# Veterans Benefits Administration M21-1, Part IV

# Department of Veterans Affairs Change 223

# Washington, DC 20420 October 5, 2005

# 

Veterans Benefits Manual M21-1, Part IV, "Authorization Procedures," is
changed as follows:

**Pages 17-II-1 through 17-II-2 and pages 17-II-5 through 17-II-6:**
Remove these pages and substitute pages 17-II-1 through 17-II-2 and
pages 17-II-5 through 17-II-6 attached.

Paragraph 17.15a is revised to clarify that under certain circumstances,
direct payments to a beneficiary may be suspended pending certification
of a fiduciary appointment, if a rating or court determination of
incompetency is of record. The paragraph is further revised to add a
note to show that the VSCM can approve the appointment of a temporary
fiduciary when there is clear evidence that a beneficiary's funds are
being misused, or when the beneficiary is unable or unwilling to use
funds for urgent necessities.

References to VSO and Adjudication are changed to Veterans Service
Center Manager (VSCM), Veterans Service Center (VSC) or Fiduciary
Activity, appropriately. Other minor editorial changes have been made on
these pages.

Paragraph 17.15c is revised to reflect the appropriate cross reference,
"part VI, paragraph 9.08b."

Paragraph 17.15c(1)(a) is revised to show that development of the issue
of incompetency is required upon receipt of guardianship documents or
other notices of a judicial determination of incompetency, if the
veteran has been declared by a proper court to be incompetent.

Paragraph 17.18a is revised to indicate that VA will withhold
retroactive benefits owed to an incompetent veteran when VA pays
benefits to the veteran's spouse.

Paragraph 17.18b(1) is revised to indicate that immediate payment not be
made to an incompetent veteran's spouse when a court of jurisdiction has
appointed the spouse as the veteran's fiduciary. Such cases must first
be certified by the VSCM.

By Direction of the Under Secretary for Benefits

Renée Szybala, Director

> Compensation and Pension Service

Distribution: RPC: 2068

FD: EX: ASO and AR (included in RPC 2068)

LOCAL REPRODUCTION AUTHORIZED

# October 5, 2005 M21-1, Part IV

# Change 223

# 

## SUBCHAPTER II. INCOMPETENCY

**NOTE:** For procedures relating to incompetent veterans admitted to VA
and non-VA institutions, see chapter 18.

**17.15 PROCEDURE UPON RECEIPT OF EVIDENCE OF INCOMPETENCY**

a\. General. Do not routinely suspend direct payments to a beneficiary
pending development of an issue of incompetency or certification of a
fiduciary. If evidence indicates a beneficiary is not receiving or is
being deprived of the full benefits being paid, and VA has rated the
beneficiary as incompetent or VA has received evidence that a court of
jurisdiction has determined the existence of a legal disability,
payments may be suspended and the Fiduciary Activity requested to
provide expedited certification of a fiduciary. If entitlement to
benefits has been established but no payment has been made or if
increased benefits are payable, make a determination as to whether or
not benefits should be paid directly pending certification. The
determination should consider if delaying the payment of the benefits
would cause undue hardship for the beneficiary. If the evidence of
record shows that delaying payment would create a hardship, properly
annotate the award, referencing the evidence reviewed and the
justification for paying benefits directly to the beneficiary.

**Note**: In those cases where there is clear evidence of record that
the beneficiary's funds are being mismanaged while a decision of
incompetency is pending or such decision is being appealed, the VSCM can
approve the appointment of a temporary fiduciary. Immediate action
should be taken to request the Fiduciary Activity to certify the
appointment of a temporary fiduciary to the VSCM. The appointment of a
temporary fiduciary cannot exceed 120 days. Prior to the expiration of
such appointment, a fiduciary must be certified, or the beneficiary must
be paid direct.

b\. Suspending Veteran\'s Benefits Pending Appointment of Fiduciary. If
suspension of payments to an incompetent veteran pending appointment or
change of fiduciary is in order, use reason code 31 and annotate the
following on the generated 406 Screen: \"Veteran incompetent -
appointment of fiduciary pending.\"

\(1\) Effect if Insurance is Involved

\(a\) Insurance Deduction Only. If there is an authorized deduction for
insurance purposes and there are no other deductions on the master
record except for a loan guaranty or income tax lien, the award will
automatically continue in an amount equal to the insurance deduction
only. Deductions for a loan guaranty or income tax lien will cease. A
computer notice will be issued notifying the field station of the action
taken.

\(b\) Other Type Deductions. If there is any other type of deduction,
take action to suspend all payments. VA Form 20-6560 (Msg 635) will be
issued to notify the appropriate VA regional office and insurance center
of the termination of the premium deduction and the need for direct
remittance.

\(2\) Resumption. If payments are to be resumed in an account continued
in the amount of the insurance deduction under code 31, prepare an
amended award. Do not enter prior net award data unless the amended
award effects an adjustment prior to the suspend DLP. If a suspense
under code 31 was routinely processed to suspend all payments, e.g., if
there is any other type of deduction, the RESU command may be used to
resume payments.

c\. Determinations. Competency and incompetency determinations may be
made either by VA rating decisions or by a court decree or both. For VA
purposes, they may require different actions as VA is not required to
recognize a court-appointed fiduciary for purposes of payment of VA
benefits (38 CFR 3.850(a)). See part VI, paragraph 9.08b.

NOTE: The requirements of due process notice and opportunity for hearing
must be afforded as provided in paragraph 9.14 prior to any VA rating of
incompetency unless the beneficiary has been declared incompetent by a
court of competent jurisdiction or a fiduciary has been appointed for
the beneficiary based on a court finding of incompetency (38 CFR
3.353(e)).

**17-II-1**

# M21-1, Part IV October 5, 2005

# Change 223

\(1\) Notice of Judicial Determination of Incompetency. On receipt of
evidence of a court decree of incompetency or of court appointment of a
fiduciary by reason of incompetency of a veteran or other beneficiary,
take the following actions:

\(a\) Furnish complete information to the Fiduciary Activity on VA Form
21-592 if not previously furnished; otherwise, furnish information by
memorandum or letter. If a veteran has been declared by a proper court
to be incompetent, simultaneously develop for medical evidence for a
rating decision to determine competency. A rating of incompetency will
enable VA to continue a fiduciary arrangement, should the judicial
determination of incompetency change.

\(b\) Include letters of appointment of fiduciary or copy of the decree
of incompetency in the referral. See paragraph 17.04b.

**NOTE**: In the absence of medical evidence, do not consider the court
appointment of a fiduciary which does not include a judicial declaration
of incompetency as evidence of incompetence requiring rating action.
Prepare VA Form 21-592 and refer it to the VSCM in the area in which the
beneficiary resides. On receipt of VA Form 21-555, award benefits to the
payee certified by the VSCM. Rating action will be required if the
Fiduciary Activity's findings place competency at issue.

\(2\) Veteran Beneficiary

\(a\) If a veteran for whom a judicial determination of incompetency has
been made is admitted to a hospital for treatment or observation,
request necessary evidence from the institution sufficient for a rating
on competency concurrently with referral to the Fiduciary Activity.

\(b\) Initiate referral to the Fiduciary Activity prior to submission of
the case to the rating board as the court appointment of a fiduciary by
reason of incompetency or the decree of incompetency constitutes a court
adjudication of incompetency.

\(c\) On receipt of the Fiduciary Activity's report of findings and
certification, refer the case for formal rating and award action on the
basis of the certification. See paragraph 17.20 concerning notice of
change in status to the Insurance activity.

\(d\) Pending certification of a payee or other instructions from the
VSCM, existing apportionments may continue, but see paragraph 17.09 when
more than one court-appointed fiduciary has been appointed. Payments
being made under 38 CFR 13.57 to the spouse of a veteran already rated
incompetent should be suspended if a fiduciary other than the
spouse-payee has been appointed.

NOTE: If the veteran has a spouse or child or is in a non-VA
institution, see chapter 18 for simultaneous institutional award action
and immediate payment to dependents.

\(3\) Child Beneficiary. If evidence is received which indicates
permanent incapacity for self-support, refer the claim to the rating
board for a decision as to whether or not the child was incapacitated
prior to age 18 and if such condition currently exists. See paragraph
15.03. Unless requested by the VSCM, do not suspend payments being made
on behalf of a child.

\(4\) Parent or Surviving Spouse Beneficiary. Rating action is not
required for a parent or surviving spouse payee judicially determined
incompetent. Continue direct payment pending receipt of the VSCM
certification of fiduciary or other payee.

**17-II-2**

# October 5, 2005 M21-1, Part IV

# Change 223

\(5\) If extension of the period for payment of less than the full rate
is required, the VSCM will certify an additional period not to exceed
the 1-year limitation. Establish a control in these cases for 30 days
before the expiration of the extended period, and request the VSCM to
furnish certification for release as provided above.

b\. Award Action. If certification is received for supervised direct
payment to a veteran or other adult beneficiary, annotate the award
print \"VA Form 21-555 ([date]{.underline}) supervised direct payment.\"
For veteran cases, enter the fiduciary file location and competency
payment code 5 on the 601 Screen. Furnish a copy of the award print to
the certifying VSCM.

17.18 AWARD TO A SPOUSE UNDER 38 CFR 3.850(a)(2)

a\. General. An award to an incompetent veteran\'s spouse for the use of
the veteran and dependents will be authorized for the current benefit
payable to the veteran under 38 CFR 13.57, with retroactive benefits
being withheld as outlined in 17.18c(1) below. Such an award is not an
apportionment but an award to a spouse in a fiduciary capacity and, as
such, is subject to apportionment for other dependents of the veteran
not being provided for by the spouse. These awards to apportionees will
be preceded by VA Form 21-592, Request for Appointment of a Fiduciary,
Custodian, or Guardian, action and prior recognition by the VSCM unless
an immediate award of the unapportioned amount may be made with
concurrent submission of VA Form 21-592 to the VSCM under the conditions
and in the manner provided in subparagraph b below.

b\. Immediate Award As Spouse Payee. Unless a court of jurisdiction
appoints the incompetent veteran's spouse as his/her fiduciary, an
immediate award without prior referral to the VSCM may be made to a
spouse when the following conditions are present:

\(1\) The veteran and the spouse are not estranged

\(2\) Marital proof has been established or there is a [prima
facie]{.underline} showing thereof.

\(3\) There is no information of record that the spouse is unfit.

\(4\) There is no evidence of record of a court-appointed fiduciary.

**Note**: When a court of jurisdiction has appointed an incompetent
veteran's spouse as his or her fiduciary, prepare VA Form 21-592 in
duplicate and refer the original to the Fiduciary Activity for
certification by the VSCM. Immediate payment cannot be made.

c\. Award Action. Prepare an award to a spouse like any other award to a
fiduciary on behalf of a veteran under payee number 00, 50 or 60. Make
it payable to the spouse with the legend "Spouse payee of" (veteran\'s
name). Enter the fiduciary file location on the 102 or 601 Screen.
Annotate the award print \"Award 'spouse payee of' under M21-1, part IV,
paragraph 17.18b.\"

**NOTE**: If a direct deposit account exists, terminate the direct
deposit account by entering X in the CANCEL DD/EFT field on the 601
Screen during CADJ or CFID processing.

\(1\) For any period of entitlement prior to the first of the month in
which the award action is taken, prepare the award to withhold
retroactive payments under withholding code 1 pending receipt of the
VSCM certification of the spouse-payee.

> **17-II-5**

# M21-1, Part IV October 5, 2005

# Change 223

\(2\) When the VSCM certification is received, process an amended award
to release any withheld benefits in accordance with the certification.

\(3\) Adhere to the following notification procedures:

\(a\) Attach a copy of the award print to VA Form 21-592 and send to the
Fiduciary Activity.

\(b\) Notify the spouse-payee of the award by a BDN-generated letter or,
if required, by a locally generated letter. If a locally generated
letter is sent, it must containing the following:

\"Payment of this award will be made to you in a fiduciary capacity. You
must agree to use the payments for the benefit of the veteran and any of
the veteran\'s dependents in your custody, as well as for your own
benefit.

A VA representative will contact you in the near future to explain your
duties and discuss any arrangements that may be necessary for the use of
the money paid.\"

\(c\) If retroactive benefits have been withheld, suppress the BDN
letter. Use a locally generated letter to notify the spouse-payee of all
the facts in the case. Specify the basic award data (rates, amounts
withheld, effective dates, reason for payment adjustment) and the fact
that retroactive benefits have been withheld pending official
certification of the person to receive payments in the veteran\'s
behalf. In addition, advise him or her that the withheld benefits will
be released once such certification is received.

\(4\) The Fiduciary Activity will certify the spouse or inform the
Veterans Service Center (VSC) of the payee selected. If necessary, the
VSCM may suspend payments under the \"spouse payee\" award and proceed
with the selection of a payee. If the VSCM certifies a different payee
to receive payments, take award action to pay the person shown on the
certification.

d\. Fiduciary Unsuitable. If, subsequent to an award to a spouse payee,
the VSC receives information indicating that the spouse is not providing
for the veteran or the veteran\'s dependents or may otherwise be deemed
unsuitable to act in a fiduciary capacity, fully inform the Fiduciary
Activity of the circumstances. Request the Fiduciary Activity to
investigate and recommend appointment of another payee, if appropriate.
Control the case for a response.

**17.19 FAILURE OF INCOMPETENT VETERAN TO REPORT FOR EXAMINATION**

a\. If an incompetent veteran is scheduled for a physical examination,
indicate the fact of incompetency on VA Form 21-2507 by typing
\"Incompetent\" after the name of the veteran and Fiduciary in the
address space followed by the name and address of the fiduciary. Since a
computer-generated VA Form 21-2507a shows the name and address of the
fiduciary with descriptive legend and the name of the veteran, no
additional indication is required when the request for examination is
made on this form.

b\. If an incompetent veteran fails to report for an examination, afford
predetermination notice to the veteran before the account is reduced or
suspended. Also send a letter to the fiduciary with a copy to the
veteran's representative (if any) explaining the necessity of the
examination and that failure to report could result in

**17-II-6**