with federal law. Such a conflict arises when 
compliance with both federal and state regulations is a physical 
impossibility.'' See Id. at 153.
    In deciding questions of preemption, courts follow two guiding 
principles: ``First, the purpose of Congress is the ultimate touchstone 
in every pre-emption case. Second, in all preemption cases, and 
particularly in those in which Congress has legislated . . . in a field 
which the States have traditionally occupied, . . . [courts] start with 
the assumption that the historic police powers of the States were not 
to be superseded by the Federal Act unless that was the clear and 
manifest purpose of Congress.'' See Wyeth v. Levine, 555 U.S. 555, 565 
(2009) (citations and quotations omitted).
    Here, upon a plain reading of section 5502(a)(2) and a review of 
its legislative history, Congress intended VA 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. As noted 
above, it is well established in guardianship statutes that 
guardianship matters relating to legal disability have their 
jurisdiction in state courts. State courts ultimately determine the 
necessity of a legal guardian based on the individual's legal 
disability. As such, Congress would have excluded the specific language 
``regardless of any legal disability'' in section 5502 had it intended 
for state laws to apply to matters of payment of VA benefits to 
fiduciaries on behalf of VA beneficiaries who cannot manage their VA 
benefits. Instead, Congress provided for VA to appoint a fiduciary 
irrespective to any legal disability of the beneficiary and for Federal 
laws, rather than state laws, to govern the fiduciary program. See 38 
U.S.C. 5502(a)(2) (``a fiduciary appointed by the Secretary''). More 
fundamentally, by vesting VA with statutory authority over the 
appointment, supervision, payment, and removal VA fiduciaries, Congress 
has made clear its intent that Federal law will govern those matters. 
Thus, VA proposed rules that are uniform to all fiduciaries that it 
appoints to manage VA benefits on behalf of beneficiaries.
    In 1974, Congress amended then 38 U.S.C. 3202 and authorized VA to 
make payments to a fiduciary other than a state-appointed guardian. See 
Public Law 93-295, sec. 301, 88 Stat. 180, 183-84 (1974). Furthermore, 
38 U.S.C. 5502(b), among other things, authorizes VA to suspend 
benefits to a fiduciary, regardless of whether he or she is appointed 
as guardian by the state court, if that fiduciary refuses to render an 
account to VA, or if he or she neglects to administer a beneficiary's 
estate according to law. Our conclusions regarding the plain language 
and the structure and purpose of section 5502 are bolstered by its 
legislative history. The language and available legislative history of 
the statute reflect Congress' intent to create a uniform fiduciary 
program for all VA beneficiaries who are unable to manage their VA 
benefits.
    In support of the commenter's assertion that Congress intended VA 
to defer to the various state laws in its administration of the 
fiduciary program, the commenter noted that Congress did not prescribe 
any specific duty of trust for fiduciaries or administrative 
provisions, and generally stated that section 5502 contains language 
establishing Congress' intent to have VA defer to state law. We do not 
agree.
    As the commenter stated, there are well-established legal tests for 
whether Congress intended to have a Federal statute preempt state laws, 
and the absence of language in a Federal statute does not itself mean 
that Congress intended that VA will defer to state law, particularly 
when Congress routinely delegates broad authority to Federal agencies 
to determine how to best administer Federal programs. Section 5502 is 
this type of broad authority. Nonetheless, in light of this comment, we 
revised Sec.  13.140(a)(1) to include that fiduciaries in the fiduciary 
program owe VA and beneficiaries the duties of good

[[Page 32734]]

faith and candor and must administer a beneficiary's funds under 
management in accordance with paragraph (b) of Sec.  13.140. We agree 
with the commenter that duties of candor and good faith are essential 
in a fiduciary-beneficiary relationship, and a fiduciary should be 
required to exercise good faith and to take the same care regarding a 
beneficiary's funds under management as he would for his or her own 
funds. Although the statute is silent as to these duties, it is highly 
unlikely that Congress would not have intended VA to require such 
duties from a fiduciary it appoints.
    Furthermore, pursuant to 38 U.S.C. 501(a), VA may promulgate 
regulations that are ``necessary or appropriate to carry out the laws 
administered by the Department and are consistent with [38 U.S.C. 
5502].'' We therefore determined that the foregoing change to Sec.  
13.140(a)(1) is appropriate and consistent with Congress' intent.
    The commenter's reliance on the language in section 5502(b) that 
states that ``[VA] may appear or intervene . . . in any court as an 
interested party in any litigation . . . affecting money paid to such 
fiduciary'' to argue that Congress intended VA to utilize state law in 
administrating the fiduciary program is misplaced. The intent of the 
1935 amendment to add this language to the statute was to clarify and 
expand the authority of the Veterans Administration to supervise court-
appointed fiduciaries and to participate in litigation. See H.R. Rep. 
No. 74-16, at 1-2 (1935) (``[T]here is also a need for amendment to 
more clearly define and extend the authority of the Administrator of 
Veterans' Affairs to appear in courts or intervene as an interested 
party in litigation directly affecting money paid to fiduciaries of 
beneficiaries under this section.''). This language, however, does not 
require in any way for VA to use state laws to administer its fiduciary 
program. Where Congress has intended to require VA to follow state law 
on a particular matter relevant to VA benefits, it has done so 
expressly. See 38 U.S.C. 103(c). In contrast, section 5502 vests VA 
with authority to establish uniform Federal standards governing the 
appointment, supervision, payment, and removal of VA fiduciaries. VA 
has implemented that authority by establishing such uniform Federal 
standard, rather than relying upon state law, in view of the 
complexity, inconsistency and confusion that could result from 
administering a Federal program by following myriad state laws.
    Furthermore, the commenter's belief that the language in section 
5502(e) regarding escheat of funds held by a fiduciary demonstrates 
Congress' intent regarding state law is contrary to the plain text of 
the statute. Section 5502(e) in its entirety provides that ``[a]ny 
funds in the hands of a fiduciary appointed by a State court or the 
Secretary derived from benefits payable under laws administered by the 
Secretary, 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, or by the 
personal representative of the deceased beneficiary, less legal 
expenses of any administration necessary to determine that an escheat 
is in order, to the Department, and shall be deposited to the credit of 
the applicable revolving fund, trust fund, or appropriation.'' It does 
not provide that any escheat of VA funds with a fiduciary should be 
administered pursuant to state laws.
    Based on the foregoing, we find that Congress clearly intended in 
section 5502 that VA would be responsible for prescribing and enforcing 
Federal standards governing the appointment, supervision, payment, and 
removal of VA fiduciaries and that those Federal standards would 
preempt any conflicting state laws on such matters. Consistent with 
that intent and authority, VA has established national standards for 
all vulnerable VA beneficiaries, regardless of their state of 
residence. As such, we make no changes based on the comment.
    The same commenter stated that our proposed regulations should 
establish clear evidentiary standards upon which VA bases its decision 
that a beneficiary is unable to manage his or her VA benefits; however, 
this matter is beyond the scope of this rulemaking. The commenter noted 
that such standards are necessary to ensure that a beneficiary is not 
arbitrarily and capriciously deprived of the right to control his or 
her own property.
    While our proposed fiduciary regulations do not contain the 
evidentiary standards for determining when a beneficiary is unable to 
manage his or her VA benefits, the regulations in 38 CFR part 3 
prescribe such standards. Therefore, there are measures in place to 
ensure that a beneficiary is not arbitrarily or capriciously deprived 
of his or her right to control his or her VA benefits. A VA regulation 
provides that, for purposes of payment of VA benefits, VA's rating 
agencies have the authority to make determinations of competency and 
incompetency. See 38 CFR 3.353(b)(1). ``Unless the medical evidence is 
clear, convincing and leaves no doubt as to the person's incompetency, 
[VA] will make no determination of incompetency without a definite 
expression regarding the question by the responsible medical 
authorities.'' See 38 CFR 3.353(c). Such determinations must be ``based 
upon all evidence of record and there should be a consistent 
relationship between the percentage of disability, facts relating to 
commitment or hospitalization and the holding of incompetency.'' See 
Id. The regulation further provides that there is a presumption in 
favor of competency. See 38 CFR 3.353(d). ``Where reasonable doubt 
arises regarding a beneficiary's mental capacity to contract or to 
manage his or her own affairs, including the disbursement of funds 
without limitation, such doubt will be resolved in favor of 
competency.'' See Id. In addition, VA regulations provide for notice 
and an opportunity to be heard regarding the determination of 
incompetency. See 38 CFR 3.103(c), 3.353(e).
    Moreover, not only is a beneficiary who is deemed unable to manage 
his or her VA benefits entitled to all of the appellate procedures 
associated with other VA decisions that affect the provision of his or 
her VA benefits, as noted above, he or she is also entitled to a pre-
determination hearing if he or she so requests. In addition, even after 
the beneficiary is found to be unable to manage his or her VA benefits, 
current part 13 regulations, in appropriate circumstances, allow a 
beneficiary to manage his or her own VA benefits by placing him or her 
in a supervised direct pay program. This option provides an additional 
layer of protection against the erroneous deprivation of a beneficiary 
to control his or her own VA benefits. Finally, a beneficiary who 
believes that VA did not follow all applicable procedures in selecting 
a fiduciary may appeal this determination to the Board. Collectively, 
these standards provide protection against any arbitrary and capricious 
determinations relating to the beneficiary's ability to control his or 
her own VA benefits. We therefore make no change based on this comment.
    A commenter stated that our proposed rules should contain 
qualifications and training requirements for field examiners because, 
among other things, field examiners are required to make decisions 
regarding budgets and living conditions for beneficiaries. However, the 
qualifications of and training for VA field examiners is an 
administrative matter that is outside the scope of this rulemaking. VA 
makes every effort to hire the most qualified field examiners and 
provide any training VA deems necessary, but such matters generally

[[Page 32735]]

are not the subject of VA regulations. Further, while VA field 
examiners make recommendations about whether a beneficiary's needs are 
being addressed and whether his or her funds are being utilized 
appropriately, decisions concerning appointment and/or removal of 
fiduciaries are made by the fiduciary hub with jurisdiction over the 
case, not the individual field examiner.
    One commenter stated that fiduciaries are tasked with many 
responsibilities and noted that our rulemaking cannot address training 
for fiduciaries but asked that we provide services or training for 
fiduciaries. VA makes every effort to provide training and services to 
fiduciaries we appoint to serve our beneficiaries. Currently, there is 
a handbook titled, ``A Guide for VA Fiduciaries,'' which we provide to 
fiduciaries. In addition, VA has an internet website that provides 
training and other resources to fiduciaries. The link to the website 
is: https://www.benefits.va.gov/fiduciary/index.asp. Fiduciaries also 
have ways of contacting VA with questions. Fiduciaries can also call 
the VA Fiduciary's Program's assistance line at 1-888-407-0144 with 
questions or email questions to any of the fiduciary hubs at the 
following email addresses: Columbia: vavbacms/ro/[email protected]; 
Louisville: avbacms/ro/[email protected]; Milwaukee: vavbamiw/ro/[email protected]; Lincoln: vavbalin/ro/[email protected]; Indianapolis: 
[email protected]; Salt Lake City: [email protected].
    In proposed Sec.  13.140, regarding the responsibilities of 
fiduciaries, we prescribed financial and nonfinancial responsibilities 
for fiduciaries. We believe that such responsibilities are consistent 
with industry standards for fiduciaries. We prescribed that fiduciaries 
will 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 addition, we prescribed a fiduciary's 
non-financial responsibilities to generally include 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, and that a fiduciary must maintain regular contact 
with a beneficiary and be responsive to beneficiary requests. We 
believe such responsibilities are the basic responsibilities of any 
fiduciary-beneficiary relationship. We do not believe that such 
responsibilities are burdensome. Nonetheless, we strive to provide 
fiduciaries with any information that could be useful in the 
performance of their duties as fiduciaries.
    One commenter inquired about VA's approach regarding court-
appointed guardianships and the cost associated with such 
guardianships. The commenter noted that state courts have primary 
oversight of court-appointed guardians and fees associated with such 
guardianships. The commenter inquired about VA's approach to legal 
guardianships, as state courts have jurisdiction over such matters.
    VA's fiduciary regulations will result in a gradual discontinuance 
of the current practice of recognizing a court-appointed guardian or 
fiduciary for purposes of receiving VA benefits on behalf of a VA 
beneficiary. Instead, VA will establish a national standard for 
appointing and overseeing fiduciaries. In certain cases, VA may appoint 
a beneficiary's court-appointed guardian or fiduciary to serve as VA 
fiduciary if we determine that such an appointment will be in the 
beneficiary's interest. In that regard, if VA appoints a court-
appointed guardian or fiduciary to also serve as VA fiduciary, VA's 
rules will apply as it pertains to the management of VA funds. This 
final rule will, over time, result in uniformity for all fiduciaries 
appointed by VA to manage VA benefit payments on behalf of a 
beneficiary and significantly reduce costs associated with court-
appointed guardians or fiduciaries. Congress enacted 38 U.S.C. 5502, 
under which it gave VA the authority to administer the fiduciary 
program. VA's longstanding interpretation of this authority is that VA 
may establish a fiduciary program that is governed by federal laws and 
not various state laws. In this regard, federal laws (and not competing 
state laws) apply to the appointment of a VA fiduciary and VA's 
oversight of the fiduciary's management of a beneficiary's VA benefits.
    For example, all prospective fiduciaries who will receive VA 
benefit payments on behalf of a beneficiary will undergo a VA 
investigation mandated by 38 U.S.C. 5507, regardless of if that 
potential fiduciary serves as a court-appointed guardian and underwent 
a qualification process prescribed by state law, which may vary from 
state to state. Also, all VA fiduciaries will have the same accounting 
requirements regarding a beneficiary's VA funds under management, to 
include the frequency of submitting an accounting, irrespective of 
state courts requirements. In addition, VA will not rely on state laws 
that subject beneficiaries to varying fee schedules depending upon the 
beneficiaries' state of residence. In cases in which VA determines that 
a fee or commission is necessary to obtain a fiduciary, Congress 
authorized ``a reasonable commission for fiduciary services rendered'' 
to be paid from the beneficiary's VA funds. See 38 U.S.C. 5502(a)(2). 
However, section 5502(a)(2) limits such commissions for any year to 4 
percent of the beneficiary's VA monetary benefits paid to the fiduciary 
during the year. VA's regulations will consistently implement this 
authority and limit fees to 4 percent to any fiduciary we appoint. This 
will diminish the potential for adverse impacts on beneficiaries caused 
by orders issued in state courts approving fiduciary commissions that 
exceed the 4 percent Federal cap and make clear that a VA fiduciary's 
fees are limited to a statutory cap of 4 percent of the beneficiary's 
VA funds.
    VA makes a distinction between commissions charged by the guardian 
related to the services of a fiduciary and expenses incurred by a 
beneficiary for administrative items. This final rule does not prohibit 
a fiduciary appointed by VA from disbursing funds to meet the expenses 
associated with a beneficiary's court-appointed guardianship, if such 
expenses are deemed reasonable. Duplication of work performed by VA-
appointed and state-court-appointed fiduciaries is highly discouraged 
as it unnecessarily diminishes beneficiary assets.
    One commenter recommended that we inform all probate courts in the 
nation that VA intends to appoint court-appointed fiduciaries as VA 
fiduciaries as a last resort. We agree and intend to notify certain 
interested parties, to include courts and guardians, of the important 
changes in this final rule.
    We have made a few non-substantive edits to the proposed 
regulations: We changed references to ``18 years of age'' to ``age of 
majority,'' changed a reference to ``Regional Counsel'' to ``District 
Counsel'' to reflect current terminology, changed a reference to 
``Assistant General Counsel'' to ``Chief Counsel'' for the same reason, 
and replaced ``State'' with ``state.''

Paperwork Reduction Act

    This final rule at Sec. Sec.  13.30, 13.140, 13.230, 13.280, and 
13.600 contains new and revised collections of information under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). On January 3, 
2014, in the proposed rule published in the Federal Register, we 
requested public comments on the new and revised collections of 
information. We

[[Page 32736]]

received no comments. VA has submitted the additional collections in 
part 13 to OMB for review under OMB Control Numbers 2900-0017, 2900-
0085, 2900-0803, 2900-0804, and 2900-0815. We are adding a 
parenthetical statement after the authority citations in the amendatory 
language of this final rule to all of the sections in part 39 for which 
new and revised collections have been been assigned control numbers, so 
that the control numbers are displayed for each collection.
    In accordance with 44 U.S.C. 3507(d), VA submitted a copy of the 
proposed rule to OMB for review and they assigned OMB control Number 
2900-0815 for a new information collection contained in section 
13.140(a)(2)(iv) of the proposed rule. However, the proposed rule did 
not explicitly solicit comments on the new information collection 
contained in section 13.140(a)(2)(iv). Therefore, VA requests comments 
by the public on the new collection of information contained in section 
13.140(a)(2)(iv) 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 details of the new collection of information contained in 38 
CFR 13.140(a)(2)(iv) that were omitted from the comment solicitation in 
the proposed rule and that we seek comments through this final rule are 
described as follows:
    Title: Maintenance of Financial Records by Federal Fiduciaries.
    Summary of collection of information: Under 38 CFR 13.140, a 
fiduciary is required to maintain paper and electronic records relating 
to the management of VA benefits for the duration of service as 
fiduciary and for a minimum of two years following removal or 
resignation. 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 the purposes of continued 
monitoring and oversight of the fiduciary.
    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.
    VA welcomes comments on this new information collection. Comments 
on the collections of information contained in this final 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 (00REG), Department of Veterans Affairs, 810 Vermont Ave. 
NW, Room 1063B, 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.''
    We are providing a 30 day comment period on this new information 
collection. Comments are due to OMB by August 13, 2018. We will 
consider all comments on the above described information collection.
    The information collection provisions in this final rule subject to 
the PRA will not become effective until OMB approves the collections.

Regulatory Flexibility Act

    The Secretary hereby certifies that this final rule will 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 final rule will primarily affect individual beneficiaries and 
fiduciaries. It will not cause a significant economic impact on 
fiduciaries since VA generally appoints individual family members, 
friends, or caretakers to provide fiduciary services for beneficiaries. 
These services are, in most instances, provided without charge. While 
some business entities provide fiduciary services to VA beneficiaries 
for a fee, those fees, which are capped at 4 percent of monetary 
benefits paid, are not sufficient to result in a significant economic 
impact. Therefore, pursuant to 5 U.S.C. 605(b), this final rule is 
exempt from the initial and final regulatory flexibility analysis 
requirements of sections 603 and 604.

Executive Order 13132, Federalism

    A rule has federalism implications under Executive Order 13132, 
Federalism, if it has a substantial direct effect on the states, on the 
relationship between the national government and the states, or on the 
distribution of power and responsibilities among the various levels of 
government. Under the Order, if a rule has federalism implications and 
preempts state law, to the extent practicable and permitted by law, an 
agency must consult with state officials concerning the rule. We have 
analyzed this rule under that Order and have determined that this rule 
does not have any new federalism implications but merely clarifies 
existing regulations that govern the VA fiduciary program and 
implements existing statutory authority provided by Congress for VA to 
establish and administer a fiduciary program relating to VA benefits on 
behalf of beneficiaries. VA does not intend to act through this rule to 
preempt state law but relies on authority provided by Congress. 
Accordingly, we do not believe this final rule requires VA to consult 
with state officials prior to its publication.
    In 38 U.S.C. 5502(a)(1), Congress authorized VA to appoint a 
fiduciary for the purpose of receiving and disbursing VA benefits on 
behalf of a beneficiary: ``Where it appears to the Secretary that the 
interest of the beneficiary would be served thereby, payment of 
benefits under any law administered by [VA] 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.'' In the preamble to the proposed rule, we 
explained that VA interprets ``regardless of any legal disability'' in 
section 5502(a)(1) to mean that, in creating the fiduciary program, 
Congress intended VA to preempt state laws 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. See 79 FR 430.
    Matters regarding the governance of guardianships for persons with 
legal disabilities have their jurisdiction in state courts. See e.g., 
Neb. Rev. Stat. Ann. Sec.  30-2602(a) (LexisNexis 2017). Congress 
specifically provided that, ``regardless of any legal disability on the 
part of the beneficiary,'' VA can act and appoint a fiduciary on behalf 
of such beneficiary. This language cannot be construed to mean that 
Congress

[[Page 32737]]

explicitly authorized VA to create a fiduciary program whereby it 
appoints a fiduciary on behalf of a beneficiary, irrespective to any 
legal disability, and then defers to state laws for the administration 
of the fiduciary program.
    We realize that there are well-developed state laws in matters of 
guardianship. When Congress enacted section 5502, it did not intend a 
sweeping preemption of state laws that govern guardianship activities. 
Rather, we believe Congress only intended for VA to preempt state law 
in guardianship matters as they relate to VA benefits. Under the 
authority granted by current law, the purpose for this final rule is to 
promulgate uniform rules for all fiduciaries appointed by VA to manage 
VA benefit payments on behalf of beneficiaries. As such, if we appoint 
a state-appointed guardian to serve as a fiduciary on behalf of a 
beneficiary who is receiving VA benefits, our regulations, not state 
law, are applicable to the appointment and oversight of the fiduciary 
and the fiduciary's management of VA benefits for the beneficiary, as 
Congress intended.
    For instance, Congress did not intend for VA to utilize state laws 
regarding fiduciary fees that are paid from a beneficiary's VA benefits 
and subject beneficiaries to the various fee schedules prescribed by 
states, such that beneficiaries will be treated differently depending 
upon state of residence. Under section 5502(a)(2), Congress 
specifically mandated ``a reasonable commission for fiduciary services 
rendered'' to be paid from the beneficiary's VA funds, ``but the 
commission for any year may not exceed 4 percent of the monetary 
benefits.'' Furthermore, among other things, Congress authorized VA to 
remove any fiduciary who is not meeting the fiduciary's 
responsibilities to a beneficiary or who is not acting in the 
beneficiary's interest. See 38 U.S.C. 5502. VA's authority also extends 
to appointment of a temporary fiduciary in certain circumstances and 
suspending payments to any fiduciary who fails to properly submit an 
accounting to VA. See 38 U.S.C. 5502.
    Current 38 CFR part 13 has not been updated since 1975. Congress 
has since 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. The foregoing statutory obligations 
demonstrate Congress' intent to create a uniform system of fiduciary 
services for VA beneficiaries, irrespective of inconsistent state laws.
    Congress' intent to have Federal laws governing VA's fiduciary 
program preempt any conflicting state laws is clear in the chapter 55 
and 61 provisions. While state law provides some guidance concerning 
fiduciary matters, those laws vary significantly from state to state 
and do not pertain to VA's fiduciary program. Further, VA does rely on 
state laws in cases where a state court has appointed a fiduciary for 
oversight of the veteran's assets and where there is no conflict 
between state and Federal law, and/or when the court-appointed 
fiduciary is the same as the VA-appointed fiduciary. State laws often 
provide helpful guidance; however, under the Supremacy Clause of the 
Constitution, Federal law is controlling. See U.S. Const. art. VI, cl 
2; Crosby v. Nat'l Foreign Trade Council, 530 U.S. 363, 372-73 (2000). 
To the extent that a dispute arises between Federal and state law, 
Federal law establishing and governing VA's fiduciary program as 
codified in 38 U.S.C. chapters 55 and 61, as well as in regulations 
implementing those statutes, controls.
    Again, because this rule does not have any new federalism 
implications but merely clarifies existing regulations that govern the 
VA fiduciary program and implements existing statutory authority 
provided by Congress for VA to establish and administer a fiduciary 
program relating to VA benefits on behalf of beneficiaries, we do not 
believe this final rule requires VA to consult with state officials 
prior to its publication and believe that this rule is in compliance 
with Executive Order 13132.

Executive Orders 12866, 13563, and 13771

    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), unless OMB waives such review, 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.
    VA has examined the economic, interagency, budgetary, legal, and 
policy implications of this final rule, and it has been determined to 
be a significant regulatory action under Executive Order 12866, because 
it raises novel legal or policy issues arising out of legal mandates.
    This final rule is considered an E.O. 13771 regulatory action. 
Details on the estimated costs of this final rule can be found in the 
rule's economic analysis.

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 the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year. This final rule will have no such effect on 
State, local, and tribal governments, or on the private sector.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance program numbers and 
titles for this final 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.

List of Subjects

38 CFR Part 3

    Administrative practice and procedure, Claims, Disability benefits,

[[Page 32738]]

Health care, Pensions, Radioactive materials, Veterans, and Vietnam.

38 CFR Part 13

    Surety bonds, Trusts and trustees, and Veterans.

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. Jacquelyn 
Hayes-Byrd, Deputy Chief of Staff, Department of Veterans Affairs, 
approved this document on March 20, 2018, for publication.

    Dated: July 6, 2018.
Consuela Benjamin,
Regulation Development Coordinator, Office of Regulation Policy & 
Management, Office of the Secretary, Department of Veterans Affairs.
    For the reasons stated in the preamble, VA amends 38 CFR parts 3 
and 13 as follows:

PART 3--ADJUDICATION

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

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

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


Sec.  3.353  [Amended]

0
2. Amend 3.353 by:
0
 a. In paragraph (b)(1), removing ``Sec.  13.56'' and adding, in its 
place, ``Sec.  13.110''.
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 Sec.  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 and undesignated center heading   
[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 the age of majority.
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 the age 
of majority, 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 
monetary 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 Manila, Philippines, VA Regional Office.
    In the fiduciary program means, with respect to a beneficiary, that 
the beneficiary:
    (1) 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;
    (2) Has been determined by a court with jurisdiction as being 
unable to manage his or her own financial affairs; or
    (3) Is less than the age of majority.
    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, as defined by this chapter.
    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

[[Page 32739]]

marriage and same-sex marriage, meets the requirements of 38 U.S.C. 
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.
    Written notice means that VA will provide to the beneficiary and 
the beneficiary's representative and legal guardian, if any, a written 
decision in a fiduciary matter that is appealable under Sec.  13.600. 
Such notice will include:
    (1) A clear statement of the decision,
    (2) The reason(s) for the decision,
    (3) A summary of the evidence considered in reaching the decision, 
and
    (4) The necessary procedures and time limits to initiate an appeal 
of the decision.

(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 the age of majority, 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 reaches the age of majority or 
older;
    (2) Receive written 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;
    (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 if the beneficiary is in the fiduciary 
program as a result of a court order and not a decision by VA's rating 
agency; or
    (C) Attains the age of majority;
    (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)

(Approved by the Office of Management and Budget under control 
number 2900-0017.)


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

[[Page 32740]]

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 Chief 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, 38 U.S.C. 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 
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 of majority.
    (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 of majority, but
    (i) Is serving in the Armed Forces of the United States, or
    (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 
his or her 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

[[Page 32741]]

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 
or reappointment 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) The Hub Manager must conduct the requirements of paragraphs 
(f)(1)(i),(ii) and (iii) for every subsequent appointment of the 
fiduciary for each beneficiary.
    (4) 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 the age of majority, 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) VA has removed a fiduciary for cause under Sec.  13.500 and 
cannot expedite the appointment of a successor fiduciary, and the 
beneficiary has an immediate need for fiduciary services; or
    (ii) 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 who 
has reached the age of majority 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

[[Page 32742]]

    (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;
    (i) The Hub Manager will waive the requirements of paragraph (b)(1) 
of this section if the Veterans Health Administration (VHA) has 
approved the fiduciary as the beneficiary's family caregiver, and VHA's 
status report regarding the beneficiary indicates the beneficiary is in 
an excellent situation.
    (ii) The provisions of paragraph (b)(1)(i) of this section do not 
apply when the Hub Manager has information that a fiduciary, who is 
also the beneficiary's VHA-designated family caregiver, is misusing a 
beneficiary's VA funds under management, is neglecting a beneficiary, 
or has failed to comply with the requirements of Sec.  13.140, or there 
is insufficient evidence to determine the beneficiary's well-being.
    (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;
    (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)


(Approved by the Office of Management and Budget under control 
numbers 2900-0815 and 2900-0803.)


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) Has been removed as legal guardian by a state court for 
misconduct;
    (7) Is under the age of majority; or
    (8) Knowingly violates or refuses to comply with the regulations in 
this part.

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


[[Page 32743]]




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. Fiduciaries owe VA and beneficiaries the duties of good 
faith and candor and must administer a beneficiary's funds under 
management in accordance with paragraph (b) of this section. 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 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 mean 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 primarily 
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.
    (c) Non-financial responsibilities. The fiduciary's primary non-
financial responsibilities include, but are not limited to:
    (1) Contacting social workers, mental health professionals, or the 
beneficiary's legal guardian 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;
    (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(s) provided to the court or facilitate the hub's receipt of 
such accountings;
    (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

[[Page 32744]]

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)

(Approved by the Office of Management and Budget under control 
numbers 2900-0017 and 2900-0085.)


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 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 should not conserve VA benefit funds under 
management for a beneficiary based primarily upon the interests of the 
beneficiary's heirs or according to the fiduciary's own 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
    (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

[[Page 32745]]

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 
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)

(Approved by the Office of Management and Budget under control 
numbers 2900-0017 and 2900-0804.)


Sec.  13.240  Funds of beneficiaries less than the age of majority.

    (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 the age of majority 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 the age of 
majority 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 escheat 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 escheat 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

[[Page 32746]]

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 
that 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 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 District 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;
    (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; or
    (4) The Hub Manager determines an accounting is necessary to ensure 
the fiduciary has properly managed the beneficiary's funds.
    (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:
    (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 
and both permanently resides outside of the United States or in the 
Commonwealth of Puerto Rico or the Republic of the Philippines, and the 
fiduciary was appointed outside of the United States or in the 
Commonwealth of Puerto Rico or the Republic of the Philippines.
    (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)

(Approved by the Office of Management and Budget 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 within 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

[[Page 32747]]

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 information from any 
source regarding possible misuse of VA benefits by a fiduciary, the Hub 
Manager may, upon his or her discretion, 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:
    (1) The fiduciary;
    (2) The beneficiary or the beneficiary's legal guardian, and the 
beneficiary's accredited representative, attorney, or claims agents;
    (3) The court of jurisdiction if the fiduciary is also the 
beneficiary's court-appointed guardian and/or conservator; and
    (4) 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 if the fiduciary is also the beneficiary's court-
appointed guardian or conservator,
    (iv) Identify the date of the Hub Manager's prior decision,
    (v) 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
    (vi) 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;
    (iii) The court, if the fiduciary is also the beneficiary's court-
appointed guardian or conservator; and
    (iv) 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

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VA Office of Inspector General for purposes of any further action that 
the Inspector General deems appropriate under separate authority, and 
the court of jurisdiction if the fiduciary is also the beneficiary's 
court-appointed legal guardian and/or conservator.
    (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; for example, when:
    (i) The Hub Manager failed to review the fiduciary's accounting 
within 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;
    (ii) The Hub Manager did not decide whether to investigate an 
allegation of misuse within 60 days of receipt of the allegation;
    (iii) After deciding to investigate an allegation of misuse and 
finding misuse, the Hub Manager failed to initiate action within 60 
days of receipt of the misuse allegation to terminate the fiduciary.
    (2) Actual negligence by VA 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 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:
    (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 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 
within 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.

[[Page 32749]]

    (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 
provide other instructions to the fiduciary.
    (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 the appointment of a successor fiduciary, 
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 appointment of a successor fiduciary 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.
    (2) The initiation and processing of appeals under this section are 
governed by parts 19 and 20 of this chapter.

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

(Approved by the Office of Management and Budget under control 
number 2900-0085.)

[FR Doc. 2018-14856 Filed 7-12-18; 8:45 am]
 BILLING CODE 8320-01-P