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Latest Change To M21-1, Pt Xi, Chap 2, Sec C

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Section C. Issues of Competency and Legal Disability


In this Section This section contains the following topics:

6 Findings of Competency 2-C-2

7 Conducting a Field Examination Before Changing a Rating to Competent 2-C-4

8 Issues to Consider When a Person Is Incapable of Handling Financial Affairs 2-C-6

6. Findings of Competency

Introduction This topic includes information about what to do when a

veteran who was previously rated incompetent is found, during a field examination, to be competent

notice of a rating of competency is received, or

legal disability is removed by a court.

Change Date February 2, 2005

a. When a Beneficiary Is Found to Be Competent During a Field Examination The field examination report, together with any supporting evidence and a recommendation for restoration of competency, should be submitted for rating action if the field examination shows that the beneficiary

is competent to handle his/her funds

understands his/her financial situation

applies funds to needs with reasonable prudence, and

would not benefit from further Veterans Benefits Administration (VBA) supervision.

If a principal guardianship folder (PGF) exists, no action is taken to close the case until notification is received of a competency determination. Diaries are established, as needed, in the Fiduciary Beneficiary System (FBS) for periodic follow-up of the rating of incompetency.

b. When a Beneficiary Is Rated Competent or Legal Disability Is Removed A field examination should be scheduled immediately upon receipt of a notice of

a rating of competency

removal of a legal disability, or

a proposed rating of competency for a veteran and there are substantial withheld funds payable.

Exception: An examination is not required if such a rating or removal resulted from a previous field examination report.

The basic purpose of the contact is to

determine if continuation of the fiduciary relationship or supervised direct payment (SDP) is required to protect the beneficiary’s interests

review other pertinent facts, and

evaluate a beneficiary’s ability to handle any existing withheld funds.

Example: Funds withheld because of the former Estate Limitation law are payable six months after a rating of competency. If the facts developed indicate that the veteran is not capable of handling funds, a recommendation is made to continue the incompetency rating. The full examination report must be fully documented to include all evidence to support the recommendation for rating action.

Note: The rating activity has the sole authority to make determinations of competency and incompetency for the Department of Veterans Affairs (VA) purposes per 38 CFR 3.353(B).

References: For regulatory information regarding competency determinations and payment of withheld funds, see

38 U.S.C. 5503(B)(1)(a), and

38 CFR 3.353(B).

7. Conducting a Field Examination Before Changing a Rating to Competent

Introduction This topic contains information on conducting a field examination before changing a rating to competent.

Change Date February 2, 2005

a. Requesting a Field Examination Before Changing a Rating to Competent The Veterans Service Center (VSC) must request a field examination in accordance with M21-1MR, Part III.iv.8.A (TBD) or M21-1, Part VI, 9.08f before changing a rating to competent when

there has been a medical determination of competency, and

there are substantial withheld funds to be paid.

The purpose of this field examination is to ensure that a veteran with withheld funds will be adequately protected.

b. Trial Period If, at the time of the field examination, the Field Examiner (FE) is doubtful of the veteran’s ability to handle large amounts of money, or if the veteran has had no adequate opportunity to demonstrate such ability, the change of rating may be delayed while the veteran is allowed to use the full amount of his/her monthly payments under SDP.

This delay should not be any longer than is strictly necessary.

c. Field Examination Procedures Follow the procedures outlined in the table below, depending on the circumstances of the case.

Step Action

1 Schedule a field examination immediately upon receipt of notification from the VSC. The purpose of the field examination is to evaluate the method of payment and the field examination should be classified as a successor Initial Appointment (IA).

2 Notify the VSC that a field examination has been scheduled and request that they take no further action on the case until the findings of the field examination are provided.

Step Action

3 If the FE determines that

the veteran is competent to handle monthly VA benefits and the entire amount being withheld, go to Step 4.

a trial period is necessary to ascertain whether the veteran can handle all of the funds involved, go to Step 5.

4 Notify the VSC that the veteran is competent to handle all funds involved and provide supporting documentation.

5 To initiate a trial period, consider the release of substantial sums from personal funds of patients (PFOP), VA medical center (VAMC) or Hines Benefits Delivery Center (BDC), in addition to the full monthly payments, to see how well the veteran manages his/her money.

Schedule another field examination after a relatively brief interval (3–5 months) to determine the progress being made by the veteran in handling the larger allowances.

Guideline: FEs should not be too conservative when recommending allowances. It may be better to risk these amounts to evaluate a veteran’s competence than to risk the entire amount already in withheld funds.

Note: During the trial period, the beneficiary should actually be allowed to make monetary decisions and should not be unduly protected by someone who may have designs on the larger sum being withheld. This is a test of the beneficiary’s ability to handle his/her own funds.

d. Scope of the Field Examination The scope of this field examination is identical in coverage to the items set forth in M21-1MR, Part XI.2.D.11 with special emphasis on the veteran’s ability to manage a substantial sum of money that could be paid in a lump sum.

8. Issues to Consider When a Person Is Incapable of Handling Financial Affairs

Introduction This topic contains information on various issues to consider when, after conducting a field examination, a beneficiary is found to be incapable of handling his/her own financial affairs.

Change Date February 2, 2005

a. Guideline for Determining a Suitable Payee Select the most suitable payee, regardless of any prior designation of a fiduciary or court appointment of a fiduciary, when

a field examination discloses that a beneficiary is unable to manage his/her financial affairs without supervision, and

the person is rated incompetent or is under legal disability.

VA policy is to use the least restrictive payment method to meet the beneficiary’s needs and afford adequate protection of VA funds.

b. Initial Contact With Persons Already Under Legal Disability A previously established court-appointed fiduciary should be paid VA benefits in this capacity only if it serves the beneficiary’s best interests. The court appointment may be bypassed and a more suitable type of fiduciary selected.

The appointment of a Federal fiduciary should be explored when

no VA estate exists, and

the total amount of the VA award goes towards the cost of care, maintenance, and incidentals (personal funds) for the beneficiary.

For the purpose of fund coordination, however, an existing court-appointed fiduciary should be made aware of the benefits payable. Under certain circumstances, recognizing the court-appointed fiduciary as a Federal fiduciary may be advantageous. This would allow the same payee to manage all funds.

c. Determining Whether to Recognize an Existing Court-Appointed Fiduciary Consider the issues below when determining whether to recognize an existing court-appointed fiduciary.

Should payments from all sources go to a single fiduciary?

Do VA funds need the added protection of the court?

Will payment of VA moneys to the court-appointed fiduciary materially raise fees being charged to the beneficiary?

Will paying funds to the court-appointed fiduciary reduce controversy over the handling of the funds?

Reference: For more information on types of fiduciaries, see M21-1MR, Part XI, 2.E.

d. Evaluating the Fiduciary Relationship During Subsequent Contacts With Persons Under Legal Disability The FE must carefully evaluate whether to withdraw from a court-appointed fiduciaryship involving VA assets in favor of paying a Federal payee. Any detriment to the beneficiary caused by a change of payee must be weighed against the advantages of the change. Adequate protection of the beneficiary’s VA estate should not be sacrificed.

e. Withdrawing From a Court Fiduciary Arrangement When considering whether to withdraw from a court-appointed fiduciary arrangement, consider the following factors:

the overall situation of the beneficiary

the size of the VA estate

the size of the total estate

the view of the State courts, and

the view of the court-appointed fiduciary.

f. Federal Fiduciary Versus a Court Appointment When no VA estate exists and the total amount of the VA award paid to the fiduciary goes toward the cost of care, maintenance, and incidentals for the beneficiary, the appointment of a Federal fiduciary should be strongly considered.

Each subsequent field examination must re-establish that the court appointment is still in effect if

a legal disability is the sole basis for supervision, and

a Federal fiduciary is recognized as payee.

Any notice to the court or request for VA’s withdrawal must be made by, or with the concurrence of, the Regional Counsel.

Fight the VA as if they are the enemy; for they are!

Erin go Bragh

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