[Federal Register Volume 69, Number 190 (Friday, October 1, 2004)]
[Proposed Rules]
[Pages 59072-59091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-21541]



[[Page 59071]]

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Part III





Department of Veterans Affairs





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38 CFR Part 5



Accrued Benefits, Death Compensation, and Special Rules Applicable Upon 
Death of a Beneficiary; Proposed Rule

Federal Register / Vol. 69, No. 190 / Friday, October 1, 2004 / 
Proposed Rules

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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 5

RIN 2900-AL71


Accrued Benefits, Death Compensation, and Special Rules 
Applicable Upon Death of a Beneficiary

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

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SUMMARY: The Department of Veterans Affairs (VA) proposes to amend its 
regulations relating to accrued benefits, death compensation, and 
certain special rules applicable upon the death of a VA beneficiary and 
to relocate them in a new part of the Code of Federal Regulations 
(CFR). We propose to reorganize these regulations in a more logical 
order, add new section and paragraph headings, rewrite certain 
sections, divide certain sections into two or more separate new 
regulations, and add changes required by relevant court decisions and 
by the Veterans Benefits Act of 2003.

DATES: Comments must be received by VA on or before November 30, 2004.

ADDRESSES: Written comments may be submitted by: Mail or hand-delivery 
to Director, Regulations Management (00REG1), Department of Veterans 
Affairs, 810 Vermont Ave., NW., Room 1068, Washington, DC 20420; fax to 
(202) 273-9026; e-mail to <a href="/cdn-cgi/l/email-protection#3e687f4c5b594b525f4a5751504d7e535f575210485f10595148"><span class="__cf_email__" data-cfemail="cd9b8cbfa8aab8a1acb9a4a2a3be8da0aca4a1e3bbace3aaa2bb">[email protected]</span></a>; or, through http://www.Regulations.gov. Comments should indicate that they are submitted 
in response to ``RIN 2900-AL71.'' All comments received will be 
available for public inspection in the Office of Regulation Policy and 
Management, Room 1063B, between the hours of 8 a.m. and 4:30 p.m., 
Monday through Friday (except holidays). Please call (202) 273-9515 for 
an appointment.

FOR FURTHER INFORMATION CONTACT: Bill Russo, Chief, Regulations Rewrite 
Project (00REG2), Department of Veterans Affairs, 810 Vermont Avenue, 
NW., Washington, DC 20420, (202) 273-9515.

SUPPLEMENTARY INFORMATION: The Secretary of Veterans Affairs has 
established an Office of Regulation Policy and Management (ORPM) to 
provide centralized management and coordination of VA's rulemaking 
process. One of the major functions of this office is to oversee a 
Regulation Rewrite Project (the Project) to improve the clarity and 
consistency of existing VA regulations. The Project responds to a 
recommendation made in the October 2001 ``VA Claims Processing Task 
Force: Report to the Secretary of Veterans Affairs.'' The Task Force 
recommended that the compensation and pension regulations be rewritten 
and reorganized in order to improve VA's claims adjudication process. 
Therefore, the Project began its efforts by reviewing, reorganizing, 
and redrafting the regulations in 38 CFR part 3 governing the 
Compensation and Pension (C&P) program of the Veterans Benefits 
Administration (VBA). These regulations are among the most difficult VA 
regulations for readers to understand and apply.
    Once rewritten, the proposed regulations will be published in 
several portions for public review and comment. This is one such 
portion. It includes proposed regulations concerning accrued benefits, 
benefits awarded but unpaid at death, death compensation, the 
disposition of the proceeds of certain VA benefits upon the death of 
the person receiving those benefits, and effective dates applicable to 
various death benefits.

Outline

Overview of New Part 5 Organization
Overview of Proposed Subpart G Organization
Table Comparing Current Part 3 Rules With Proposed Part 5 Rules
Content of Proposed Rules

Accrued Benefits

    5.550 Definitions.
    5.551 Persons entitled to accrued benefits or benefits awarded, 
but unpaid at death.
    5.552 Claims for accrued benefits or benefits awarded, but 
unpaid at death.
    5.553 Notice of incomplete claims.
    5.554 Evidence of school attendance in claims by a veteran's 
children for accrued benefits or benefits awarded, but unpaid at 
death.
    5.555 What VA benefits are potentially payable as accrued 
benefits or benefits awarded, but unpaid at death?
    5.556 Period for which accrued benefits are paid.
    5.557 Relationship between accrued benefits claim and claims 
filed by the deceased beneficiary.
    5.558 Special rule for certain cases involving deaths prior to 
December 16, 2003.
    5.559 Accrued benefits reference table.

Death Compensation

    5.560 Eligibility criteria for payment of death compensation.
    5.561 Time of marriage requirements for death compensation 
claims.
    5.562 Eligibility criteria for special monthly death 
compensation.

Special Provisions

    5.563 Special rules when a beneficiary dies while receiving 
apportioned benefits.
    5.564 Special rules when VA benefit checks have not been 
negotiated prior to the beneficiary's death.
    5.565 Special rules for payment of VA benefits on deposit in a 
special deposit account when a payee living in a foreign country 
dies.
    5.566 Special rules for payment of gratuitous VA benefits 
deposited in a personal funds of patients account when an 
incompetent veteran dies.

Effective Dates

    5.567 Effective dates for DIC or death compensation awards.
    5.568 Effective date for discontinuance of DIC or death 
compensation payments to a person no longer recognized as the 
veteran's surviving spouse.
    5.569 Effective date for award, or termination of award, of DIC 
or death compensation to a surviving spouse where DIC or death 
compensation payments to children are involved.
    5.570 Effective date for reduction in DIC--surviving spouses.
    5.571 Effective date for an award or increased rate based on 
amended income information--parents' DIC.
    5.572 Effective dates for reduction or discontinuance based on 
increased income--parents' DIC.
Removal of 38 CFR 3.400(h) and 3.503(a)(9).
Endnote Regarding Removals (Deletions) From Part 3 of 38 CFR
Paperwork Reduction Act
Regulatory Flexibility Act
Executive Order 12866
Unfunded Mandates
Catalog of Federal Domestic Assistance Numbers
List of Subjects in 38 CFR Part 5

Overview of New Part 5 Organization

    We plan to remove the compensation and pension benefit regulations 
from 38 CFR part 3 and relocate them in new part 5. We also plan to 
reorganize the regulations so that all provisions governing a specific 
benefit are located in the same subpart, with general provisions 
pertaining to all compensation and pension benefits also grouped 
together. We believe this reorganization will allow claimants and their 
representatives, as well as VA adjudicators, to find information 
relating to a specific benefit more quickly.
    The first major subdivision is ``Subpart A--General Provisions.'' 
It would include information regarding the scope of the regulations in 
new part 5, delegations of authority, general definitions, and general 
policy provisions for this part.
    ``Subpart B--Service Requirements for Veterans'' would include 
information regarding a veteran's military service, including the 
minimum service requirement, types of service, periods of war, and 
service evidence requirements.

[[Page 59073]]

This subpart was published as proposed on January 30, 2004. See 69 FR 
4820.
    ``Subpart C--Adjudicative Process, General'' would inform readers 
about types of claims and filing procedures, VA's duties, rights and 
responsibilities of claimants, and general effective dates, as well as 
revision of decisions and protection of VA ratings.
    ``Subpart D--Dependents of Veterans'' would provide information 
about how VA determines whether an individual is a dependent and the 
evidence requirements for such determinations.
    ``Subpart E--Claims for Service Connection and Disability 
Compensation'' would define service-connected compensation, including 
direct and secondary service connection. This subpart would inform 
readers how VA determines entitlement to service connection. The 
subpart would also contain provisions governing presumptions related to 
service connection, disability rating principles, and effective dates, 
as well as several special ratings.
    ``Subpart F--Nonservice-Connected Disability and Death Pensions'' 
would include information regarding the three types of nonservice-
connected pension: Improved pension, Old law pension, and Section 306 
pension. This subpart would also include those provisions that state 
how to establish entitlement for pension, where applicable, and the 
effective dates governing each pension.
    ``Subpart G--Dependency and Indemnity Compensation, Death 
Compensation, Accrued Benefits, and Special Rules Applicable Upon Death 
of a Beneficiary'' would contain regulations governing claims for 
dependency and indemnity compensation (DIC); death compensation; 
accrued benefits; benefits awarded, but unpaid at death; and various 
special rules that apply to the disposition of VA benefits, or proceeds 
of VA benefits, when a beneficiary dies. This subpart would also 
include related definitions, effective-date rules, and rate-of-payment 
rules. The portion concerning accrued benefits, death compensation 
benefits, special rules applicable on death of a beneficiary, and 
effective dates is the subject of this document.
    ``Subpart H--Special Benefits for Veterans, Dependents, and 
Survivors'' would pertain to ancillary and special benefits available, 
including benefits for children with various birth defects.
    ``Subpart I--Benefits for Certain Filipino Veterans and Survivors'' 
would pertain to the various benefits available to Filipino veterans.
    ``Subpart J--Burial Benefits'' would pertain to burial allowances.
    ``Subpart K--Matters Affecting Receipt of Benefits'' would contain 
provisions regarding bars to benefits, forfeiture of benefits, and 
renouncement of benefits.
    ``Subpart L--Regulations Related to Payments and Adjustments to 
Payments'' would include general rate-setting rules, several adjustment 
and resumption regulations, and election of benefit rules.
    The final subpart, ``Subpart M--Apportionments and Payments to 
Fiduciaries or Incarcerated Beneficiaries,'' would include regulations 
governing apportionments, benefits for incarcerated beneficiaries, and 
guardianship.
    Some of the regulations in this Notice of Proposed Rulemaking 
(NPRM) cross-reference other compensation and pension regulations. If 
those regulations have been published in this or earlier NPRMs for the 
Project, we cite the proposed part 5 section. We also cite the Federal 
Register page where a proposed part 5 section published in an earlier 
NPRM may be found. However, where a regulation proposed in this NPRM 
would cross-reference a proposed part 5 regulation that has not yet 
been published, we cite to the current part 3 regulation that deals 
with the same subject matter. The current part 3 section we cite may 
differ from its eventual part 5 replacement in some respects, but we 
believe this method will assist readers in understanding these proposed 
regulations where no part 5 replacement has yet been published. If 
there is no part 3 counterpart to a proposed part 5 regulation that has 
not yet been published, we have inserted ``[regulation that will be 
published in a future Notice of Proposed Rulemaking]'' in the place 
where the part 5 regulation citation would be placed.
    In connection with this rulemaking, VA will accept comments 
relating to a prior rulemaking issued as a part of the Project, if the 
matter being commented on relates to both NPRM's. VA will provide a 
separate opportunity for public comment on each segment of the proposed 
part 5 regulations before adopting a final version of part 5.

Overview of Proposed Subpart G Organization

    This NPRM pertains to those regulations governing accrued benefits, 
death compensation, special rules applicable upon death of a 
beneficiary and, with regard to effective dates only, DIC benefits. 
These regulations would be contained in proposed Subpart G of new 38 
CFR part 5. While these regulations have been substantially 
restructured and rewritten for greater clarity and ease of use, many of 
the basic concepts contained in these proposed regulations are the same 
as in their existing counterparts in 38 CFR part 3. However, we also 
propose substantive changes, including those stemming from relevant 
court decisions and from provisions of the Veterans Benefits Act of 
2003.

Table Comparing Current Part 3 Rules With Proposed Part 5 Rules.

    The following table shows the correspondence between the current 
regulations in part 3 and those proposed regulations contained in this 
NPRM:

------------------------------------------------------------------------
                                             Based in whole or in  part
   Proposed part 5  section or paragraph     on 38 CFR part 3 section or
                                               paragraph (or ``New'')
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5.550(a)..................................  3.1000(a).
5.550(b)..................................  New.
5.550(c)..................................  3.1000(d)(2).
5.550(d)..................................  New.
5.550(e)..................................  New.
5.550(f)..................................  3.1000(d)(3).
5.550(g)..................................  3.1000(d)(4).
5.550(h)..................................  3.1000(d)(1).
5.551(a)..................................  New.
5.551(b)..................................  3.1000(a)(1).
5.551(c)..................................  3.1000(a)(2), (f).
5.551(d)..................................  3.1000(d)(2).
5.551(e)..................................  3.1000(a)(4), 3.1002.
5.551(f)..................................  3.1000(c)(2).
5.552(a)..................................  New.
5.552(b) and (c)..........................  3.1000(c).
5.553.....................................  3.1000(c)(1).
5.554.....................................  3.667(e).
5.555.....................................  3.1000(e) through (h),
                                             3.803(d).
5.556(a)..................................  3.1000(a).
5.556(b)..................................  New.
5.557.....................................  New.
5.558.....................................  New.
5.559.....................................  New.
5.560(a)..................................  3.4(a).
5.560(b)..................................  3.4(c)(1).
5.560(c)..................................  3.5(d).
5.560(d)..................................  New.
5.561(a)..................................  Introduction to 3.54.
5.561(b) and (c), except for (c)(1).......  3.54(b).
5.561(c)(1)...............................  3.54(b) and (e).
5.562(a)..................................  3.351(a)(6), (b), and (c).
5.562(b)..................................  3.351(c).
5.563.....................................  3.1000(b).
5.564(a)(1)...............................  Introduction to 3.1003 and
                                             3.1003(a).
5.564(a)(2)...............................  New.
5.564(b)..................................  3.1003(a)(1).
5.564(c)..................................  3.1003(a)(2).
5.564(d)..................................  3.1003(b).
5.564(e)..................................  3.1003(c).
5.565(a) through (d)(1)...................  New.
5.565(d)(2)...............................  3.1008.
5.566(a)..................................  Introduction to 3.1009.
5.566(b) and (c)..........................  New.
5.566(d)..................................  3.1009(a).
5.566(e)..................................  3.1009(b).

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5.567(a)..................................  3.400(c)(1).
5.567(b)..................................  3.400(c)(2).
5.567(c)..................................  3.400(c)(4)(i).
5.567(d)..................................  3.400(c)(4)(ii).
5.567(e)..................................  3.402(a).
5.568(a)..................................  Introduction to 3.657.
5.568(b)(1)...............................  3.657(a)(1).
5.568(b)(2)...............................  3.657(a)(2).
5.568(b)(3)...............................  New.
5.569(a)..................................  Introduction to 3.657.
5.569(b)..................................  3.657(b)(1).
5.569(c)(1) and (2).......................  3.657(b)(2).
5.569(c)(3)...............................  New.
5.570(a)..................................  Introduction to 3.502.
5.570(b)(1)...............................  3.502(a)(1).
5.570(b)(2)...............................  3.502(a)(2).
5.570(c)..................................  3.502(b).
5.571(a)..................................  3.660(b)(1).
5.571(b)..................................  3.660(b)(2).
5.571(c)..................................  3.660(b) introduction.
5.572(a) and (b)..........................  3.660(a)(2) second sentence.
5.572(c)..................................  New.
 5.572(d).................................  3.660(a)(3).
------------------------------------------------------------------------

    Readers who use this table to compare existing regulatory 
provisions with the proposed provisions, and who observe a substantive 
difference between them, should consult the text that appears later in 
this document for an explanation of significant changes in each 
regulation. Not every paragraph of every current part 3 section 
affected by these proposed regulations is accounted for in the table. 
In some instances other portions of the part 3 sections that are 
contained in these proposed regulations appear in subparts of part 5 
that will be published for public comment at a later time. For example, 
a reader might find a reference to paragraph (a) of a part 3 section in 
the table, but no reference to paragraph (b) of that section because 
paragraph (b) will be addressed in a future NPRM. The table also does 
not include material from the current sections that will be removed 
from part 3 and not carried forward to part 5. A listing of material VA 
proposes to remove from part 3 appears later in this document.

Content of Proposed Rules

Accrued Benefits

5.550 Definitions

    The first proposed regulation, Sec.  5.550, defines ``accrued 
benefits'' and other terms important in determining entitlement to 
benefits under 38 U.S.C. 5121, ``Payment of certain accrued benefits 
upon death of a beneficiary.'' These proposed definitions are 
influenced by court opinions relating to benefits for survivors under 
38 U.S.C. 5121 and by changes to 38 U.S.C. 5121 made by section 104 of 
the Veterans Benefits Act of 2003 (``the Act''), Pub. L. 108-183, 117 
Stat. 2656.
    Understanding the complex background of our first two proposed 
definitions, ``accrued benefits'' and ``benefits awarded, but unpaid at 
death'' is critical to understanding these proposed definitions and 
other issues in this NPRM.
    Prior to its amendment by section 104 of the Act, the introductory 
portion of 38 U.S.C. 5121(a) read as follows:

    Except as provided in sections 3329 and 3330 of title 31, 
periodic monetary benefits (other than insurance and servicemen's 
indemnity) under laws administered by the Secretary to which an 
individual was entitled at death under existing ratings or 
decisions, or those based on evidence in the file at date of death 
(hereinafter in this section and section 5122 of this title referred 
to as ``'accrued benefits''') and due and unpaid for a period not to 
exceed two years, shall, upon the death of such individual be paid 
as follows. ***

    VA traditionally construed 38 U.S.C. 5121(a) as providing only one 
type of benefit to survivors: accrued benefits. The United States Court 
of Appeals for Veterans Claims (CAVC) in Bonny v. Principi, 16 Vet. 
App. 504 (2002) interpreted section 5121(a) differently. The CAVC's 
analysis includes the following:

    The comma in the middle of paragraph (a), between ``decisions'' 
and ``or,'' and the use of the conjunction ``or'' after the comma, 
indicate that the separated phrases state substantive alternatives. 
38 U.S.C. 5121(a). The paragraph provides for payment of (1) 
periodic monetary benefits to which an individual was entitled at 
death under existing ratings or decisions, which the Court will call 
``benefits awarded but unpaid'', or (2) periodic monetary benefits 
based on evidence in the file at the date of an entitled 
individual's death and due and unpaid for a period not to exceed two 
years, which are called ``accrued benefits'' for purposes of 
sections 5121 and 5122. Id.
* * * * *
    The important distinction between the two types of periodic 
monetary benefits is that one type of benefits is due to be paid to 
the veteran at his death and one type is not. As to the former, when 
the benefits have been awarded but not paid pre-death, an eligible 
survivor is to receive the entire amount of the award. The right to 
receive the entire amount of periodic monetary benefits that was 
awarded to the eligible individual shifts to the eligible survivor 
when payment of the award was not made before the eligible 
individual died. This interpretation of 38 U.S.C. 5121(a) is 
completely consistent with the plain language of the statute, as 
previously quoted and interpreted herein.
    As to the latter type of periodic monetary benefits, what is 
determinative regarding accrued benefits is that evidence in the 
individual's file at the date of death supports a decision in favor 
of awarding benefits. Because the benefits cannot be awarded to the 
deceased individual, an eligible survivor can claim a portion of 
those accrued benefits.

16 Vet. App. at 507-08. The CAVC's analysis recognized two kinds of 
benefits under 38 U.S.C. 5121, which we propose to call ``accrued 
benefits'' and ``benefits awarded, but unpaid at death.'' These terms 
are defined in Sec.  5.550(a) and (b), respectively, to comply with the 
court's analysis.
    These proposed definitions are also influenced by the Act. Section 
104(a) of the Act removed the 2-year limitation on accrued benefits 
payable under 38 U.S.C. 5121. Section 104(c) of the Act made certain 
``technical amendments'' to 38 U.S.C. 5121, including removal of the 
comma after ``or decisions'' in the introductory text of paragraph (a). 
This is the same comma relied upon by the CAVC in Bonny for 
interpreting 38 U.S.C. 5121 to require a distinction between accrued 
benefits and benefits awarded, but unpaid at death. Therefore, an 
important question is whether Congress intended to change the 
interpretation of 38 U.S.C. 5121 required by the Bonny decision by 
removing this comma. Based on the following analysis, we believe that 
it did.
    The text of section 104 of the Act is identical to the text of a 
provision in the House bill, H.R. 2297, as amended, 108th Cong. (2003). 
The ``Explanatory Statement on Senate Amendment to House Bill, H.R. 
2297, as Amended'' notes that the Act reflects a compromise agreement 
reached by the House and Senate Committees on Veterans' Affairs on 
provisions of a number of House and Senate bills affecting veterans' 
benefits. Section 104 of the Act was based on portions of two of these 
bills, section 6 of H.R. 1460, 108th Cong. (2003), and section 105 of 
S. 1132, as amended, 108th Cong. (2003). See 149 Cong. Rec. S15,133-34 
(daily ed. Nov. 19, 2003).
    The removal of the comma in question in 38 U.S.C. 5121(a) comes 
from section 105(b) of S. 1132, as passed by the Senate. See 149 Cong. 
Rec. S13,745 (daily ed. Oct. 31, 2003). S. 1132 was also based on a 
number of other bills, including S. 1188, 108th Cong. (2003). A 
principal purpose of S. 1188 was to amend 38 U.S.C. 5121 ``to repeal 
the two-year limitation on the payment of accrued benefits that are due 
and unpaid by the Secretary of Veterans Affairs upon the death of a 
veteran or other beneficiary under laws administered by the 
Secretary.'' 149 Cong. Rec. S7,476 (daily ed. June 5, 2003). As 
originally drafted, S. 1188 did not include the ``technical

[[Page 59075]]

amendments'' in section 104(c) of the Act.
    On July 10, 2003, the Senate Committee on Veterans' Affairs held a 
hearing on a number of the bills that would become the sources of S. 
1132. Persons who testified at that hearing included Daniel L. Cooper, 
VA's Under Secretary for Benefits, whose statement to the Committee 
included the following comment concerning S. 1188:

    In addition, we note one technical change needed in section 2 of 
S. 1188 should it be enacted. The comma in current section 5121(a) 
following ``existing ratings or decisions'' should be deleted to 
clarify, for purposes of 38 U.S.C. Sec. Sec.  5121(b) and (c) and 
5122, that the term ``accrued benefits'' includes both benefits that 
have been awarded to an individual in existing ratings or decisions 
but not paid before the individual's death, as well as benefits that 
could be awarded based on evidence in the file at the date of death.

S. Rep. No. 108-169, at 46-47.
    Further, in its discussion of section 105 of S. 1132, the Committee 
noted that:

    At the Committee's hearing on July 10, 2003, Under Secretary 
Cooper commented as follows: ``The distinction the Bonny decision 
draws between the two categories of claimants--those whose claims 
had been approved and those whose entitlement had yet to be 
recognized when they died--is really one without a difference. In 
either case, a claimant's estate is deprived of the value of 
benefits to which the claimant was, in life, entitled.''

Id. at 8.
    Based on this legislative history, we conclude that Congress' 
purpose in removing the comma from the introductory paragraph of 38 
U.S.C. 5121(a) was to provide for only one type of benefit under 
section 5121, removing the distinction between accrued benefits and 
benefits awarded, but unpaid at death, that resulted from the Bonny 
decision.
    The interplay between Bonny and section 104 of the Act is also 
affected by the fact that different portions of section 104 of the Act 
became effective at different times. Because there is no specific 
effective date in the Act for section 104(c) (the ``technical 
amendments'' which include removal of the comma that was a basis for 
the CAVC's interpretation of 38 U.S.C. 5121 in Bonny), that portion of 
the Act became effective when the Act was signed into law on December 
16, 2003. On the other hand, under section 104(d) of the Act, the 
amendment to 38 U.S.C. 5121(a), removing the provision restricting 
benefits to those that were due and unpaid ``for a period not to exceed 
two years'' applies to deaths occurring on or after December 16, 2003.
    These factors lead to consideration of what, if any, viability the 
Bonny distinctions between accrued benefits and benefits awarded, but 
unpaid at death, still have. For the reasons discussed in the following 
paragraphs, we conclude that these distinctions are still applicable in 
a very limited number of cases. Particularly because of the differences 
in effective date provisions for different provisions of section 104 of 
the Act, sorting this out involves looking at the time line for when 
the deceased beneficiary died and when claims for 38 U.S.C. 5121 
benefits were received and decided. (For purposes of this discussion, 
``deceased beneficiary'' has the meaning we propose in Sec.  5.550(e) 
(``the deceased person whose VA benefits are being claimed as accrued 
benefits or benefits awarded, but unpaid at death'').)
    Based on the plain language of the Act, we believe the Bonny 
division of 38 U.S.C. 5121 benefits clearly does not apply if the 
deceased beneficiary died on or after December 16, 2003. Effective on 
that date, the statutory basis for Bonny's interpretation of 38 U.S.C. 
5121 as creating two different types of VA benefits was removed. In any 
event, there would be little benefit to claimants for preserving the 
distinction in such cases because the 2-year benefit limitation has 
been repealed in cases where the deceased beneficiary died on or after 
December 16, 2003.
    For claims filed on or after December 16, 2003, VA must apply 38 
U.S.C. 5121 as amended by the Act. However, the 2-year limitation 
applies to all 38 U.S.C. 5121 accrued benefit claims VA received on or 
after December 16, 2003, if the deceased beneficiary died before 
December 16, 2003. This is true because (1) the Act removed the 
statutory underpinnings of the Bonny decision effective on December 16, 
2003, but (2) Congress very clearly intended the removal of the 2-year 
limitation in amended 38 U.S.C. 5121 to be effective only where the 
deceased beneficiary died on or after December 16, 2003.
    The last question is how VA should apply 38 U.S.C. 5121 to those 
cases where the deceased beneficiary died before December 16, 2003, and 
a claim for Sec.  5121 benefits was pending on December 16, 2003. For 
the following reasons, we propose not to apply the Act's amendments in 
such cases.
    VA's General Counsel addressed retroactive application of a statute 
in VAOPGCPREC 7-2003, holding:

    In Kuzma v. Principi, 341 F.3d 1327 (Fed. Cir. 2003), the United 
States Court of Appeals for the Federal Circuit overruled Karnas v. 
Derwinski, 1 Vet. App. 308 (1991), to the extent it conflicts with 
the precedents of the Supreme Court and the Federal Circuit. Karnas 
is inconsistent with Supreme Court and Federal Circuit precedent 
insofar as Karnas provides that, when a statute or regulation 
changes while a claim is pending before the Department of Veterans 
Affairs (VA) or a court, whichever version of the statute or 
regulation is most favorable to the claimant will govern unless the 
statute or regulation clearly specifies otherwise. Accordingly, that 
rule adopted in Karnas no longer applies in determining whether a 
new statute or regulation applies to a pending claim. Pursuant to 
Supreme Court and Federal Circuit precedent, when a new statute is 
enacted or a new regulation is issued while a claim is pending 
before VA, VA must first determine whether the statute or regulation 
identifies the types of claims to which it applies. If the statute 
or regulation is silent, VA must determine whether applying the new 
provision to claims that were pending when it took effect would 
produce genuinely retroactive effects. If applying the new provision 
would produce such retroactive effects, VA ordinarily should not 
apply the new provision to the claim. If applying the new provision 
would not produce retroactive effects, VA ordinarily must apply the 
new provision.

    As to the first criterion, the Act does not ``identif[y] the types 
of claims to which it applies.'' The question then becomes whether 
applying the Act's provisions to claims pending before VA on December 
16, 2003, would produce a ``genuinely retroactive'' effect. For the 
reasons stated below, we believe that it would. Therefore, VA will not 
apply the Act's amendments to claims for 38 U.S.C. 5121 benefits 
pending before VA on December 16, 2003.
    As discussed at some length in VAOPGCPREC 7-2003, determining 
whether applying changes in the law would produce a genuinely 
retroactive effect is a complex undertaking. However, we believe that 
the principles discussed in the following portion of paragraph 17 of 
the General Counsel's opinion control the question at hand and call for 
application of 38 U.S.C. 5121 as it existed prior to the Act to claims 
pending on December 16, 2003:

    [S]tatutes or regulations that restrict the bases for 
entitlement to a benefit might have disfavored retroactive effects 
as applied to some claims that were pending when they took effect. 
For example, if a veteran was entitled to benefits based on the law 
existing when he or she filed an application with VA, and a 
restrictive change in the governing law occurs before VA adjudicates 
the claim, application of the new restriction might retroactively 
extinguish the claimant's previously existing right to benefits for 
periods before the new law took effect. In those circumstances, 
Landgraf [v. USI Film Products, 511 U.S. 244 (1994)] indicates that 
the intervening restriction would not apply in determining the 
claimant's rights for such periods.


[[Page 59076]]


    Applying the technical amendment to section 5121(a) made by the Act 
to pending claims would limit the amount of accrued benefits some 
claimants could receive under Bonny. We believe this would constitute a 
genuine retroactive effect. We propose to amend the regulations so as 
to avoid such an effect.
    Accordingly, we propose to provide in Sec.  5.550(a)(2) and (3) 
that:

    (2) ``Accrued benefits'' also includes benefits awarded, but 
unpaid at death:
    (i) If the deceased beneficiary died on or after December 16, 
2003;
    (ii) If the deceased beneficiary died prior to December 16, 
2003, but VA received the claim for benefits under 38 U.S.C. 5121 on 
or after December 16, 2003; and
    (iii) For purposes of Sec.  5.558, ``Special rule for certain 
cases involving deaths prior to December 16, 2003.''
    (3) ``Accrued benefits'' does not include benefits awarded, but 
unpaid at death, when the deceased beneficiary died prior to 
December 16, 2003, and a claim for benefits under 38 U.S.C. 5121 was 
pending before VA on December 16, 2003. (For purposes of paragraph 
(a)(3) of this section, VA will consider a claim to be pending if 
there was no final decision on that claim as of December 16, 2003. 
See [regulation that will be published in a future Notice of 
Proposed Rulemaking] (defining a final decision)).

    Proposed Sec.  5.550(c) addresses the definition of ``child.'' 
Because ``child'' is defined in great detail in Sec.  3.57, we believe 
that the material should not be repeated here. Therefore, the 
definition in proposed Sec.  5.550(c) consists of a simple cross-
reference to Sec.  3.57, together with text preserving the intent of 
the current rule in Sec.  3.1000(d)(2) stating that a ``child'' 
includes ``an unmarried child over the age of 18 but not over 23 years 
of age, who was pursuing a course of instruction within the meaning of 
Sec.  3.57 at the time of the payee's death.'' This is accomplished by 
reference to ``the age range specified by Sec.  3.57(a)(1)(iii).'' 
(Note that current Sec.  3.57(a)(1)(iii) correctly describes the 
relevant age range while current Sec.  3.1000(d)(2) is potentially 
misleading in this regard. See 38 U.S.C. 101(4)(A)(iii).)
    The United States Court of Appeals for the Federal Circuit 
clarified another aspect of benefits under 38 U.S.C. 5121 in Jones v. 
West, 136 F.3d 1296, 1299 (Fed. Cir. 1998):

    Reading [38 U.S.C.] 5101 and 5121 together compels the 
conclusion that, in order for a surviving spouse to be entitled to 
accrued benefits, the veteran must have had a claim pending at the 
time of his death for such benefits or else be entitled to them 
under an existing rating or decision.

    Proposed Sec.  5.550(d) defines a ``claim for VA benefits pending 
on the date of death'' as ``a claim filed with VA which had not been 
finally adjudicated by VA on or before the date of death.'' That is, VA 
would consider the claim to have been pending on the date of death if 
it had not been adjudicated or, if the claim had been adjudicated, the 
time to appeal had not expired or there is no final decision by the 
Board of Veterans' Appeals (BVA).
    We note this definition does not preclude a survivor from filing an 
accrued benefits claim based on a decedent's claim that had been 
judicially appealed. In that case, the CAVC typically vacates the BVA 
decision in order to preserve potential accrued benefits claims. For 
example, the CAVC noted the following in Sagnella v. Principi, 15 Vet. 
App. 242, 246 (2001):

    This Court held in Landicho [v. Brown, 7 Vet. App. 42 (1994)] 
that the appropriate remedy [when a veteran dies while his or her 
BVA decision is on appeal] is to vacate the Board decision from 
which the appeal was taken and to dismiss the appeal. Landicho, 7 
Vet. App. at 54. This ensures that the Board decision and the 
underlying VA regional office (RO) decision(s) will have no 
preclusive effect in the adjudication of any accrued-benefits claims 
derived from the veteran's entitlements. It also nullifies the 
previous merits adjudication by the RO because that decision was 
subsumed in the Board decision.

    Consistent with long-standing VA practice, Sec.  5.550(d) also 
provides that such a claim may include a deceased beneficiary's claim 
to reopen a finally disallowed claim based upon new and material 
evidence or a deceased beneficiary's claim of clear and unmistakable 
error in a prior rating or decision.
    Proposed Sec.  5.550(e) defines ``deceased beneficiary.'' This 
would provide a convenient way to refer to the deceased VA beneficiary 
throughout these proposed regulations and to distinguish that person 
from the living beneficiary claiming survivors' benefits.
    The proposed definitions of ``dependent parent'' at Sec.  5.550(f) 
and of ``evidence in the file on the date of death'' at Sec.  5.550(g) 
are plain language restatements of the definitions of those terms in 
current Sec.  3.1000(d).
    Next, in Sec.  5.550(h), we propose to replace the definition of 
``spouse'' in current Sec.  3.1000(d)(1) with a definition of 
``surviving spouse.'' Section 3.1000(d)(1) provides that a ``spouse'' 
is the surviving spouse of a veteran whose marriage meets the 
requirements of Sec.  3.1(j) or Sec.  3.52. ``Surviving spouse'' is 
defined in Sec.  3.50(b), which also requires compliance with either 
Sec.  3.1(j) or Sec.  3.52. Therefore, subject to one exception, we 
propose to define ``surviving spouse'' by reference to Sec.  3.50(b). 
The exception arises because Sec.  3.50(b)(1) imposes a requirement for 
the surviving spouse to have lived with the veteran continuously from 
the date of marriage to the date of the veteran's death, except where 
there was a separation which was due to the misconduct of, or procured 
by, the veteran without the fault of the spouse. Section 3.1000(d)(1), 
in part, specifies that ``[w]here the marriage meets the requirements 
of Sec.  3.1(j) date of marriage and continuous cohabitation are not 
factors.'' In Sec.  5.550(h)(2), we propose to preserve this exception 
from the Sec.  3.50(b)(1) continuous cohabitation requirements and 
various potentially applicable date-of-marriage requirements.

5.551 Persons Entitled to Accrued Benefits or Benefits Awarded, but 
Unpaid at Death

    In the next proposed regulation, Sec.  5.551, we propose to 
recognize the category of ``benefits awarded, but unpaid at death,'' 
where appropriate. We also propose to clarify several points.
    We propose in Sec.  5.551(a) to state the scope of this section, 
including cross-references to several special provisions applicable to 
accrued benefits and benefits awarded, but unpaid at death.
    One clarification, in proposed Sec.  5.551(b), concerns the 
references to the veteran's spouse, children, and dependent parents in 
current Sec.  3.1000(a)(1). Proposed Sec.  5.551(b)(2) specifies that 
this means the surviving spouse, surviving children, and surviving 
dependent parents. This is not a substantive change. It is implicit in 
the current regulation and in its authorizing statute (38 U.S.C. 
5121(a))(2)), both of which require that the claimants be living.
    Proposed 5.551(c) clarifies provisions of current Sec.  3.1000(f), 
which provides rules for distributing unpaid dependents' educational 
assistance allowance or special restorative training allowance, 
authorized by 38 U.S.C. chapter 35, when the recipient of those 
benefits dies. Current Sec.  3.1000(f) contains two different rules 
concerning distribution of those benefits when the deceased beneficiary 
is the veteran's spouse. This is necessary because, under 38 U.S.C. 
5121(a), the disposition of benefits differs depending on whether the 
veteran was or was not living at the time of the death of the veteran's 
spouse.
    Upon the death of a surviving spouse, the spouse's benefits go 
first to the surviving children of the deceased veteran. See 38 U.S.C. 
5121(a)(3). If there are no surviving children, the

[[Page 59077]]

accrued benefits may be paid as necessary to reimburse the person who 
bore the expense of the last sickness and/or burial of the deceased 
spouse. See 38 U.S.C. 5121(a)(6). On the other hand, there is no 
specific rule in 38 U.S.C. 5121(a) for distribution of benefits when 
the spouse of a living veteran dies. In that case, the default 
provision of 38 U.S.C. 5121(a)(6) applies and the accrued benefits may 
be paid only as necessary to reimburse the person who bore the expense 
of the last sickness and/or burial of the deceased spouse.
    We propose to make these distinctions much clearer in Sec.  
5.551(c) by using two separate paragraphs. One would be applicable when 
the deceased beneficiary was the surviving spouse of a deceased 
veteran, and one would be applicable when the deceased beneficiary was 
the spouse of a living veteran. In fact, these distinctions would apply 
generally if the deceased beneficiary was the veteran's spouse, not 
just in cases involving chapter 35 educational benefits, and that 
broader application is also reflected in proposed Sec.  5.551(c).
    Section 104(b) of the Act amends 38 U.S.C. 5121(a) to provide that 
surviving parents may claim accrued benefits upon the death of a child 
who had claimed benefits under 38 U.S.C. chapter 18. Under section 
104(d) of the Act, this amendment applies when the child dies on or 
after December 16, 2003. Proposed Sec.  5.551(d)(3) reflects this 
change.
    A consequence of the Bonny decision construing 38 U.S.C. 5121(a) to 
provide for two different kinds of benefits is that statutory 
provisions that explicitly apply to only one of those benefits 
necessarily do not apply to the other. One of those provisions (38 
U.S.C. 5121(a)(5) prior to the Act, but now 38 U.S.C. 5121(a)(6)) 
provides that, if there is no other qualified claimant, ``only so much 
of the accrued benefits may be paid as may be necessary to reimburse 
the person who bore the expense of [the deceased beneficiary's] last 
sickness and burial.''
    Because it expressly applies to ``accrued benefits,'' it could not, 
prior to the Act, have applied to the category of benefits recognized 
by the Bonny decision we propose to call ``benefits awarded, but unpaid 
at death.'' In keeping with the previous discussion of the extent to 
which Bonny is still applicable, we propose to provide in Sec.  
5.551(e) that ``[b]enefits awarded, but unpaid at death, are not 
payable under this paragraph if the deceased beneficiary died prior to 
December 16, 2003, and a claim for such benefits was pending before VA 
on December 16, 2003.''

5.552 Claims for Accrued Benefits or Benefits Awarded, but Unpaid at 
Death

    Proposed Sec.  5.552 provides rules for claims for accrued 
benefits. These proposed rules also apply to claims for benefits 
awarded, but unpaid at death, if the deceased beneficiary died prior to 
December 16, 2003, and a claim for such benefits was pending on 
December 16, 2003. Proposed Sec.  5.552(a) clarifies that proposed 
Sec.  5.552 does not apply to claims for the proceeds of benefit checks 
a deceased beneficiary failed to negotiate prior to death (see proposed 
Sec.  5.564), or to claims for benefits under Sec.  3.816 by members of 
a certain class-action litigation.
    Proposed Sec.  5.552(b) states rules concerning the time limit for 
filing claims for accrued benefits and the absence of a time limit for 
filing claims for benefits awarded, but unpaid at death. Proposed Sec.  
5.552(b)(1), based on 38 U.S.C. 5121(c), states that ``[a] claim for 
accrued benefits must be filed within one year after the date of the 
deceased beneficiary's death.'' Under both proposed Sec.  5.552(b)(1) 
and 38 U.S.C. 5121(c), the one-year time limit only applies to 
``accrued benefits.'' Therefore, as provided in proposed Sec.  
5.552(b)(2), it does not apply to claims for ``benefits awarded, but 
unpaid at death.'' However, as the previous discussion concerning the 
interplay between Bonny v. Principi and the Act shows, ``benefits 
awarded, but unpaid at death'' now exists as a separate category of 
benefits in only very limited circumstances. Therefore proposed Sec.  
5.552(b)(2) states the following:

    Benefits awarded, but unpaid at death. There is no time limit 
for filing a claim for benefits awarded, but unpaid at death, if the 
deceased beneficiary died prior to December 16, 2003, and a claim 
for such benefits was pending before VA on December 16, 2003. 
Paragraph (b)(1) of this section applies where ``accrued benefits'' 
includes ``benefits awarded, but unpaid at death.'' See Sec.  
5.550(a)(2).

5.553 Notice of Incomplete Claims

    The provisions of proposed Sec.  5.553 are similar to those of 
current Sec.  3.1000(c)(1) with modifications to reflect the structure 
of proposed part 5.

5.554 Evidence of School Attendance in Claims by a Veteran's Children 
for Accrued Benefits or Benefits Awarded, but Unpaid at Death

    Proposed Sec.  5.554 is based on current Sec.  3.667(e). We propose 
to include information about the new category of ``benefits awarded, 
but unpaid at death'' within the scope of its provisions, to correct an 
error in current Sec.  3.667(e), and to clarify the rule concerning 
when verification of school attendance is required.
    Current Sec.  3.667(e) refers to ``a veteran's child over 18 but 
under 23 years of age, who was pursuing a course of instruction at the 
time of the payee's death.'' This description of the beginning point of 
this age range may be misleading. The relevant statutory provision is 
found at 38 U.S.C. 101(4)(A)(iii), which includes within the definition 
of ``child'' a person who otherwise qualifies as a child and ``who, 
after attaining the age of eighteen years and until completion of 
education or training (but not after attaining the age of twenty-three 
years), is pursuing a course of instruction at an approved educational 
institution.'' The statutory period begins when the child attains the 
age of 18. The current regulation could be read as suggesting that the 
child must be age 19. Proposed Sec.  5.554(a) clarifies this by 
referring to ``a veteran's child who has attained the age of 18, but is 
under the age of 23.''
    Current Sec.  3.667(e) provides that school attendance need not be 
confirmed when a claim for accrued benefits is filed by, or on behalf 
of, a child within a specified age range who was pursuing a course of 
instruction at the time of the payee's death and only payment of 
accrued benefits is involved. It also provides that ``[w]hen the 
payee's death occurred during a school vacation period, the 
requirements [of the section] will be considered to have been met if 
the child was carried on the school rolls on the last day of the 
regular school term immediately preceding the date of the payee's 
death.'' Of course, it may be necessary to obtain information from the 
school in order for VA to know whether the child was carried on the 
school's rolls at the relevant time. Proposed Sec.  5.554(b) and (c) 
have been drafted to allow for this contingency.

5.555 What VA Benefits Are Potentially Payable as Accrued Benefits or 
Benefits Awarded, but Unpaid at Death?

    We propose in Sec.  5.555 to state which benefits are potentially 
available as accrued benefits or benefits awarded, but unpaid at death, 
and which benefits are not.
    The terms of 38 U.S.C. 5121(a) provide that benefits included as 
accrued benefits must be ``periodic monetary benefits (other than 
insurance and servicemen's indemnity) under laws administered by the 
Secretary.'' This would clearly include VA pension, compensation, and 
DIC. Medal of Honor special pension under 38 U.S.C. 1562

[[Page 59078]]

and monetary benefits for veterans' children under 38 U.S.C. 1805, 
1815, and 1821 are also ``periodic monetary benefits * * * under laws 
administered by the Secretary.'' Therefore, we propose to explicitly 
include all such benefits as qualifying benefits in Sec.  5.555(b).
    Section 156 of Pub. L. 97-377, 96 Stat. 1920-22, restored certain 
Social Security benefits that were reduced or terminated by the Omnibus 
Budget Reconciliation Act of 1981, Pub. L. 97-35, 95 Stat. 357. 
Benefits payable under section 156 are commonly called REPS (Restored 
Entitlement Program for Survivors) benefits. We also propose to add 
REPS benefits to the list of those benefits that qualify as accrued 
benefits. REPS benefits are periodic monetary benefits because they are 
monthly payments, and, in the language of 38 U.S.C. 5121(a), they are 
paid ``under laws administered by the Secretary.'' Pub. L. 97-377 
provides that these payments are to be paid by ``the head of the 
agency'' and it defines the term ``head of the agency'' as ``the head 
of such department or agency of the Government as the President shall 
designate to administer the provisions of this section.'' (Sec. 
156(i)(1), Pub. L. 97-377, 96 Stat. 1922). Executive Order 12436, 48 FR 
34929 (Aug. 2, 1983), designated ``the Administrator of Veterans' 
Affairs' (now ``the Secretary of Veterans Affairs'') to administer the 
provisions of section 156 of Pub. L. 97-377. Therefore, we propose to 
include REPS benefits in the list of qualifying benefits in proposed 
Sec.  5.555(b)(8).
    Various benefits are excluded because they are not ``periodic 
monetary benefits.'' The CAVC has determined that VA assistance in 
acquiring automobiles and adaptive equipment under 38 U.S.C. chapter 39 
(see Gillis v. West, 11 Vet. App. 441 (1998)) and assistance in 
acquiring specially adapted housing under 38 U.S.C. Chapter 21 (see 
Pappalardo v. Brown, 6 Vet. App. 63 (1993)) are not ``periodic monetary 
benefits.'' We propose to include these benefits as exclusions in Sec.  
5.555(c)(1) and (2).
    Next, we propose to include insurance benefits as Sec.  5.555(c)(3) 
in the list of benefits that do not qualify as potential accrued 
benefits or benefits awarded, but unpaid at death, because such 
benefits are specifically excluded by 38 U.S.C. 5121(a). The proposed 
exclusion of Naval pension in Sec.  5.555(c)(4) is based on current 
Sec.  3.803(d).
    The list of exclusions we propose also includes a special allowance 
authorized by 38 U.S.C. 1312(a). This allowance is payable to the 
survivors of certain veterans who die while in service or as the result 
of a service-connected disability incurred after September 15, 1940, 
and who were not fully and currently insured individuals under title II 
of the Social Security Act (42 U.S.C. 401 et seq.).
    The special allowance payable under section 1312(a) is not 
available as accrued benefits because 38 U.S.C. 5121 applies to 
``periodic monetary benefits * * * under laws administered by the 
Secretary [of Veterans Affairs].'' Under 38 U.S.C. 1322(a), as amended 
by the Act, it is the Commissioner of Social Security, not the 
Secretary of Veterans Affairs, who primarily determines whether any 
survivor is entitled to the section 1312(a) special allowance and, if 
so, the amount of those benefits. Therefore, we propose to exclude this 
special allowance from the list of benefits available under 38 U.S.C. 
5121 in proposed Sec.  5.555(c)(5).
    We propose to omit reference to an obsolete category of benefits 
referred to in current Sec.  3.1000(a) as ``servicemembers' 
indemnity.'' In particular, the Servicemen's Indemnity Act of 1951, 
Pub. L. 82-23, 65 Stat. 34, authorized VA to pay indemnity in the form 
of $10,000 automatic life insurance coverage to the survivors of 
members of the Armed Forces who died in service. However, the Act 
authorizing such benefits was repealed in 1956 by section 502(9) of the 
Servicemen's and Veterans' Survivor Benefits Act, Pub. L. 84-881, 70 
Stat. 886. Therefore, we propose to remove the obsolete reference to 
this benefit.

5.556 Period for Which Accrued Benefits Are Paid

    In keeping with the provisions of section 104 of the Act, proposed 
Sec.  5.556(a) provides that, if the deceased beneficiary died prior to 
December 16, 2003, accrued benefits are limited to a period not to 
exceed 2 years. Note that through operation of the definitions in 
proposed Sec.  5.550(a) and (b), this limitation would not apply to 
claims for benefits awarded, but unpaid at death, that were pending on 
December 16, 2003.
    Historically, VA understood the 2-year limitation on payment of 
accrued benefits to mean a limitation to benefits accruing during the 2 
years immediately preceding the veteran's death. In Terry v. Principi, 
No. 03-7107, 2004 U.S. App. LEXIS 9056, at *13 (Fed. Cir. May 10, 
2004), the United States Court of Appeals for the Federal Circuit held 
that 38 U.S.C. 5121(a), prior to its amendment by the Act, ``only 
limits a survivor's recovery of accrued veteran's benefits to a maximum 
two-year period of benefits accrued at any time during the veteran's 
life.'' We propose to state in Sec.  5.556(a) that ``[i]f benefits 
accrued for a period in excess of 2 years during the beneficiary's 
life, VA will pay benefits for the period of 24 consecutive months that 
produces the highest payment to the accrued benefits claimant.''
    Finally, proposed Sec.  5.556(b) calls attention to a special 
exception to the 2-year limitation rule in Sec.  3.816 concerning 
payments related to a certain class-action lawsuit.

5.557 Relationship Between Accrued Benefits Claim and Claims Filed by 
the Deceased Beneficiary

    This Notice of Proposed Rulemaking addresses another key court 
decision concerning the nature of accrued benefits claims and the 
interpretation of 38 U.S.C. 5121. In Zevalkink v. Brown, 102 F.3d 1236, 
1241 (Fed. Cir. 1996), cert. denied, 521 U.S. 1103 (1997), the court 
stated the following concerning claims for accrued benefits:

    A claim for accrued benefits under [38 U.S.C.] Sec.  5121, as 
the Court of Veterans Appeals [now Court of Appeals for Veterans 
Claims] correctly held, is a separate claim from the veteran's claim 
for service connection because it is based on a separate statutory 
entitlement for which an application must be filed in order to 
receive benefits. See 38 U.S.C. Sec.  5121(c) (``Applications for 
accrued benefits must be filed within one year after the date of 
death.''). At the same time, however, an accrued benefits claim is 
derivative of the veteran's claim for service connection, i.e., the 
claimant's entitlement is based on the veteran's entitlement.

    The concepts explained in Zevalkink are incorporated in proposed 
Sec.  5.557. Specifically, proposed Sec.  5.557(a) provides that while 
an accrued benefits claim is a separate claim, the claimant's 
entitlement is based on the deceased beneficiary's entitlement.
    A consequence of this principle is addressed in proposed Sec.  
5.557(b). The court set out the following explanation in Zevalkink, 102 
F.3d at 1242:

    If the existing decisions were adverse, then no benefits are 
payable. While living, the veteran was bound by those existing 
decisions and could not have had them reconsidered absent new and 
material evidence. Sections 5108 and 7104 of title 38 expressly 
preclude the [regional office] and [the Board of Veterans' Appeals] 
from considering a prior adjudicated claim unless new and material 
evidence is presented * * *
    Appellants have presented no compelling argument, nor pointed to 
any statutory language, showing why existing ratings and decisions 
should be reopened without such new and material evidence. 
Appellants argue, in effect, that the clause that states that

[[Page 59079]]

accrued benefits may be ``based on evidence in the file at date of 
death'' allows them to reopen, and have a new adjudication of, any 
existing decision or rating. As shown, however, this would be 
inconsistent with the other provisions of Sec.  5121 and with the 
central purpose of the statute which is to pay accrued benefits 
based on ``existing ratings and decisions.'' Thus, we interpret the 
clause relied on by appellants as permitting the new adjudication of 
a prior claim only if there is new and material evidence in the file 
which has not previously been considered.

    Proposed Sec.  5.557(b) incorporates the court's holding by 
providing that a claimant for accrued benefits is bound by any existing 
VA decisions to the same extent as the deceased beneficiary would have 
been bound.

5.558 Special Rule for Certain Cases Involving Deaths Prior to December 
16, 2003

    As previously discussed in this NPRM, VA regulations in effect at 
the time of the Bonny decision apply if the deceased beneficiary died 
prior to December 16, 2003, but VA received a claim for 38 U.S.C. 5121 
benefits on or after December 16, 2003. This is because, effective on 
December 16, 2003, the basis for the Bonny court's interpretation of 38 
U.S.C. 5121(a) is no longer viable.
    Therefore, we propose to provide in Sec.  5.558 that if the 
deceased beneficiary died prior to December 16, 2003, but VA received a 
claim for benefits under 38 U.S.C. 5121 on or after that date, the 
claim will be adjudicated under the provisions of 38 CFR 3.1000, and 
sections cited therein, in effect on December 16, 2003. Because of the 
definition of ``accrued benefits'' in proposed Sec.  5.550(a), Sec.  
3.1000 and the sections it cites would be applied uniformly to accrued 
benefits and to benefits awarded, but unpaid at death, in these cases.

5.559 Accrued Benefits Reference Table

    The interrelationships of the proposed regulations concerning 
benefits under 38 U.S.C. 5121 are necessarily very complex, given the 
Bonny decision as modified by the provisions of the Act. Therefore, we 
propose to provide a table, with appropriate cross-references 
concerning differences in application of the one-year time limit to 
file a claim and the 2-year limitation on the benefit payable, as well 
as a list of potential benefit claimants.

Death Compensation

    The second major portion of this NPRM concerns death compensation.

5.560 Eligibility Criteria for Payment of Death Compensation

    The first regulation concerning death compensation is proposed 
Sec.  5.560, a revision of current 38 CFR 3.4(a). In its current form, 
Sec.  3.4(c)(2) informs readers that death compensation is available if 
the veteran died on or after May 1, 1957, and before January 1, 1972, 
if at the time of death a policy of United States Government Life 
Insurance (USGLI) or National Service Life Insurance (NSLI) was in 
effect under waiver of premiums pursuant to 38 U.S.C. 1924, ``In-
service waiver of premiums,'' unless the waiver was granted under the 
first provision of section 622(a) of the National Service Life 
Insurance Act of 1940 (now 38 U.S.C. 1924), and the veteran died before 
or within 120 days of return to military jurisdiction. We propose to 
remove this provision because it is obsolete.
    The DIC program was established in 1956 by Pub. L. 84-881, 70 Stat. 
862, which provided that DIC, rather than death compensation, would be 
payable for service-related deaths after December 31, 1956. However, 
section 501(a)(3)(B) of Pub. L. 84-881, 70 Stat. 880, provided that DIC 
could not be paid in cases when an NSLI or USGLI policy was in effect 
under a waiver of premiums based on section 622 of the National Service 
Life Insurance Act of 1940. Section 501(a)(3)(B) stated that death 
compensation could be paid in those cases, even though the death 
occurred after December 31, 1956. In 1958, this provision was codified, 
as amended, at 38 U.S.C. 417(a). Also in 1958, Congress enacted 38 
U.S.C. 321 and 341 (now 38 U.S.C. 1121 and 1141, respectively) to 
provide that death compensation could be paid when a veteran died 
before January 1, 1957 ``(or after April 30, 1957, under the 
circumstances described in section 417(a) of this title).'' Secs. 321, 
341, Pub. L. 85-857, 72 Stat. 1122-23.
    In 1971, Congress removed 38 U.S.C. 417(a) and amended sections 321 
and 341 by removing the provision authorizing death compensation for 
deaths after April 30, 1957. See secs. 5, 6, Pub. L. 92-197, 85 Stat. 
662. Congress also provided that any person who was receiving or 
entitled to receive death compensation on December 31, 1971, would 
continue to receive that compensation unless they elected to receive 
DIC. Sec. 8, Pub. L. 92-197, 85 Stat. 662.
    As the foregoing indicates, there is currently no authority to 
award death compensation for deaths on or after January 1, 1957. After 
that date, VA compensation for such deaths is governed exclusively by 
the DIC provisions in chapter 13 of title 38, United States Code. 
Therefore, we propose to remove current Sec.  3.4(c)(2).
    Proposed Sec.  5.560(d) provides that VA will apply the same rules 
for determining the dependency of parents for death compensation 
purposes that it uses to determine the dependency of parents for the 
purpose of awarding additional compensation to a veteran with a 
dependent parent. The rules are the same and, particularly in view of 
the fact that there are now relatively few death compensation 
claimants, we believe this is preferable to repeating the complex rules 
for determining dependency in proposed subpart G of part 5.

5.561 Time of Marriage Requirement for Death Compensation Claims

    Proposed Sec.  5.561, based on relevant portions of current Sec.  
3.54, provides rules related to the time of marriage requirement for 
surviving spouses claiming entitlement to death compensation. As 
explained in proposed Sec.  5.561(a), a marriage between the veteran 
and the veteran's surviving spouse that occurred before or during the 
veteran's military service meets time of marriage requirements for 
death compensation purposes.
    A surviving spouse who married the veteran after service may meet 
the time of marriage requirement for death compensation eligibility 
under 38 U.S.C. 1102 in four ways, as explained in proposed Sec.  
5.561(b) and (c), which are based on current Sec.  3.54(b). The first 
way is stated in proposed Sec.  5.561(b), which preserves the 
provisions of the introductory paragraph of current Sec.  3.54(b) and 
38 U.S.C. 1102(b) that permit a surviving spouse to qualify for death 
compensation if the surviving spouse would have qualified under the law 
in effect on December 31, 1957.
    Proposed Sec.  5.561(c)(1) addresses the second way a surviving 
spouse may meet the time of marriage requirements for death 
compensation. As stated in 38 U.S.C. 1102(a)(1), this is for the 
marriage to have occurred ``before the expiration of fifteen years 
after the termination of the period of service in which the injury or 
disease causing the death of the veteran was incurred or aggravated.'' 
We propose to include a provision, based on 38 U.S.C. 103(b) and 
current Sec.  3.54(e), that states that ``[w]here the surviving spouse 
has been married legally to the veteran more than once, the date of the 
original marriage will be used in determining whether this requirement 
has been met.''
    We have not included the introductory clause in the first sentence

[[Page 59080]]

of current Sec.  3.54(e) in proposed Sec.  5.561(c)(1). That clause 
limits the scope of Sec.  3.54(e) to ``periods commencing on or after 
January 1, 1958.'' January 1, 1958, is the effective date of the 
Veterans' Benefits Act of 1957 (1957 Act), Pub. L. 85-56, 71 Stat. 83. 
The 1957 Act primarily served to consolidate laws concerning veterans' 
benefits into one statute. The text of one of the 1957 Act's provisions 
is similar to current 38 U.S.C. 103(b). See sec. 103, Pub. L. 85-56, 71 
Stat. 90. However, the law in effect prior to passage of the 1957 Act 
also permitted using the original date of marriage to determine if date 
of marriage requirements had been met in death compensation cases where 
the surviving spouse and the veteran had been married more than once. 
See sec. 3, Pub. L. 78-483, 58 Stat. 804.
    We also propose to clarify in Sec.  5.561(c)(1) that ``period of 
service'' in this context means a period of active military service 
from which the veteran was discharged under other than dishonorable 
conditions. Death compensation is payable to the surviving spouse of a 
``veteran'' and, except for persons who die in service, a veteran is a 
person who was discharged or released from service under conditions 
other than dishonorable. 38 U.S.C. 101(2).
    The third way in which a surviving spouse who married the veteran 
after service may meet the time of marriage requirements is to have 
been married to the veteran for a year or more. The statutory provision 
that sets the one-year marriage requirement relating to death 
compensation claims, 38 U.S.C. 1102(a)(2), is silent as to whether the 
one year of marriage must have been continuous. We propose to permit 
adding periods of marriage together to determine whether the one-year 
requirement has been met in cases where the surviving spouse and the 
veteran were married more than once. The one-year marriage requirement 
is designed to prevent abuse by sham ``death bed'' marriages to obtain 
benefits. We believe that there is much less risk of such abuse where 
the veteran and the surviving spouse have had an ongoing close 
relationship demonstrated by previous marriage.
    Finally, a surviving spouse who married the veteran after service 
may meet the time of marriage requirement for death compensation if a 
child was born of the marriage, or born before the marriage. Proposed 
Sec.  5.561(c)(3) includes this rule and refers the user to Sec.  
3.54(d) for definitions of ``child born of the marriage'' and child 
``born `` before the marriage.''

5.562 Eligibility Criteria for Special Monthly Death Compensation

    Proposed Sec.  5.562, based on current Sec.  3.351(a)(6), (b), and 
(c), provides for payment of increased death compensation based on the 
need for regular aid and attendance. We propose to correct an omission 
from current Sec.  3.351(a)(6), which provides for increased death 
compensation only for a surviving spouse who is in need of aid and 
attendance. The underlying statute, 38 U.S.C. 1122(b), provides for 
special monthly death compensation for dependent parents in need of aid 
and attendance, as well as for surviving spouses. Proposed Sec.  
5.562(a) clarifies that both classes of claimants are potentially 
eligible. While the correction of the omission in the regulation is 
new, this does not represent a change in VA practice, inasmuch as VA 
complies with the authorizing statute.

Special Provisions

    The next section of this NPRM contains proposed regulations that 
set out special provisions concerning the disposition of the proceeds 
of certain VA benefits upon the death of the person receiving those 
benefits.

5.563 Special Rules When a Beneficiary Dies While Receiving Apportioned 
Benefits

    The first proposed regulation in this group, Sec.  5.563, is based 
on current Sec.  3.1000(b). Proposed Sec.  5.563(a) would implement the 
broad authority given to VA under 38 U.S.C. 5121(a)(1): ``Upon the 
death of a person receiving an apportioned share of benefits payable to 
a veteran, all or any part of such benefits [shall be paid] to the 
veteran or to any other dependent or dependents of the veteran, as may 
be determined by the Secretary.''
    The current regulation provides that when a person receiving an 
apportioned share of a veteran's benefits dies, all or any part of an 
unpaid apportionment is payable to the veteran or to the veteran's 
surviving dependents. However, it does not specify how VA makes 
determinations concerning surviving dependents. Proposed Sec.  
5.563(a), following long-standing VA practice, provides for payment of 
the unpaid apportionment to the veteran, if the veteran survives, or to 
the surviving dependents of a deceased veteran. We propose to use the 
same order of priority specified in 38 U.S.C. 5121(a)(2), which is 
applicable to accrued benefits and benefits awarded, but unpaid at 
death, to determine which dependents of a deceased veteran are entitled 
to these funds. This is accomplished through a cross-reference to 
proposed Sec.  5.551(b).

5.564 Special Rules When VA Benefit Checks Have Not Been Negotiated 
Prior to the Beneficiary's Death

    The second proposed regulation in this group of special provisions 
is Sec.  5.564, which is based on current Sec.  3.1003. This regulation 
provides rules concerning the disposition of VA benefit checks that 
were not negotiated at the time of the death of the beneficiary. We 
propose to use the term ``beneficiary,'' rather than ``payee'' as 
currently used in Sec.  3.1003, to clarify that the provisions of this 
proposed section would not apply to payees who die and who are not VA 
beneficiaries themselves, such as fiduciaries who receive VA benefit 
checks on behalf of a minor or incompetent VA beneficiary. In 
VAOPGCPREC 8-96, VA's General Counsel noted that the statutory scheme 
and the legislative history of 38 U.S.C. 5122, the statutory authority 
for this regulation, suggest that the statute applies only when the 
individual actually entitled to VA benefits has died before a VA check 
in payment of such benefits has been negotiated.
    Proposed Sec.  5.564(a)(1) states the general rule that non-
negotiated VA benefit checks must be returned to the office that issued 
the checks upon the death of the beneficiary. Proposed Sec.  
5.564(a)(2) provides an exception to the general rule, which is 
currently found in 38 CFR 3.20(c)(2), that under certain circumstances 
a surviving spouse may negotiate a veteran's check for compensation or 
pension for the month in which the veteran died.

5.565 Special Rules for Payment of VA Benefits on Deposit in a Special 
Deposit Account When a Payee Living in a Foreign Country Dies

    The next regulation in this proposed rulemaking is comprised of 
rules for disposition of funds deposited in an account called 
``Secretary of the Treasury, Proceeds of Withheld Foreign Checks'' 
(``special deposit account'') upon the death of the payee. Such 
accounts are necessary because of provisions in 31 U.S.C. 3329, 
``Withholding checks to be sent to foreign countries,'' and 31 U.S.C. 
3330, ``Payment of Department of Veterans Affairs checks for the 
benefit of individuals in foreign countries.''
    Under 31 U.S.C. 3329, the Secretary of the Treasury must prohibit 
Federal payments from being sent to a foreign country when the 
Secretary of the Treasury decides that there is no reasonable assurance 
the payee will receive it or, if they receive it, will be

[[Page 59081]]

able to negotiate it for its full value. Subject to certain conditions, 
the funds are deposited in the special deposit account.
    A companion statute, 31 U.S.C. 3330, provides special rules for 
implementing 31 U.S.C. 3329 when the Federal payment in question 
involves VA benefit checks. Among other things, section 3330 limits the 
amount to be deposited in the special deposit account to $1,000 and 
provides rules for disposition of the money in that account when the 
payee dies.
    The rules for disposition of funds in the special deposit account 
upon the death of the payee are the subject of current Sec.  3.1008. 
The current section, however, refers to obsolete legal authorities. In 
addition, the current section omits practical details about how the 
funds in the special deposit account are distributed, information about 
statutory time limits for filing a claim for the funds and filing 
supporting evidence, and other information that would be helpful to 
users of the regulation. Proposed Sec.  5.565 addresses all of these 
concerns.
    In Sec.  5.565(b)(3) we propose to provide that ``[i]f the deceased 
payee was the recipient of an apportioned share of the veteran's 
pension or compensation, [the funds in the special deposit account are 
payable] to the veteran to the extent the special deposit account 
consists of such apportionment payments.'' This is based upon our 
interpretation of language in 31 U.S.C. 3330(c)(3):

    (c) If the payee of a check for pension, compensation, or 
emergency officers' retirement pay under laws administered by the 
Secretary of Veterans Affairs dies while the amount of the check is 
in the special deposit account, the amount is payable (subject to 
section 3329 of this title and this section) as follows:
* * * * *
    (3) after the death of an apportionee of a part of the veteran's 
pension, compensation, or emergency officers' retirement pay but 
before all of the apportioned amount is paid to the veteran, the 
apportioned amount not paid.

    The original statutory language in section 3(c) of Pub. L. 76-828, 
54 Stat. 1087, was clearer. It provided that:

* * * upon the death, prior to disbursement of all or any part of 
the apportioned amount, of an apportionee of a part of the veteran's 
pension, compensation, or emergency officers' retirement pay, such 
apportioned amount not disbursed shall be payable to the veteran.

    This language was codified as part of 31 U.S.C. 125 and carried 
forward for many years. See, e.g., 31 U.S.C. 125 (1976).
    Pub. L. 97-258 completely recodified title 31, United States Code. 
Among other things, it substituted the current language of 31 U.S.C. 
3330(c) for the pertinent provisions of former 31 U.S.C. 125. Pub. L. 
97-258, 96 Stat. 954. The United States Code Congressional and 
Administrative News includes the House Report submitted with this 
legislation. The commentary concerning section 3330 does not explain 
the changes introduced in section 3330(c)(3). H.R. Rep. No. 97-651, at 
107 (1982), reprinted in 1982 U.S.C.C.A.N. 1895, 2001. Nevertheless, 
the statement of the purpose of the legislation indicates that ``[t]he 
purpose of the bill is to restate in comprehensive form, without 
substantive change, certain general and permanent laws related to money 
and finance and to enact those laws as title 31, United States Code.'' 
H. Rep. No. 97-651, at 1, reprinted in 1982 U.S.C.C.A.N. at 1895 
(emphasis added). Particularly in view of this legislative history, we 
believe that proposed Sec.  5.565(c)(3) accurately interprets 31 U.S.C. 
3330(c)(3) and is clearer.
    We also propose to omit the reference to ``servicemembers 
indemnity'' found in current Sec.  3.1008. As explained in the 
discussion of proposed Sec.  5.555, this is an obsolete VA benefit 
program.
    Paragraph (c) of proposed Sec.  5.565 contains rules regarding 
filing requirements for claims under this section and follows language 
in 31 U.S.C. 3330(d). Under 31 U.S.C. 3330(d)(1)(A), claims for VA 
benefits in the special deposit account when the payee dies must be 
``filed with the Secretary of Veterans Affairs by the end of the first 
year after the date of the death of the individual entitled to 
payment.'' As with the language discussed earlier concerning the 
disposition of accrued benefit payments in the special deposit account, 
the claim-filing deadline was clearer in Pub. L. 76-828 and its 
original codification. ``[N]o disbursement shall be made unless claim 
therefor be filed in the Veterans' Administration within one year from 
the date of the death of the person entitled.'' 31 U.S.C. 125 (1976). 
Again, the legislative history shows no intent to make any substantive 
change in the 1982 recodification. Therefore, we propose to state that 
``[a] claim for the funds in the special deposit account must be 
received by VA within one year after the date of the payee's death.''
    Proposed Sec.  5.565(d) provides rules relating to two restrictions 
on claims governed by proposed Sec.  5.565. The first, a restriction on 
payments to amounts due at the time of death under ratings or decisions 
existing at the time of the death in paragraph (d)(1), is based on 31 
U.S.C. 3330(d)(2). The second, a restriction concerning the loyalty of 
the claimant and the deceased beneficiary to the United States in 
paragraph (d)(2), is based on the last sentence of current Sec.  
3.1008. This restriction is consistent with provisions of 38 U.S.C. 
6104, ``Forfeiture for treason.''

5.566 Special Rules for Payment of Gratuitous VA Benefits Deposited in 
a Personal Funds of Patients Account When an Incompetent Veteran Dies

    The final regulation in this section governs disposition of certain 
VA benefits upon the death of a veteran who was unable to conduct his 
or her own financial affairs. One way to safeguard VA benefits awarded 
to a mentally incompetent institutionalized veteran is to order that 
the funds be held in a personal funds of patients (PFOP) trust fund 
account and disbursed for the benefit of the veteran or the veteran's 
dependents. See 38 U.S.C. 5502(d) and 5504. Proposed Sec.  5.566, based 
on current Sec.  3.1009, sets out how benefits described in 38 U.S.C. 
5502(d) as ``gratuitous'' VA benefits in the PFOP account are 
distributed when the veteran dies.
    Proposed Sec.  5.566(b) includes a cross-reference to a proposed 
new definition of the statutory term ``gratuitous VA benefits'' that 
will appear in another NPRM as part of the Project. Proposed Sec.  
5.566(b) also clarifies that the section only applies to funds on 
deposit in the PFOP account at the date of the veteran's death.
    Proposed Sec.  5.566(c)(1) provides that the section does not apply 
to funds that were deposited in the PFOP account by the veteran or 
others (as opposed to benefits deposited in the PFOP account by VA). 
Proposed Sec.  5.566(c)(2) states that this section does not apply to 
earned interest or similar increases in value following the original 
deposit by VA. As to the latter exclusion, we adopt the rationale 
stated in VAOPGCPREC 6-91:

    16. The third question in subparagraph c. of your memorandum is 
as to the applicability of the provisions of Section 3202(d) to the 
interest earned on U.S. Savings Bonds purchased by a Manager on 
behalf of a veteran from gratuitous VA benefits in a PFOP account 
where the bonds are redeemed during the veteran's lifetime. It must 
be accepted as a fact that such interest is not a gratuitous benefit 
under the laws administered by the VA within the meaning of the 
language in Section 3202(d), as defined in paragraph D.3.a. of 
Interim Issue (CONTR-169), quoted supra. The portions of H.R. Report 
No. 303 quoted in paragraphs 9 and 12 of this memorandum show that 
the Committee used the term ``derived'' from veterans' benefits to 
describe the funds to

[[Page 59082]]

which Section 3202(d) relates and, as stated in paragraph 13 hereof, 
the Congress appears to have used that phrase with its usual or 
ordinary meaning. It would, therefore, appear to be a proper 
construction that the term was intended to mean the source or origin 
of the particular thing under consideration (gratuitous VA benefits 
here), and hence, not an increased value of the gratuitous benefits 
but only their value at the original source. Accordingly, it is the 
opinion of this office that such interest should not be considered 
to be subject to disposition in accordance with the provisions of 
Section 3202(d) of Title 38, U.S.C., as amended.

    Proposed Sec.  5.566(d) governs entitlement to the funds in the 
PFOP account upon the death of the veteran. Consistent with the 
authorizing statute, 38 U.S.C. 5502(d), we propose to clarify that the 
recipient must be living at the time of settlement and that in this 
context ``settlement'' means the time when VA pays out the PFOP 
account.
    Current Sec.  3.1009(a) lists the persons eligible for funds in the 
PFOP account upon the veteran's death. It gives the highest priority to 
the veteran's spouse and incorporates the definition of spouse in 
current Sec.  3.1000(d)(1) by reference. For the reasons noted in the 
discussion of proposed Sec.  5.550(h), we have proposed replacing the 
Sec.  3.1000(d)(1) definition of ``spouse'' with a definition of 
``surviving spouse.'' This is clearly appropriate because the 
authorizing statute specifies surviving spouse. Therefore, we propose 
providing that the potential recipient with the highest priority is 
``[t]he veteran's surviving spouse, as defined in Sec.  5.550(h).''

Effective Dates

5.567 Effective Dates for DIC or Death Compensation Awards

    Proposed Sec.  5.567 is based on portions of current Sec. Sec.  
3.400(c) and 3.402(a).
    Current Sec.  3.400(c)(4)(ii), the basis for proposed Sec.  
5.567(d), states that the effective date for the award of DIC to a 
child is the ``[f]irst day of the month in which entitlement arose if 
claim is received within 1 year after the date of entitlement; 
otherwise, date of receipt of claim.'' Because a number of VA effective 
date regulations use various language concerning the ``date entitlement 
arose,'' VA will be proposing a new centralized definition of ``date 
entitlement arose'' as part of a separate rulemaking document published 
for public comment at another time. Therefore, where applicable, we 
have cross-referenced the proposed new centralized definition.
    With respect to Sec.  3.400(c)(4), the omission of a proposed rule 
based on Sec.  3.400(c)(4)(iii) is intentional. Current Sec.  
3.400(c)(4)(iii) concerns the effective date of awards of DIC to 
persons who elect DIC in lieu of death compensation in certain cases 
involving veterans who died from May 1, 1957, to January 1, 1972. See 
also current Sec. Sec.  3.5(b)(3) and 3.702(a). For the reasons 
discussed earlier, see the supplementary information concerning 
proposed Sec.  5.560, the provisions that once permitted the award of 
death compensation for death occurring on or after May 1, 1957, are now 
obsolete. Therefore, Sec.  3.400(c)(4)(iii) is also obsolete. Persons 
who are still receiving death compensation under the old law because of 
the death of a veteran from May 1, 1957, to January 1, 1972, and who 
now elect DIC in lieu of death compensation would be covered by the 
general DIC election effective date in proposed Sec.  5.567(c).

5.568 Effective Date for Discontinuance of DIC or Death Compensation 
Payments to a Person No Longer Recognized as the Veteran's Surviving 
Spouse.

    Current Sec.  3.657 addresses two different effective date and 
payment adjustment scenarios that may arise when an individual is 
recognized as the surviving spouse and is awarded DIC or death 
compensation. The first scenario is addressed in Sec.  5.568 and the 
second in Sec.  5.569.
    The first scenario occurs when VA is paying DIC or death 
compensation to one person who claims to be the surviving spouse of a 
veteran, but another person later claims DIC or death compensation and 
successfully establishes that he or she is actually the veteran's 
lawful surviving spouse. Current Sec.  3.657(a) governs the effective 
date for the discontinuance of the award to the person previously 
recognized as the veteran's surviving spouse.
    Proposed Sec.  5.568(b) is taken from current Sec.  3.657(a) with 
two exceptions. First, 38 U.S.C. 5112(b)(6) provides that the effective 
date for a reduction or discontinuance of compensation, DIC, or pension 
``by reason of change in law or administrative issue'' or a ``change in 
interpretation of a law or administrative issue'' will be ``the last 
day of the month following sixty days from the date of notice to the 
payee (at the payee's last address of record) of the reduction or 
discontinuance.'' See also current Sec.  3.114(b). We propose to add 
this exception as Sec.  5.568(b)(3). Second, current Sec.  3.657(a)(1) 
and (2) refer to payments to the legal surviving spouse being effective 
either prior to or from the date of ``filing claim.'' The operative 
effective date is not the date of filing, but the date VA receives the 
claim. See 38 U.S.C. 5110(a). Therefore, we propose to clarify the 
relevant language so that it refers to date of receipt, rather than 
date of ``filing.''

5.569 Effective Date for Award, or Termination of Award, of DIC or 
Death Compensation to a Surviving Spouse Where DIC or Death 
Compensation Payments to Children Are Involved

    Proposed Sec.  5.569 addresses the second effective date and 
payment adjustment scenario in current Sec.  3.657. It concerns DIC or 
death compensation effective dates and payment adjustments when a 
veteran is survived by a spouse and a child or children. (In the 
remainder of this discussion concerning proposed Sec.  5.569, 
``children'' means a child or children.)
    This scenario, in turn, involves two possible situations: (1) The 
surviving spouse is awarded DIC or death compensation, and a separate 
award for the surviving children therefore terminates; or (2) the 
surviving spouse's eligibility for DIC or death compensation terminates 
(by remarriage, for example), and the veteran's surviving children are 
eligible to receive DIC or death compensation because of termination of 
the surviving spouse's entitlement, but the surviving spouse continues 
to receive DIC or death compensation after termination of his or her 
entitlement.
    The current rules for situation (2) are not as comprehensive as 
those for situation (1). For situation (1), current Sec.  3.657(b)(1) 
provides effective date and payment adjustment rules that apply where 
the rate for the children is lower than the rate for the surviving 
spouse and where the rate for the children is the same as or higher 
than the rate for the surviving spouse. Current Sec.  3.657(b)(2) 
provides effective date rules that apply to situation (2) where the 
children's rate is lower than the rate for the surviving spouse and 
where the children's rate is higher than the rate for the surviving 
spouse. However, there is no guidance about what to do if the rates are 
the same. We propose, in Sec.  5.569(c)(3), to add rules that would 
apply in situation (2) when the children's rate is the same as the rate 
for the surviving spouse.
    We believe that this proposed change would produce a correct and 
equitable result. Current Sec.  3.657 essentially looks at the overall 
family unit for setting rules for these payment adjustments and 
effective dates. Section 3.657(b)(2) provides that when the rate for 
the children is lower than the rate for the surviving spouse, payments 
to the surviving spouse are retroactively reduced to the children's 
rate effective

[[Page 59083]]

from the date the surviving spouse's entitlement terminated. The award 
for the children is effective from the day following the date of last 
payment to the surviving spouse. If the rate for the children is higher 
than the rate for the surviving spouse, the award to the surviving 
spouse is terminated as of the date of the last payment to the spouse. 
The award for the children consists of an amount equal to the 
difference between the children's rate and the surviving spouse's rate 
from the date the surviving spouse's entitlement terminated until the 
date of last payment to the surviving spouse, and then the full rate 
thereafter. These rules result in benefits flowing to the family unit 
as a whole in the amounts properly payable to the various family 
members.
    When the rates for the children and surviving spouse are the same, 
we propose to terminate the award to the surviving spouse on the date 
of last payment and to make the award to the children effective the 
following day. This would also achieve the same result. That is, 
benefits would flow to the overall family unit in the amounts properly 
payable to the family members.

5.570 Effective Date for Reduction in DIC--Surviving Spouses

    Proposed Sec.  5.570 is based on the introductory paragraph and 
paragraphs (a) and (b) of current Sec.  3.502. We propose to omit the 
references to Sec.  3.500(n)(3) that appear in current Sec.  
3.502(a)(1) and (2) because Sec.  3.500(n)(3) does not deal with the 
situations described in proposed Sec.  5.570.

5.571 Effective Dates for an Award or Increased Rate Based on Amended 
Income Information--Parents' DIC

    Proposed Sec.  5.571, based on current Sec.  3.660(b), provides 
information regarding effective dates for increases or awards of 
parents' DIC following the submission of amended income information.
    Current Sec.  3.660(b)(1) provides that if payments were not made, 
or were made at a lower rate, on the basis of anticipated income, 
parents' DIC may be awarded or increased ``in accordance with the facts 
found but not earlier than the beginning of the appropriate 12-month 
annualization period if satisfactory evidence is received within the 
same or the next calendar year.''
    It has been VA's historical procedure to make income determinations 
for entitlement to parents' DIC on a calendar-year basis. Although the 
``12-month annualization period,'' would include a calendar year, we 
believe that this language could be confusing to readers and 
adjudicators. Therefore, we propose to use the term ``calendar year'' 
instead of ``12-month annualization period.''
    Another change has to do with the use of the term ``facts found'' 
in current Sec.  3.660(b)(1). VA interprets ``facts found'' and another 
phrase used in several effective date rules, ``date entitlement 
arose,'' to have the same basic meaning. As explained previously, we 
propose to use only one of these terms, ``date entitlement arose,'' to 
improve consistency. Therefore, where applicable, we propose to replace 
the phrase ``in accordance with the facts found'' with a cross-
reference to the proposed new standardized definition of ``date 
entitlement arose.''
    Proposed Sec.  5.571(c) refers to a regulation to be published in 
another NPRM. That proposed regulation will provide rules concerning 
the submission of amended income information by parents' DIC 
beneficiaries. Those rules will include the time limits for submitting 
amended income information currently found in Sec.  3.660(b).

5.572 Effective Dates for Reduction or Discontinuance Based on 
Increased Income--Parents' DIC

    The last regulation in this NPRM, based in part on current Sec.  
3.660(a), is Sec.  5.572, which provides information regarding 
effective dates for parents' DIC reductions or discontinuances based on 
increased income.
    Proposed Sec.  5.572(c) addresses a gap in current Sec.  3.660, 
which does not specify the effective date rule VA uses when it is 
unable to determine the month in which income increased. It has been 
VA's practice in such situations to reduce or discontinue the parent's 
award effective the beginning of the calendar year in which the income 
increased. We believe the regulation will be more comprehensive by 
including this information. We also believe that the stated rule is 
equitable because proposed Sec.  5.572(c) provides that the effective 
date of the reduction or discontinuance will be adjusted accordingly if 
VA later receives information regarding the month income increased.

Removal of 38 CFR 3.400(h)(4) and 3.503(a)(9).

    We next propose to remove current Sec.  3.400(h)(4) as part of this 
NPRM. That section concerns the effective date for an award of VA death 
benefits based upon a difference of opinion with a prior denial of 
those benefits. Paragraph (h)(4) provides this rule:

    Where the initial determination for the purpose of death 
benefits is favorable, the commencing date will be determined 
without regard to the fact that the action may reverse, on a 
difference of opinion, an unfavorable decision for disability 
purposes by an adjudicative agency other than the Board of 
Veterans['] Appeals, which was in effect at the date of the 
veteran's death.

    We understand this provision to mean that VA will apply the normal 
effective date rule applicable to death benefit claims, rather than 
rules applicable to awards based on a difference of opinion, when it 
grants a dependant's claim for death benefits even though a claim from 
the veteran, based on similar facts, may have been denied during his or 
her lifetime. For example, if a veteran were denied service connection 
for a particular type of cancer, but a VA regional office later granted 
service connection for the cause of the veteran's death from that same 
type of cancer, VA would establish the effective date without regard to 
the fact that the veteran's claim had been denied in the past.
    We propose to omit this provision from new part 5. Although it does 
not lead to an incorrect result, it is unnecessary. Further, it implies 
a relationship, which does not exist, between two entirely different 
types of claims: a veteran's disability claim and a survivor's claim 
for death benefits. (``Death benefits'' in this context include death 
compensation, DIC, and death pension. See Zevalkink, 102 F.3d at 1242.)
    Certainly, as in the illustration about a veteran whose claim for 
service connection for cancer was denied while the survivor's claim for 
service connection for the cause of the veteran's death from the same 
illness was granted, a veteran's disability claim and a survivor's 
claim for death benefits can involve similar factual and legal issues. 
However, it is now quite clear that a veteran's disability claim does 
not survive his or her death. Richard v. West, 161 F.3d 719, 723 (Fed. 
Cir. 1998). A claim for death benefits by a survivor is considered a 
new, independent claim.

    When a veteran dies from a service-connected disability, the 
veteran's surviving spouse is eligible for DIC. See 38 U.S.C. Sec.  
1310; 38 CFR Sec.  3.5(a) (1995). Such a claim for DIC is generally 
treated as an original claim by the survivor, regardless of the status 
of adjudications concerning service-connected-disability claims brought 
by the veteran before his or her death.

[[Page 59084]]

Green v. Brown, 10 Vet. App. 111, 114 (1997).
    Because the claims are separate, a denial of a veteran's disability 
claim followed by an award of a surviving dependent's claim for death 
benefits is not an award based on a difference of opinion, even though 
there may be some overlapping factual and legal issues. Therefore, 
because current Sec.  3.400(h)(4) adds nothing substantive and could be 
a source of confusion, we propose its removal.
    We also propose to remove current Sec.  3.503(a)(9). The current 
regulation states, in pertinent part:

    (a) The effective date of discontinuance of pension, 
compensation, or dependency and indemnity compensation to or for a 
child, or to or for a veteran or surviving spouse on behalf of such 
child, will be the earliest of the dates stated in this section. 
Where an award is reduced, the reduced rate will be payable the day 
following the date of discontinuance of the greater benefit.
* * * * *
    (9) Surviving spouse becomes entitled. Date of last payment. See 
Sec.  3.657.

    Because the subject matter of this rule would be adequately 
addressed in proposed Sec.  5.569, ``Effective date for award, or 
termination of award, of DIC or death compensation to a surviving 
spouse where DIC or death compensation payments to children are 
involved,'' we believe Sec.  3.503(a)(9) would become unnecessary and 
we propose to remove it.

Endnote Regarding Removals (Deletions) From Part 3 of 38 CFR

    For the reasons shown in the preceding supplementary information, 
the amendments proposed in this document would, if adopted, result in 
removal of current Sec. Sec.  3.1000 and 3.1002 through 3.1009, and 
portions of Sec. Sec.  3.4, 3.54, 3.503, 3.351, 3.400, 3.657, 3.660, 
3.667, 3.704, and 3.803. This would be the case because those part 3 
sections, or portions of sections, would be replaced by new part 5 
sections or they would be removed entirely. Readers are invited to 
comment both on these part 3 removals and on the proposed new part 5 
rules at this time.
    NPRMs frequently include formal ``amendatory language'' listing the 
sections, or portions of sections, that would be removed if the 
proposed amendments are adopted. However, we have not included such 
``amendatory language'' in this NPRM because of the nature of this 
Project. Because of the very large scope of the Project, we are 
publishing proposed amendments in several NPRMs. Then, after public 
comments in response to all of the NPRMs making up the Project have 
been reviewed and considered, VA will propose to remove all of part 3, 
concurrent with the implementation of part 5.

Paperwork Reduction Act

    This document contains no provisions constituting a collection of 
information under the Paperwork Reduction Act (44 U.S.C. 3501-3521).

Regulatory Flexibility Act

    The Secretary hereby certifies that this proposed regulatory 
amendment 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. This proposed amendment would not 
affect any small entities. Only VA beneficiaries could be directly 
affected. Therefore, pursuant to 5 U.S.C. 605(b), this proposed 
amendment is exempt from the initial and final regulatory flexibility 
analysis requirements of sections 603 and 604.

Executive Order 12866

    This document has been reviewed by the Office of Management and 
Budget under Executive Order 12866.

Unfunded Mandates

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

Catalog of Federal Domestic Assistance Numbers

    The Catalog of Federal Domestic Assistance program numbers for this 
proposal are 64.100-102, 64.104-110, 64.115, and 64.127.

List of Subjects in 38 CFR Part 5

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

    Approved: June 18, 2004.
Anthony J. Principi,
Secretary of Veterans Affairs.
    For the reasons set out in the preamble, VA proposes to further 
amend 38 CFR part 5, as proposed to be added at 69 FR 4832, January 30, 
2004, by adding subpart G to read as follows:

PART 5--COMPENSATION, PENSION, BURIAL, AND RELATED BENEFITS

Subpart G--Dependency and Indemnity Compensation, Death Compensation, 
Accrued Benefits, and Special Rules Applicable Upon Death of a 
Beneficiary
Sec.
5.500-5.549 [Reserved]

Accrued Benefits

5.550 Definitions.
5.551 Persons entitled to accrued benefits or benefits awarded, but 
unpaid at death.
5.552 Claims for accrued benefits or benefits awarded, but unpaid at 
death.
5.553 Notice of incomplete claims.
5.554 Evidence of school attendance in claims by a veteran's 
children for accrued benefits or benefits awarded, but unpaid at 
death.
5.555 What VA benefits are potentially payable as accrued benefits 
or benefits awarded, but unpaid at death?
5.556 Period for which accrued benefits are paid.
5.557 Relationship between accrued benefits claim and claims filed 
by the deceased beneficiary.
5.558 Special rule for certain cases involving deaths prior to 
December 16, 2003.
5.559 Accrued benefits reference table.

Death Compensation

5.560 Eligibility criteria for payment of death compensation.
5.561 Time of marriage requirements for death compensation claims.
5.562 Eligibility criteria for special monthly death compensation.

Special Provisions

5.563 Special rules when a beneficiary dies while receiving 
apportioned benefits.
5.564 Special rules when VA benefit checks have not been negotiated 
prior to the beneficiary's death.
5.565 Special rules for payment of VA benefits on deposit in a 
special deposit account when a payee living in a foreign country 
dies.
5.566 Special rules for payment of gratuitous VA benefits deposited 
in a personal funds of patients account when an incompetent veteran 
dies.

Effective Dates

5.567 Effective dates for DIC or death compensation awards.
5.568 Effective date for discontinuance of DIC or death compensation 
payments to a person no longer recognized as the veteran's surviving 
spouse.
5.569 Effective date for award, or termination of award, of DIC or 
death compensation to a surviving spouse where DIC or death 
compensation payments to children are involved.
5.570 Effective date for reduction in DIC--surviving spouses.
5.571 Effective date for an award or increased rate based on amended 
income information--parents' DIC.
5.572 Effective dates for reduction or discontinuance based on 
increased income--parents' DIC.

[[Page 59085]]

5.573-5.579 [Reserved]

    Authority: 38 U.S.C. 501(a) and as noted in specific sections.

Subpart G--Dependency and Indemnity Compensation, Death 
Compensation, Accrued Benefits, and Special Rules Applicable Upon 
Death of a Beneficiary


Sec. Sec.  5.500-5.549  [Reserved]

Accrued Benefits


Sec.  5.550  Definitions.

    The following definitions apply to Sec. Sec.  5.551 through 5.559:
    (a) Accrued benefits. (1) ``Accrued benefits'' means unpaid 
periodic monetary VA benefits to which an individual was entitled, 
based on the evidence in the file on the date of his or her death, from 
a claim for VA benefits pending on the date of death.
    (2) ``Accrued benefits'' also includes benefits awarded, but unpaid 
at death:
    (i) If the deceased beneficiary died on or after December 16, 2003;
    (ii) If the deceased beneficiary died prior to December 16, 2003, 
but VA received the claim for benefits under 38 U.S.C. 5121 on or after 
December 16, 2003; and
    (iii) For purposes of Sec.  5.558, ``Special rule for certain cases 
involving deaths prior to December 16, 2003.''
    (3) ``Accrued benefits'' does not include benefits awarded, but 
unpaid at death, when the deceased beneficiary died prior to December 
16, 2003, and a claim for benefits under 38 U.S.C. 5121 was pending 
before VA on December 16, 2003. (For purposes of paragraph (a)(3) of 
this section, VA will consider a claim to be pending if there was no 
final decision on that claim as of December 16, 2003. See [regulation 
that will be published in a future Notice of Proposed Rulemaking] 
(defining a final decision)).
    (b) Benefits awarded, but unpaid at death, means unpaid periodic 
monetary VA benefits awarded to an individual by a VA rating or 
decision before the individual died.
    (c) Child means a child as defined in Sec.  3.57 of this chapter. 
If qualification as a child for purposes of accrued benefits or 
benefits awarded, but unpaid at death, is based on pursuit of a course 
of instruction at an approved educational institution, the child must 
have been within the age range specified by Sec.  3.57(a)(1)(iii) of 
this chapter on the date of the deceased beneficiary's death.
    (d) Claim for VA benefits pending on the date of death means a 
claim filed with VA which had not been finally adjudicated by VA on or 
before the date of death. Such a claim may include a deceased 
beneficiary's claim to reopen a finally disallowed claim based upon new 
and material evidence or a deceased beneficiary's claim of clear and 
unmistakable error in a prior rating or decision. Any new and material 
evidence must have been in VA's possession on or before the date of the 
beneficiary's death.
    (e) Deceased beneficiary means the deceased person whose VA 
benefits are being claimed as accrued benefits or benefits awarded, but 
unpaid at death.
    (f) Dependent parent means a parent as defined in Sec.  3.59 of 
this chapter who was dependent within the meaning of Sec.  3.250 of 
this chapter at the date of the veteran's death.
    (g) Evidence in the file on the date of death means evidence in 
VA's possession on or before the date of the deceased beneficiary's 
death, even if such evidence was not physically located in the VA 
claims folder on or before the date of death.
    (h) Surviving spouse. (1) Except as provided in paragraph (h)(2) of 
this section, ``surviving spouse'' means a surviving spouse as defined 
in Sec.  3.50(b) of this chapter.
    (2) If the marriage between the veteran and the surviving spouse 
meets the definition of marriage in Sec.  3.1(j) of this chapter, the 
following requirements do not apply:
    (i) The marriage requirements for death pension in Sec.  3.54(a) of 
this chapter, for dependency and indemnity compensation in Sec.  
3.54(c) of this chapter, and for death compensation in Sec.  5.561; and
    (ii) The continuous cohabitation requirement in Sec.  3.50(b)(1) of 
this chapter.

(Authority: 38 U.S.C. 501(a), 5121(a); Sec. 104, Pub. L. 108-183, 
117 Stat. 2656)


Sec.  5.551  Persons entitled to accrued benefits or benefits awarded, 
but unpaid at death.

    (a) Purpose. This section provides the general rules for 
determining who is entitled to accrued benefits or benefits awarded, 
but unpaid at death. These general rules are subject to Sec.  3.1001 of 
this chapter (concerning payment of certain amounts withheld from VA 
benefits awarded to hospitalized veterans); Sec.  5.558, ``Special rule 
for certain cases involving deaths prior to December 16, 2003''; Sec.  
5.563, ``Special rules when a beneficiary dies while receiving 
apportioned benefits''; and Sec.  5.565, ``Special rules for payment of 
VA benefits on deposit in a special deposit account when a payee living 
in a foreign country dies.'' See also Sec.  3.816 of this chapter, 
``Awards under the Nehmer Court Orders for disability or death caused 
by a condition presumptively associated with herbicide exposure.''
    (b) Deceased beneficiary was the veteran. If the deceased 
beneficiary was the veteran, benefits are payable to a living person, 
or persons, in the following order:
    (1) The veteran's surviving spouse.
    (2) The veteran's surviving children (in equal shares).
    (3) The veteran's surviving dependent parents (in equal shares) or 
the surviving dependent parent if only one is living.
    (c) Deceased beneficiary was the veteran's spouse--(1) Surviving 
spouse of a deceased veteran. If the deceased beneficiary was the 
surviving spouse or remarried surviving spouse of a deceased veteran, 
then VA will pay benefits to the veteran's children in equal shares. If 
there are no such children, then VA will pay accrued benefits as stated 
in paragraph (e) of this section.
    (2) Spouse of a living veteran. If the deceased beneficiary was the 
spouse of a living veteran, then VA will pay accrued benefits as stated 
in paragraph (e) of this section.
    (d) Deceased beneficiary was the veteran's child--(1) General rule. 
If the deceased beneficiary was the veteran's child, then VA will pay 
benefits to the veteran's surviving children who are entitled to death 
pension, death compensation, or dependency and indemnity compensation.
    (2) Surviving child who elected 38 U.S.C. chapter 35 educational 
benefits. A surviving child who has elected dependents' educational 
assistance under 38 U.S.C. chapter 35 may receive benefits under 
paragraph (d)(1) of this section for periods prior to the commencement 
of benefits under chapter 35.
    (3) Deceased child's 38 U.S.C. chapter 18 benefits. If a child 
claiming benefits under 38 U.S.C. chapter 18 dies on or after December 
16, 2003, any accrued benefits resulting from such a claim are payable 
to the child's surviving parent(s). If there is no surviving parent, 
such accrued benefits are payable to the extent provided in paragraph 
(e) of this section.
    (e) No other eligible claimant survives. If there are no eligible 
claimants under paragraphs (b) through (d) of this section, then VA 
will pay accrued benefits to the person who bore the expense of the 
deceased beneficiary's last sickness and/or burial, but only to the 
extent necessary to reimburse that person for such expense. VA will not 
pay accrued benefits due under this paragraph to any political 
subdivision of the United States, as defined in Sec.  3.1(o)

[[Page 59086]]

of this chapter (for example, a State government). Benefits awarded, 
but unpaid at death, are not payable under this paragraph if the 
deceased beneficiary died prior to December 16, 2003, and a claim for 
such benefits was pending before VA on December 16, 2003.
    (f) Effect of failure to claim benefits, or waiver of benefits, on 
rights of other claimants. The fact that a claimant with a higher 
priority claim to benefits under the provisions of this section fails 
to file a timely claim for such benefits, or waives rights to such 
benefits, does not create a right to the benefits in a claimant with a 
lower priority. The fact that one or more claimants falling within the 
same category of claimants (children, for example) fails to file a 
timely claim for accrued benefits, or waives rights to such benefits, 
will not increase the amount payable to any other claimant in the 
category.

(Authority: 38 U.S.C. 501(a), 5121(a); Sec. 104, Pub. L. 108-183, 
117 Stat. 2656)


Sec.  5.552  Claims for accrued benefits or benefits awarded, but 
unpaid at death.

    (a) Scope. This section applies to claims for accrued benefits. It 
also applies to claims for benefits awarded, but unpaid at death, if 
the deceased beneficiary died prior to December 16, 2003, and a claim 
for such benefits was pending on December 16, 2003. It does not apply 
to claims for the proceeds of a benefit check the deceased beneficiary 
did not negotiate prior to death (see Sec.  5.564, ``Special rules when 
VA benefit checks have not been negotiated prior to the beneficiary's 
death''), or for benefits under Sec.  3.816 of this chapter, ``Awards 
under the Nehmer Court Orders for disability or death caused by a 
condition presumptively associated with herbicide exposure.''
    (b) Time limit for filing--(1) Accrued benefits. A claim for 
accrued benefits must be filed within one year after the date of the 
deceased beneficiary's death.
    (2) Benefits awarded, but unpaid at death. There is no time limit 
for filing a claim for benefits awarded, but unpaid at death, if the 
deceased beneficiary died prior to December 16, 2003, and a claim for 
such benefits was pending before VA on December 16, 2003. Paragraph 
(b)(1) of this section applies where ``accrued benefits'' includes 
``benefits awarded, but unpaid at death.'' See Sec.  5.550(a)(2).
    (c) Other claims accepted as a claim for accrued benefits or 
benefits awarded, but unpaid at death. A claim filed with VA by, or on 
behalf of, an apportionee, surviving spouse, child or parent for any of 
the following benefits will also be accepted as a claim for accrued 
benefits and, if applicable, for benefits awarded, but unpaid at death:
    (1) Death pension,
    (2) Death compensation, or
    (3) Dependency and indemnity compensation. See also Sec.  3.152(b) 
of this chapter.

(Authority: 38 U.S.C. 5101(b), 5121(c))


Sec.  5.553  Notice of incomplete claims.

    If a claim for benefits is incomplete because the claimant has not 
furnished information necessary to establish that he or she is within 
the category of persons eligible for benefits under the provisions of 
Sec.  5.551, ``Persons entitled to accrued benefits or benefits 
awarded, but unpaid at death,'' or Sec.  5.563, ``Special rules when a 
beneficiary dies while receiving apportioned benefits,'' and if the 
claimant may be entitled to payment of all or part of any benefits 
which may have accrued, then VA will notify the claimant:
    (a) Of the type of information required to complete the 
application;
    (b) That VA will take no further action on the claim unless VA 
receives the required information; and
    (c) That if VA does not receive the required information within one 
year of the date of the original VA notification of information 
required, no benefits will be awarded on the basis of that application.

(Authority: 38 U.S.C. 5121(c))


Sec.  5.554  Evidence of school attendance in claims by a veteran's 
children for accrued benefits or benefits awarded, but unpaid at death.

    (a) Scope. This section applies to claims for accrued benefits or 
benefits awarded, but unpaid at death, filed by or on behalf of a 
veteran's child who has attained the age of 18, but is under the age of 
23, who was pursuing a course of instruction at the time of the 
deceased beneficiary's death.
    (b) Confirmation by school not required. Subject to paragraph (c) 
of this section, school confirmation of evidence of school attendance 
is not required to support a claim described in paragraph (a) of this 
section.
    (c) Death of deceased beneficiary during school vacation period. 
When the deceased beneficiary's death occurred during a school vacation 
period, VA will consider the child to have been pursuing a course of 
instruction at the time of the death if school records show that the 
child was carried on the school rolls on the last day of the regular 
school term immediately preceding the date of the deceased 
beneficiary's death.

(Authority: 38 U.S.C. 101(4)(A), 501(a))


Sec.  5.555  What VA benefits are potentially payable as accrued 
benefits or benefits awarded, but unpaid at death?

    (a) Scope. This section lists which VA benefits potentially 
qualify, and which do not qualify, for payment as accrued benefits or 
benefits awarded, but unpaid at death.
    (b) Qualifying benefits. (1) Clothing allowance under 38 U.S.C. 
1162.
    (2) Compensation, including death compensation under 38 U.S.C. 
chapter 11.
    (3) Dependency and indemnity compensation under 38 U.S.C. chapter 
13.
    (4) Dependents' educational assistance allowance or special 
restorative training allowance under 38 U.S.C. chapter 35.
    (5) Medal of Honor special pension under 38 U.S.C. 1562.
    (6) Monetary benefits for eligible children under 38 U.S.C. chapter 
18.
    (7) Pension, including death pension under 38 U.S.C. chapter 15.
    (8) Restored Entitlement Program for Survivors (REPS) benefits 
(Pub. L. 97-377, Sec.  156, 96 Stat. 1830, 1920-22 (1982)).
    (9) Subsistence allowance under 38 U.S.C. chapter 31.
    (10) Veterans' educational assistance under 38 U.S.C. chapters 30, 
32, or 34 and 10 U.S.C. 1606.
    (c) Non-qualifying benefits. (1) Assistance in acquiring 
automobiles and adaptive equipment under 38 U.S.C. chapter 39.
    (2) Assistance in acquiring specially adapted housing under 38 
U.S.C. chapter 21.
    (3) Insurance under 38 U.S.C. chapter 19.
    (4) Naval pension under 10 U.S.C. 6160.
    (5) Special allowance under 38 U.S.C. 1312(a).

(Authority: 38 U.S.C. 5121(a))


Sec.  5.556  Period for which accrued benefits are paid.

    (a) Two-year limitation. If the deceased beneficiary died prior to 
December 16, 2003, VA may only pay accrued benefits for a period during 
the beneficiary's life not to exceed 2 years. If benefits accrued for a 
period during the beneficiary's life which was in excess of 2 years, VA 
will pay benefits for the period of 24 consecutive months that produces 
the highest payment to the accrued benefits claimant.
    (b) Exception to 2-year limitation. See Sec.  3.816 of this 
chapter, ``Awards under the Nehmer Court Orders for disability or death 
caused by a condition presumptively associated with herbicide 
exposure.''


[[Page 59087]]


(Authority: 38 U.S.C. 5121(a); Sec. 104, Pub. L. 108-183, 117 Stat. 
2656)


Sec.  5.557  Relationship between accrued benefits claim and claims 
filed by the deceased beneficiary.

    (a) Claim for accrued benefits results from the deceased 
beneficiary's entitlement. A claim for accrued benefits is a separate 
claim filed by a person eligible for such benefits under Sec.  5.551, 
``Persons entitled to accrued benefits or benefits awarded, but unpaid 
at death.'' However, the claimant's entitlement is based on the 
deceased beneficiary's entitlement.
    (b) Accrued benefits claimant bound by existing decisions. A 
claimant for accrued benefits is bound by any existing VA benefits 
decision(s) on claims by the deceased beneficiary concerning those 
benefits to the same extent that the deceased beneficiary was bound.

(Authority: 38 U.S.C. 501(a), 5101, 5121, 7104(b), 7105(c))


Sec.  5.558  Special rule for certain cases involving deaths prior to 
December 16, 2003.

    If the deceased beneficiary died prior to December 16, 2003, but VA 
received a claim for benefits under 38 U.S.C. 5121 on or after that 
date, the claim will be adjudicated under the provisions of Sec.  
3.1000 of this chapter, and sections cited therein, in effect on 
December 16, 2003.

(Authority: 38 U.S.C. 5121; Sec. 104, Pub. L. 108-183, 117 Stat. 
2656)


Sec.  5.559  Accrued benefits reference table.

------------------------------------------------------------------------
                    Deceased beneficiary died prior to
                             December 16, 2003              Deceased
                   ------------------------------------ beneficiary died
                                       Claim received      on or after
                    Claim pending on     on or after      December 16,
                       December 16,     December 16,          2003
                          2003              2003
------------------------------------------------------------------------
(a) Does the one-   (1) Yes for       Yes for accrued   Yes for accrued
 year time limit     accrued           benefits. See     benefits. See
 to file the claim   benefits. See     Sec.              Sec.
 apply?              Sec.              5.552(b)(1).      5.552(b)(1).
                     5.552(b)(1).     In this           In this
                    (2) No for         situation         situation
                     benefits          ``accrued         ``accrued
                     awarded, but      benefits''        benefits''
                     unpaid at         includes          includes
                     death. See Sec.   benefits          benefits
                       5.552(b)(2).    awarded, but      awarded, but
                                       unpaid at         unpaid at
                                       death. See Sec.   death. See Sec.
                                        Sec.
                                       5.550(a)(2)(ii)   5.550(a)(2)(i).
                                       , (iii), and
                                       5.558.
(b) Does the two-   (1) Yes for       Yes for accrued   No. See Sec.
 year limitation     accrued           benefits. See     5.556; sec.
 on the benefit-     benefits. See     Sec.   5.556.     104, Pub. L.
 payable period      Sec.   5.556.    In this            108-183, 117
 apply?             (2) No for         situation         Stat. 2656.
                     benefits          ``accrued        This limitation
                     awarded, but      benefits''        does not apply
                     unpaid at         includes          if a deceased
                     death. See Sec.   benefits          beneficiary
                      Sec.             awarded, but      died on or
                     5.550(a)(3).      unpaid at         after December
                                       death. See Sec.   16, 2003.
                                        Sec.
                                       5.550(a)(2)(ii)
                                       , (iii), and
                                       5.558.
(c) Are accrued     Yes.............  Yes.............  Yes.
 benefits and
 benefits awarded,
 but unpaid at
 death,
 potentially
 payable to
 beneficiaries
 described in Sec.
   5.551(b), (c),
 (d)(1), and
 (d)(2)?
(d) Are accrued     No..............  No..............  Yes.
 benefits and
 benefits awarded,
 but unpaid at
 death,
 potentially
 payable to
 beneficiaries
 described in Sec.
   5.551(d)(3)?
(e) Are accrued     (1) Yes for       Yes for accrued   Yes for accrued
 benefits and        accrued           benefits.         benefits, yes.
 benefits awarded,   benefits.        In this            See Sec.
 but unpaid at      (2) No for         situation         5.551(e).
 death,              benefits          ``accrued        In this
 potentially         awarded, but      benefits''        situation
 payable to          unpaid at         includes          ``accrued
 beneficiaries       death. See Sec.   benefits          benefits''
 described in Sec.     5.551(e).       awarded, but      includes
   5.551(e)?                           unpaid at         benefits
                                       death. See Sec.   awarded, but
                                        Sec.             unpaid at
                                       5.550(a)(2)(ii)   death. See Sec.
                                       , (iii), and
                                       5.558.            5.550(a)(2)(i).
------------------------------------------------------------------------


(Authority: 38 U.S.C. 501(a), 5121; Sec. 104, Pub. L. 108-183, 117 
Stat. 2656)

Death Compensation


Sec.  5.560  Eligibility criteria for payment of death compensation.

    (a) Definition. Death compensation means a monthly payment made by 
VA to a surviving spouse, child or children, or dependent parent or 
parents of a veteran because of the service-connected death of the 
veteran.
    (b) Basic eligibility. Death compensation may be payable to a 
surviving spouse, child or children, or dependent parent or parents if 
the veteran died before January 1, 1957. If the veteran was discharged 
or released from service, the discharge or release must have been under 
conditions other than dishonorable.
    (c) Exception--certain Federal employees. VA cannot pay death 
compensation to any surviving spouse, child, or parent based on the 
death of a commissioned officer of the Public Health Service, the Coast 
and Geodetic Survey, the Environmental Science Services Administration, 
or the National Oceanic and Atmospheric Administration occurring on or 
after May 1, 1957, if any amounts are payable based on the same death 
under the Federal Employees' Group Life Insurance Act of 1954 (Pub. L. 
598, 83d Cong., as amended).
    (d) Dependency of parents. VA will apply the same rules for 
determining the dependency of parents for death compensation purposes 
that it uses to determine the dependency of parents for the purpose of 
awarding additional compensation to a veteran with a dependent parent. 
See Sec.  3.250 of this chapter, ``Dependency of parents; 
compensation.''

(Authority: 38 U.S.C. 101(13), 1121, 1141)

Sec.  5.561  Time of marriage requirements for death compensation 
claims.

    (a) Marriage before or during service. A surviving spouse who 
married the veteran before or during the veteran's military service 
meets the time of marriage requirements for death compensation. See 
also Sec.  3.50(b) of this chapter (defining ``surviving spouse'').
    (b) Marriage after service--laws in effect on December 31, 1957. A 
surviving spouse who, with respect to time of marriage, could have 
qualified as a surviving spouse for death compensation under any law 
administered by VA in effect on December 31, 1957, meets the time of 
marriage requirement for death compensation.
    (c) Marriage after service--other means of qualification. A 
surviving spouse who married the veteran after the veteran's discharge 
or release from military service meets the time of marriage 
requirements for death compensation if at least one of the following 
conditions is met:
    (1) The marriage occurred within 15 years from the date of 
termination of the period of service in which the injury or disease 
causing the veteran's death was incurred or aggravated. Where the

[[Page 59088]]

surviving spouse has been married legally to the veteran more than 
once, the date of the original marriage will be used in determining 
whether this requirement has been met. For purposes of this section, 
``period of service'' means a period of active military service, as 
defined in [regulation that will be published in a future Notice of 
Proposed Rulemaking], from which the veteran was discharged under other 
than dishonorable conditions.
    (2) The surviving spouse was married to the veteran for one year or 
more preceding the veteran's death. Multiple periods of marriage may be 
added together to meet the 1-year marriage requirement.
    (3) A child was born of the marriage between the veteran and the 
veteran's surviving spouse or a child was born to them before the 
marriage. See also Sec.  3.54(d) of this chapter (defining ``child born 
of the marriage'' and child ``born * * * before the marriage'').

(Authority: 38 U.S.C. 101(2), 1102)


Sec.  5.562  Eligibility criteria for special monthly death 
compensation.

    (a) Basic eligibility. A surviving spouse or surviving dependent 
parent in receipt of death compensation is eligible for special monthly 
compensation if he or she is helpless, or so nearly helpless, as to 
need the regular aid and attendance of another person. Except as 
provided in paragraph (b) of this section, VA considers the presence of 
factors listed in Sec.  3.352(a) of this chapter when determining 
whether a person demonstrates this degree of helplessness.
    (b) Automatic consideration. VA automatically considers an 
individual to be in need of regular aid and attendance, without having 
to demonstrate the degree of helplessness described in paragraph (a) of 
this section, if the individual:
    (1) Is blind or so nearly blind as to have corrected visual acuity 
of 5/200 or less, in both eyes, or has concentric contraction of the 
visual field to 5 degrees or less; or
    (2) Is a patient in an approved nursing home because of mental or 
physical incapacity. See Sec.  3.1(z) of this chapter (defining 
``nursing home'').

(Authority: 38 U.S.C. 1122(b))

Special Provisions


Sec.  5.563  Special rules when a beneficiary dies while receiving 
apportioned benefits.

    (a) Person receiving apportioned share of veteran's benefits dies. 
When a person receiving an apportioned share of a veteran's benefits 
dies, any unpaid benefits payable to that person will be paid to the 
veteran, if living, or to surviving dependents of the deceased veteran 
in the priority specified in Sec.  5.551(b).
    (b) Payment to person receiving apportionment when the veteran 
dies. When a person is receiving an apportioned share of a veteran's 
benefits and the veteran dies, that person will be paid their 
apportioned share of those benefits for periods prior to the last day 
of the month before the veteran's death.
    (c) Payment of child's apportionment of surviving spouse's death 
benefits when the child dies. If an apportioned share of a surviving 
spouse's death pension, death compensation, or dependency and indemnity 
compensation was payable for a child and the child dies, VA will pay 
any unpaid apportioned share to the person who bore the expense of the 
deceased child's last sickness and/or burial under the provisions of 
Sec.  5.551(e).

(Authority: 38 U.S.C. 5112(b)(1), 5121(a), 5502(d))


Sec.  5.564  Special rules when VA benefit checks have not been 
negotiated prior to the beneficiary's death.

    (a) Death of a beneficiary--(1) Disposition of non-negotiated VA 
benefit checks'general rule. Upon the death of a beneficiary, non-
negotiated VA benefit checks should be returned to the issuing office 
and canceled. VA will pay the amount represented by the returned 
checks, or any amount recovered following improper negotiation of the 
checks, to the person or persons indicated in Sec.  5.551(b) through 
(e), as applicable. The amount payable does not include any payment for 
the month in which the beneficiary died. See Sec.  3.500(g) of this 
chapter.
    (2) Exception. The rule in paragraph (a)(1) of this section 
requiring return of non-negotiated VA benefit checks upon the death of 
the beneficiary is subject to Sec.  3.20(c)(2) of this chapter 
(permitting, under specific circumstances, a surviving spouse to 
negotiate a check for a veteran's compensation or pension for the month 
in which the veteran died).
    (b) No time limit. There is no limit on the retroactive period for 
which payment of the amount represented by the checks may be made, and 
no time limit for filing a claim to obtain the proceeds of the checks 
or for furnishing evidence to perfect a claim.
    (c) Payment to a claimant having a lower order of precedence. In 
the case where there was a survivor having a higher order of 
precedence, VA will make payment to a claimant having a lower order of 
precedence under Sec.  5.551(b) through (e), as applicable, if it is 
shown that the person or persons having a higher order of precedence 
are deceased at the time the claim is adjudicated.
    (d) Payment to estate. Subject to the limitations in Sec.  3.500(g) 
of this chapter, any amount not paid in the manner provided in 
paragraph (a) of this section will be paid to the estate of the 
deceased beneficiary, provided that the estate will not escheat (e.g., 
revert to a governmental entity).
    (e) Payment of amounts withheld during hospitalization. The 
provisions of this section do not apply to checks for lump sums 
representing amounts withheld under Sec.  3.551(b) of this chapter 
(concerning reduction of benefits when a veteran is hospitalized), or 
withheld prior to December 27, 2001, under former Sec.  3.557 of this 
chapter (concerning reduction of benefits when an incompetent veteran 
is hospitalized). These amounts are subject to the provisions of Sec.  
3.1001 of this chapter, ``Hospitalized competent veterans,'' and Sec.  
3.1007 of this chapter, ``Hospitalized incompetent veterans.''

(Authority: 38 U.S.C. 501(a), 5122)


Sec.  5.565  Special rules for payment of VA benefits on deposit in a 
special deposit account when a payee living in a foreign country dies.

    (a) Purpose. VA benefit payments may not be sent to a payee living 
in a foreign country if the Secretary of the Treasury determines that 
there is no reasonable assurance the payee will receive the benefit 
check or will be able to negotiate it for full value. Up to $1,000.00 
of such VA benefit payments may be deposited in an account entitled 
``Secretary of the Treasury, Proceeds of Withheld Foreign Checks'' 
(special deposit account). This section provides information about who 
is entitled to the funds in that account when the payee dies, about 
claims for those funds, and about restrictions on payment.
    (b) Persons entitled to funds in special deposit account upon death 
of payee. When the payee of a check for pension or compensation dies, 
the deceased payee's funds in the special deposit account are payable 
as follows:
    (1) If the deceased payee was the veteran, to the surviving spouse 
or, if there is no surviving spouse, to children of the veteran under 
18 years of age at the time of the veteran's death.
    (2) If the deceased payee was the veteran's surviving spouse, to 
children of the spouse under 18 years of age at the time of the 
spouse's death.
    (3) If the deceased payee was the recipient of an apportioned share 
of the veteran's pension or compensation, to the veteran to the extent 
the special

[[Page 59089]]

deposit account consists of such apportionment payments.
    (4) In any other case, to the person who bore the expense of the 
burial of the payee, but only to the extent necessary to reimburse that 
person for such expenses.
    (c) Time limit for filing claims and evidence. (1) A claim for the 
funds in the special deposit account must be received by VA within one 
year after the date of the payee's death.
    (2) The claimant must submit necessary evidence in support of the 
claim within six months after the date VA requests that evidence.
    (d) Other restrictions. (1) Payment made under this section is 
limited to amounts due at the time of the payee's death under ratings 
or decisions existing at the time of the death.
    (2) Payment will be made under this section only if both the 
deceased beneficiary and the claimant have not been guilty of mutiny, 
treason, sabotage, or rendering assistance to an enemy of the United 
States or of its allies.

    (Authority: 31 U.S.C. 3329, 3330; 38 U.S.C. 6104)


Sec.  5.566  Special rules for payment of gratuitous VA benefits 
deposited in a personal funds of patients account when an incompetent 
veteran dies.

    (a) Purpose. This section provides rules relating to the 
disposition of certain funds on deposit in a personal funds of patients 
(PFOP) account for a veteran who was incompetent at the date of his or 
her death and who died after November 30, 1959.
    (b) Funds included. The funds included are those on deposit in the 
PFOP account at the date of the veteran's death that were derived from 
gratuitous VA benefits deposited in the account by VA. See [regulation 
that will be published in a future Notice of Proposed Rulemaking] 
(defining ``gratuitous VA benefits''). Funds derived from such deposits 
are those that resulted from the VA deposits, even though there may 
have been an intervening change in the form of the asset. For example, 
if amounts representing gratuitous VA benefits deposited by VA are 
withdrawn to purchase bonds on the veteran's behalf and redeposited 
upon the maturity of the bonds, an amount equal to the amount withdrawn 
for the purchase will be considered as derived from the deposits.
    (c) Funds excluded. This section does not apply to the disposition 
of:
    (1) Amounts resulting from funds deposited in the PFOP account by 
the veteran or others besides VA, regardless of the source of the 
deposit.
    (2) Amounts, such as interest, representing an increase in the 
value of funds originally deposited by VA.
    (d) Eligible persons. The funds described in paragraph (b) of this 
section will be paid to a person, or persons, living at the time of 
settlement (that is, when VA pays out the PFOP account) in the 
following priority:
    (1) The veteran's surviving spouse, as defined in Sec.  5.550(h).
    (2) The veteran's surviving children, as defined in Sec.  3.57 of 
this chapter, in equal shares, but without regard to their age or 
marital status.
    (3) The veteran's parents, as defined in Sec.  3.59 of this 
chapter, who are dependent within the meaning of Sec.  3.250 of this 
chapter, in equal shares, or the surviving parent if only one is 
living.
    (4) If no recipient listed in paragraphs (d)(1) through (3) of this 
section is living at the time of settlement, the person who bore the 
expense of the veteran's last sickness and/or burial, but only to the 
extent necessary to reimburse that person for such expense.
    (e) Claims for funds governed by this section-- (1) Time limit for 
filing. A person eligible for the funds governed by this section must 
file a claim for the funds with VA within 5 years after the death of 
the veteran. However, if any person otherwise entitled is under legal 
disability 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.
    (2) Submission of evidence. There is no time limit for submitting 
evidence of entitlement to the funds governed by this section.
    (3) Effect of failure to claim funds, or waiver of claim, on rights 
of other claimants. The fact that a claimant with a higher priority 
claim to the funds governed by this section fails to file a timely 
claim for such funds, or waives rights to such funds, does not create a 
right to the funds for a claimant with a lower priority. The fact that 
one or more claimants falling within the same category of claimants 
(children, for example) fails to file a timely claim for the funds 
governed by this section, or waives rights to such funds, will not 
increase the amount payable to any other claimant in the category.

(Authority: 38 U.S.C. 5502(d))

Effective Dates


Sec.  5.567  Effective dates for DIC or death compensation awards.

    (a) Death in Service-- (1) Claim received within one year from date 
of initial report or finding of death. (i) General. If VA receives a 
claim for dependency and indemnity compensation (DIC) or death 
compensation within one year from the date the Secretary concerned 
makes an initial report of the veteran's actual death or finding of the 
veteran's presumed death in active military service, then benefits are 
payable from the first day of the month fixed by that Secretary as the 
month of death in the report or finding. See Sec.  3.1(g) of this 
chapter (definition of ``Secretary concerned'') and [regulation that 
will be published in a future Notice of Proposed Rulemaking] 
(definition of ``active military service'').
    (ii) Exception. Benefits are not payable under paragraph (a)(1)(i) 
of this section for any period for which the claimant received or was 
entitled to receive an allowance, allotment, or service pay of the 
veteran.
    (2) Claim received more than one year after date of initial report 
or finding of death. If VA receives a claim for DIC or death 
compensation more than one year after the date of the initial report or 
finding of death described in paragraph (a)(1)(i) of this section, then 
benefits are payable from the date VA received the claim.
    (b) Service-connected death after separation from service-- (1) 
Claim received within one year of death. If VA receives a claim for DIC 
or death compensation within one year of the veteran's death, then 
benefits are payable from the first day of the month in which the 
veteran's death occurred.
    (2) Claim received more than one year after death. If VA receives a 
claim for DIC or death compensation more than one year after the 
veteran's death, then benefits are payable from the date VA received 
the claim.
    (c) DIC elected in lieu of death compensation. DIC is payable from 
the date VA receives the election of DIC in lieu of death compensation. 
See Sec.  3.702 of this chapter (concerning election of DIC in lieu of 
death compensation).
    (d) DIC award to a child-- (1) Claim received within one year from 
date entitlement arose. If VA receives a claim for DIC within one year 
of the date entitlement arose, as defined in [regulation that will be 
published in a future Notice of Proposed Rulemaking], then benefits are 
payable from the first day of the month in which entitlement arose.
    (2) Claim received more than one year after date entitlement arose. 
Except as otherwise provided in this part, if VA receives a claim for 
DIC more than one year after the date entitlement arose, as defined in 
[regulation that will be published in a future Notice of Proposed 
Rulemaking], then benefits are payable

[[Page 59090]]

from the date VA received the claim. See also Sec.  3.403(a) of this 
chapter (concerning effective dates of awards to or for a child) and 
Sec.  3.667 of this chapter (concerning effective dates of awards to 
certain children attending school after reaching 18 years of age).
    (e) Additional allowance for children. Any additional allowance for 
children is payable beginning the date the surviving spouse's award is 
payable as provided in paragraphs (a), (b), or (c) of this section.

(Authority: 38 U.S.C. 5110(d)(1), (e)(1), (j))


Sec.  5.568  Effective date for discontinuance of DIC or death 
compensation payments to a person no longer recognized as the veteran's 
surviving spouse.

    (a) Purpose. This section applies when VA is paying dependency and 
indemnity compensation (DIC) or death compensation to one person 
(``former payee'') as a veteran's surviving spouse and another person 
(``new payee'') establishes that he or she is the lawful surviving 
spouse entitled to those benefits. It provides the effective date for 
the termination of the payment of DIC or death compensation to the 
former payee. For information concerning the effective date of the 
award of DIC or death compensation to the new payee, see Sec.  5.567, 
``Effective dates for DIC or death compensation awards.''
    (b) Effective date for termination of payments to former payee. For 
periods on or after December 1, 1962, DIC or death compensation 
payments to the former payee will be discontinued as follows:
    (1) Termination date of payments to the former payee if the award 
to the new payee is effective prior to the date VA received the new 
payee's claim. Subject to paragraph (b)(3) of this section, if benefits 
are payable to the new payee from a date prior to the date VA received 
the new payee's claim, then the award to the former payee will be 
terminated the day preceding the effective date of the award to the new 
payee.
    (2) Termination date of the award to the former payee if the award 
to the new payee is effective the date VA received the new payee's 
claim. Subject to paragraph (b)(3) of this section, if benefits are 
payable to the new payee from the date VA received the new payee's 
claim, then the award to the former payee will be terminated effective 
the date of receipt of the new payee's claim or the date of last 
payment to the former payee, whichever is later.
    (3) Exception if termination is due to a change in, or 
interpretation of, the law or an administrative issue. An award to the 
former payee will be terminated on the last day of the month following 
sixty days from the date of notice of the termination to the former 
payee at his or her last address of record, if payments to the former 
payee are terminated because of:
    (i) A change in the law or an administrative issue; or
    (ii) A change in the interpretation of the law or an administrative 
issue.
    See also Sec.  3.114(b) of this chapter.

(Authority: 38 U.S.C. 5110(a), 5112(a), (b)(6))


Sec.  5.569  Effective date for award, or termination of award, of DIC 
or death compensation to a surviving spouse where DIC or death 
compensation payments to children are involved.

    (a) Purpose. This section provides effective date and payment 
adjustment rules applicable when:
    (1) A surviving spouse becomes entitled to dependency and indemnity 
compensation (DIC) or death compensation when VA is already paying DIC 
or death compensation to the veteran's child or children, or
    (2) A surviving spouse's award of DIC or death compensation is 
terminated and the veteran's child or children are entitled to DIC or 
death compensation upon termination of the spouse's DIC or death 
compensation.
    (b) Surviving spouse establishes entitlement--(1) Rate for child or 
children lower than rate for surviving spouse--(i) Effective date. If a 
veteran's child or children received DIC or death compensation at a 
rate lower than the rate payable to the surviving spouse, the award of 
DIC or death compensation to the surviving spouse is effective the date 
provided by Sec.  5.567, ``Effective dates for DIC or death 
compensation awards.''
    (ii) Rate payable to the surviving spouse. The initial amount of 
DIC or death compensation payable to the surviving spouse is the 
difference between the rate paid to the child or children and the rate 
payable to the surviving spouse. The full rate is payable to the 
surviving spouse effective the day following the date of last payment 
to or on behalf of the child or children.
    (2) Rate for child or children same as or higher than the rate for 
surviving spouse. If a veteran's child or children received DIC or 
death compensation at a rate the same as or higher than the rate 
payable to the surviving spouse, the award of DIC or death compensation 
to the surviving spouse is effective the day following the date of last 
payment to or on behalf of the child or children.
    (c) Surviving spouse receives DIC or death compensation after his 
or her entitlement terminates and a veteran's child or children are 
entitled to DIC or death compensation--(1) Rate for child or children 
lower than rate for surviving spouse. If a surviving spouse receives 
DIC or death compensation after his or her entitlement terminates and 
the veteran's child or children are entitled to a rate of DIC or death 
compensation lower than the rate paid to the surviving spouse, the 
award to the surviving spouse will be reduced to the rate payable to 
the child or children as if there were no surviving spouse. This 
reduced award is effective from the date the surviving spouse's 
entitlement terminated to the date of last payment to the surviving 
spouse. The award of DIC or death compensation to the child or children 
is effective the day following the date of last payment to the 
surviving spouse.
    (2) Rate for child or children higher than rate for surviving 
spouse.--(i) Effective date of termination of award to surviving 
spouse. If a surviving spouse receives DIC or death compensation after 
his or her entitlement terminates and the veteran's child or children 
are entitled to rate higher than the rate paid to the surviving spouse, 
the termination of the award to the surviving spouse is effective the 
date of last payment to the surviving spouse.
    (ii) Effective date and rate for child or children. The award to 
the veteran's child or children is effective the day following the date 
the surviving spouse's entitlement terminated. The initial amount is 
the difference between the rate payable to the child or children and 
the rate paid to the surviving spouse. The full rate is payable to or 
on behalf of the child or children effective the day following the date 
of last payment to the surviving spouse.
    (3) Rate for child or children same as rate for the surviving 
spouse.
    (i) Effective date of termination of award to surviving spouse. If 
a surviving spouse receives DIC or death compensation after his or her 
entitlement terminates and the veteran's child or children are entitled 
to the same rate as the rate paid to the surviving spouse, the 
termination of the award to the surviving spouse is effective the date 
of last payment to the surviving spouse.
    (ii) Effective date and rate for child or children. The full rate 
is payable to or on behalf of the veteran's child or children effective 
the day following the date of last payment to the surviving spouse.

(Authority: 38 U.S.C. 501(a), 5110(a), 5112(a))


[[Page 59091]]




Sec.  5.570  Effective date for reduction in DIC `` surviving spouses.

    (a) General. If the circumstances described in this section require 
a reduction in an award of dependency and indemnity compensation (DIC) 
payable to a surviving spouse, VA will pay the reduced rate effective 
the day following the date of discontinuance of the greater benefit.
    (b) Marriage of child(ren) for whom a surviving spouse receives an 
additional allowance of DIC--(1) Marriage prior to October 1, 1982. If 
a child married prior to October 1, 1982, VA will reduce the surviving 
spouse's DIC effective from the earlier of the following dates:
    (i) The day preceding the child's 18th birthday; or
    (ii) The last day of the calendar year in which the marriage 
occurred (see Sec.  3.500(n)(2)(i) of this chapter).
    (2) Marriage on or after October 1, 1982. If a child married on or 
after October 1, 1982, VA will reduce the surviving spouse's DIC 
effective from the earlier of the following dates:
    (i) The day preceding the child's 18th birthday; or
    (ii) The last day of the month in which the marriage occurred (see 
Sec.  3.500(n)(2)(ii) of this chapter).
    (c) Recertification of pay grade. If recertification of a veteran's 
military pay grade results in reduced DIC, VA will reduce the award 
effective the date of the last payment.

(Authority: 38 U.S.C. 501(a); 5112(b)(2), (10); 1311(a))


Sec.  5.571  Effective date for an award or increased rate based on 
amended income information--parents' DIC.

    (a) Expected income. Subject to paragraph (c) of this section, if 
payments of parents' dependency and indemnity compensation (DIC) were 
not made or if payments were made at a reduced rate for a particular 
calendar year because of expected income, the effective date of any 
later award or increase for that calendar year based on amended income 
information will be the date entitlement arose, as defined in 
[regulation that will be published in a future Notice of Proposed 
Rulemaking], but not earlier than the beginning of that calendar year.
    (b) Actual income. Subject to paragraph (c) of this section, if 
payments of parents' DIC were not made or if payments were made at a 
reduced rate for a particular calendar year because of actual income, 
the effective date of any award or increase for the next calendar year 
based on amended income information will be the beginning of the next 
calendar year.
    (c) Time limit. The effective dates in paragraphs (a) and (b) of 
this section are subject to the applicable time limit for the 
submission of amended income information in [regulation that will be 
published in a future Notice of Proposed Rulemaking]. If VA does not 
receive the amended income information within the time specified in 
that section, benefits may not be authorized for any period prior to 
the date of receipt of a new claim.

(Authority: 38 U.S.C. 501(a), 1315(e), 5110(a))


Sec.  5.572  Effective dates for reduction or discontinuance based on 
increased income--parents' DIC.

    (a) General. If VA determines that a reduction or discontinuance of 
a running award of parents' dependency and indemnity compensation (DIC) 
is required because the parent's expected or actual income for a 
particular calendar year increased, VA will reduce or discontinue the 
award as provided in paragraphs (b) or (c) of this section, as 
applicable.
    (b) Effective date for reduction or discontinuance. VA will reduce 
or discontinue the award effective the end of the month in which income 
increased.
    (c) Date of receipt or increase cannot be determined. If the month 
in which income increased cannot be determined, VA will reduce or 
discontinue the award effective the beginning of the calendar year in 
which the income increased. If VA later receives evidence showing the 
month in which the income increased, VA will adjust the effective date 
accordingly.
    (d) Overpayments. If an overpayment is created by retroactive 
discontinuance of benefits, the overpayment will be subject to recovery 
by VA if not waived. If DIC was being paid to two parents living 
together, the overpayment will be established on the award to each 
parent.

(Authority: 38 U.S.C. 501(a), 5112(b)(4))

[FR Doc. 04-21541 Filed 9-30-04; 8:45 am]
BILLING CODE 8320-01-P


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