[Federal Register Volume 76, Number 10 (Friday, January 14, 2011)]
[Proposed Rules]
[Pages 2766-2797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-228]



[[Page 2765]]

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Part II





Department of Veterans Affairs





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38 CFR Part 5



Apportionments to Dependents and Payments to Fiduciaries and 
Incarcerated Beneficiaries; Proposed Rule

  Federal Register / Vol. 76 , No. 10 / Friday, January 14, 2011 / 
Proposed Rules  

[[Page 2766]]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 5

RIN 2900-AL74


Apportionments to Dependents and Payments to Fiduciaries and 
Incarcerated Beneficiaries

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Department of Veterans Affairs (VA) proposes to reorganize 
and rewrite in plain language regulations governing VA compensation, 
pension, burial, and related benefits, including regulations concerning 
apportionments, payments to fiduciaries, and payments to incarcerated 
beneficiaries and fugitive felons. These revisions are proposed as part 
of VA's rewrite and reorganization of all of its compensation and 
pension rules in a logical, claimant-focused, and user-friendly format. 
The intended effect of the proposed revisions is to assist claimants, 
beneficiaries, and VA personnel in locating and understanding these 
regulations.

DATES: Comments must be received by VA on or before March 15, 2011.

ADDRESSES: Written comments may be submitted through http://www.regulations.gov; by mail or hand-delivery to: Director, Regulations 
Management (02REG), Department of Veterans Affairs, 810 Vermont Ave., 
NW., Room 1068, Washington, DC 20420; or by fax to (202) 273-9026. 
Comments should indicate that they are submitted in response to ``RIN 
2900-AL74--Apportionments to Dependents and Payments to Fiduciaries and 
Incarcerated Beneficiaries.'' Copies of comments received will be 
available for public inspection in the Office of Regulation Policy and 
Management, Room 1063B, between the hours of 8 a.m. and 4:30 p.m., 
Monday through Friday (except holidays). Please call (202) 461-4902 for 
an appointment (not a toll-free number). In addition, during the 
comment period, comments may be viewed online through the Federal 
Docket Management System (FDMS) at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: William F. Russo, Director of 
Regulations Management (02REG), Department of Veterans Affairs, 810 
Vermont Ave., NW., Washington, DC 20420, (202) 461-4902 (not a toll-
free number).

SUPPLEMENTARY INFORMATION: The Secretary of Veterans Affairs has 
established an Office of Regulation Policy and Management 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 content of the regulations in 38 CFR part 3 governing the 
compensation and pension program of the Veterans Benefits 
Administration. 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 rules regarding apportionments, payments 
to fiduciaries, and the manner in which VA reduces or discontinues 
benefit payments when beneficiaries are incarcerated or are fugitive 
felons. It also includes proposed rules regarding the adjustment and 
resumption of benefits based upon receipt of hospital, domiciliary, and 
nursing home care. After review and consideration of public comments, 
final versions of these proposed regulations will ultimately be 
published in a new part 5 in 38 CFR.

Outline

Overview of New Part 5 Organization
Overview of This Notice of Proposed Rulemaking
Table Comparing Current Part 3 Rules With Proposed Part 5 Rules
Content of Proposed Regulations

Subpart L--Payments and Adjustments to Payments

Hospital, Domiciliary, and Nursing Home Care Reductions and Resumptions

5.720 Adjustments to special monthly compensation based on the need 
for regular aid and attendance while a veteran is receiving 
hospital, domiciliary, or nursing home care.
5.721 Resumption of special monthly compensation based on the need 
for regular aid and attendance after a veteran is on temporary 
absence from hospital, domiciliary, or nursing home care or is 
discharged or released from such care.
5.722 Reduction of Improved Pension while a veteran is receiving 
domiciliary or nursing home care.
5.723 Reduction of Improved Pension while a veteran, surviving 
spouse, or child is receiving Medicaid-covered care in a nursing 
facility.
5.724 Reduction or discontinuance of Improved Pension based on the 
need for regular aid and attendance while a veteran is receiving 
hospital, domiciliary, or nursing home care.
5.725 Resumption of Improved Pension and Improved Pension based on 
the need for regular aid and attendance after a veteran is on 
temporary absence from hospital, domiciliary, or nursing home care 
or is discharged or released from such care.
5.726 Reduction of Section 306 Pension while a veteran is receiving 
hospital, domiciliary, or nursing home care.
5.727 Reduction of Old-Law Pension while a veteran is receiving 
hospital, domiciliary, or nursing home care.
5.728 Reduction of Old-Law Pension or Section 306 Pension based on 
the need for regular aid and attendance while a veteran is receiving 
hospital, domiciliary, or nursing home care.
5.729 Resumption of Section 306 Pension and Section 306 Pension 
based on the need for regular aid and attendance after a veteran is 
on temporary absence from hospital, domiciliary, or nursing home 
care or is discharged or released from such care.
5.730 Resumption of Old-Law Pension and Old-Law Pension based on the 
need for regular aid and attendance after a veteran is on temporary 
absence from hospital, domiciliary, or nursing home care or is 
discharged or released from such care.

Subpart M--Apportionments to Dependents and Payments to Fiduciaries 
and Incarcerated Beneficiaries

Determining Eligibility for Apportionments

5.770 Apportionment claims.
5.771 Special apportionments.
5.772 Veteran's benefits apportionable.
5.773 Veterans disability compensation.
5.774 Benefits not apportionable.
5.780 Eligibility for apportionment of pension.
5.781 Eligibility for apportionment of a surviving spouse's 
dependency and indemnity compensation.
5.782 Effective date of apportionment grant or increase.
5.783 Effective date of apportionment reduction or discontinuance.
5.784 Special rules for apportioned benefits on death of beneficiary 
or apportionee.

Incompetency and Payments to Fiduciaries and Minors

5.790 Determinations of incompetency and competency.
5.791 General fiduciary payments.
5.792 Institutional awards.
5.793 Limitation on payments for a child.
5.794 Beneficiary rated or reported incompetent.
5.795 Change of name of fiduciary.
5.796 Child's benefits to a fiduciary of an incompetent surviving 
spouse.
5.797 Testamentary capacity for VA insurance purposes.
5.798 Payment of disability compensation previously not paid because 
an

[[Page 2767]]

incompetent veteran's estate exceeded $25,000.

Payments to Incarcerated Beneficiaries

5.810 Incarcerated beneficiaries--general provisions and 
definitions.
5.811 Limitation on disability compensation during incarceration.
5.812 Limitation on dependency and indemnity compensation during 
incarceration.
5.813 Discontinuance of pension during incarceration.
5.814 Apportionment when a primary beneficiary is incarcerated.
5.815 Resumption of disability compensation or dependency and 
indemnity compensation upon a beneficiary's release from 
incarceration.
5.816 Resumption of pension upon a beneficiary's release from 
incarceration.
5.817 Fugitive felons.
Non-Inclusion of Certain Part 3 Rules in Part 5
Endnote Regarding Amendatory Language
Paperwork Reduction Act of 1995
Regulatory Flexibility Act
Executive Order 12866
Unfunded Mandates
Catalog of Federal Domestic Assistance Numbers and Titles
List of Subjects in 38 CFR Part 5

Overview of New Part 5 Organization

    We plan to organize the part 5 regulations so that most provisions 
governing a specific benefit are located in the same subpart, with 
general provisions pertaining to all compensation and pension benefits 
also grouped together. This organization will allow claimants, 
beneficiaries, and their representatives, as well as VA adjudicators, 
to find information relating to a specific benefit more quickly than 
the organization provided in current part 3.
    The first major subdivision would be ``Subpart A--General 
Provisions.'' It would include information regarding the scope of the 
regulations in new part 5, general definitions, and general policy 
provisions for this part. This subpart was published as proposed on 
March 31, 2006. See 71 FR 16464.
    ``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. This subpart was published as proposed 
on January 30, 2004. See 69 FR 4820.
    ``Subpart C--Adjudicative Process, General'' would inform readers 
about claims and benefit application filing procedures, VA's duties, 
rights and responsibilities of claimants and beneficiaries, general 
evidence requirements, and general effective dates for new awards, as 
well as revision of decisions and protection of VA ratings. This 
subpart was published as three separate Notices of Proposed Rulemaking 
(NPRMs) due to its size. The first, concerning the duties of VA and the 
rights and responsibilities of claimants and beneficiaries, was 
published as proposed on May 10, 2005. See 70 FR 24680. The second, 
covering general evidence requirements, effective dates for awards, 
revision of decisions, and protection of VA ratings, was published as 
proposed on May 22, 2007. See 72 FR 28770. The third, concerning rules 
on filing VA benefits claims, was published as proposed on April 14, 
2008. See 73 FR 20136.
    ``Subpart D--Dependents and Survivors'' would inform readers how VA 
determines whether an individual is a dependent or a survivor for 
purposes of determining eligibility for VA benefits. It would also 
provide the evidence requirements for these determinations. This 
subpart was published as proposed on September 20, 2006. See 71 FR 
55052.
    ``Subpart E--Claims for Service Connection and Disability 
Compensation'' would define service-connected disability compensation 
and service connection, including direct and secondary service 
connection. This subpart would inform readers how VA determines service 
connection and entitlement to disability compensation. The subpart 
would also contain those provisions governing presumptions related to 
service connection, rating principles, and effective dates, as well as 
several special ratings. This subpart has been published as three 
separate NPRMs due to its size. The first, concerning presumptions 
related to service connection, was published as proposed on July 27, 
2004. See 69 FR 44614. The second, relating to special ratings and 
ratings for health care eligibility only, was published as proposed on 
October 17, 2008. See 73 FR 62004. The third, relating to service-
connected and other disability compensation, was published as proposed 
on September 1, 2010. See 75 FR 53744.
    ``Subpart F--Nonservice-Connected Disability Pensions and Death 
Pensions'' would include information regarding the three types of 
nonservice-connected pension: Old-Law Pension, Section 306 Pension, and 
Improved Pension. This subpart would also include those provisions that 
state how to establish entitlement to Improved Pension and the 
effective dates governing each pension. This subpart was published as 
two separate NPRMs due to its size. The portion concerning Old-Law 
Pension, Section 306 Pension, and elections of Improved Pension was 
published as proposed on December 27, 2004. See 69 FR 77578. The 
portion concerning eligibility and entitlement requirements, as well as 
effective dates, for Improved Pension was published as proposed on 
September 26, 2007. See 72 FR 54776.
    ``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. This subpart was published as two separate NPRMs due to its 
size. The portion concerning accrued benefits, death compensation, 
special rules applicable upon the death of a beneficiary, and several 
effective-date rules, was published as proposed on October 1, 2004. See 
69 FR 59072. The portion concerning DIC benefits and general provisions 
relating to proof of death and service-connected cause of death was 
published as proposed on October 21, 2005. See 70 FR 61326.
    ``Subpart H--Special and Ancillary Benefits for Veterans, 
Dependents, and Survivors'' would pertain to special and ancillary 
benefits available, including benefits for children with various birth 
defects. This subpart was published as proposed on March 9, 2007. See 
72 FR 10860.
    ``Subpart I--Benefits for Certain Filipino Veterans and Survivors'' 
would pertain to the various benefits available to Filipino veterans 
and their survivors. This subpart was published as proposed on June 30, 
2006. See 71 FR 37790.
    ``Subpart J--Burial Benefits'' would pertain to burial allowances. 
This subpart was published as proposed on April 8, 2008. See 73 FR 
19021.
    ``Subpart K--Matters Affecting the Receipt of Benefits'' would 
contain provisions regarding bars to benefits, forfeiture of benefits, 
and renouncement of benefits. This subpart was published as proposed on 
May 31, 2006. See 71 FR 31056.
    ``Subpart L--Payments and Adjustments to Payments'' would include 
general rate-setting rules, several adjustment and resumption 
regulations, and election-of-benefit rules. Because of its size, this 
subpart, except for several regulations concerning hospital, 
domiciliary, and nursing home care reductions and resumptions, was 
published in two

[[Page 2768]]

separate NPRMs. The first, concerning payments to beneficiaries who are 
eligible for more than one benefit, was published as proposed on 
October 2, 2007. See 72 FR 56136. The second, concerning provisions 
applicable to payment of VA benefits and adjustments to payments, was 
published as proposed on October 31, 2008. See 73 FR 65212. The 
hospital, domiciliary, and nursing home care regulations are included 
in this NPRM.
    The final subpart, ``Subpart M--Apportionments to Dependents and 
Payments to Fiduciaries and Incarcerated Beneficiaries,'' would include 
regulations governing apportionments, benefits for incarcerated 
beneficiaries, and guardianship. This subpart is the primary subject of 
this NPRM.
    Some of the regulations in this 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 include, in the relevant portion of 
the SUPPLEMENTARY INFORMATION, 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 counterpart in some respects, but this method will assist 
readers in understanding these proposed regulations where no part 5 
counterpart has yet been published.
    Because of its large size, proposed part 5 will be published in a 
number of NPRMs, such as this one. VA will not adopt any portion of 
part 5 as final until all of the NPRMs have been published for public 
comment.
    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 rulemakings.

Overview of This NPRM

    This NPRM pertains to regulations that govern apportionments of 
benefits, as well as certain matters pertaining to fiduciaries of 
incompetent beneficiaries and minors. It also pertains to regulations 
governing incarcerated beneficiaries and beneficiaries who are fugitive 
felons. These regulations would be contained in proposed Subpart M of 
new 38 CFR part 5. This NPRM also includes eleven regulations 
concerning reductions of VA benefits based on hospitalization at 
government expense. These regulations would be contained in proposed 
Subpart L of new 38 CFR part 5.
    Although these regulations have been substantially restructured and 
rewritten for greater clarity and ease of use, most of the basic 
concepts contained in these proposed regulations are the same as their 
existing counterparts in 38 CFR part 3. However, a few substantive 
differences are proposed, as are some regulations that do not have 
counterparts in 38 CFR part 3.

Table Comparing Current Part 3 Rules With Proposed Part 5 Rules

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

------------------------------------------------------------------------
                                            Based in whole or in part on
   Proposed part 5 section or paragraph       38 CFR part 3 section or
                                                      paragraph
------------------------------------------------------------------------
5.720(a)..................................  3.551(a), 3.552(b)(3),
                                             3.556(a), 3.556(f)
5.720(b)..................................  3.501(b)(1) and (2),
                                             3.552(a)(1), (b)(1),
                                             (b)(2), and (c)
5.720(c)(1)...............................  3.552(b)(2), 3.501(b)(2)
5.720(c)(2)...............................  3.552(d) and (i)
5.720(c)(3)...............................  3.552(f) and (g)
5.720(c)(4)...............................  3.552(h)
5.720(c)(5) and (6).......................  3.552(a)(3)
5.720(d)..................................  3.552(a)(1) and (2)
5.720(e)(1)...............................  New.
5.720(e)(2) and (3).......................  3.552(b)(3)
5.720(f)..................................  3.552(k)
5.721.....................................  New.
5.722(a)(1)...............................  3.551(e)(1)
5.722(a)(2)...............................  3.551(e)(1)
5.722(a)(3)...............................  3.501(i)(5)(i), 3.551(e)(1)
5.722(b)(1)...............................  3.551(a)
5.722(b)(2) and (b)(3)....................  New.
5.722(b)(4)...............................  3.551(e)(6)
5.722(c)..................................  3.551(e)(3)
5.722(d)(1)...............................  3.501(i)(5)(ii), 3.551(e)(2)
5.722(d)(2)...............................  New.
5.722(e)..................................  3.551(e)(4)
5.722(f)..................................  3.551(h)
5.722(g)..................................  3.551(e)
5.723.....................................  3.501(i)(6), 3.502(f),
                                             3.551(i)
5.724(a)..................................  3.501(b)(1), 3.552(b)(1) and
                                             (e) [third and fourth
                                             sentences]
5.724(b)..................................  3.552(a)(1) and (2)
5.724(c)..................................  3.501(i)(3), 3.552(b)(3)
5.724(d)..................................  3.552(k)
5.725.....................................  New.
5.726(a)(1)...............................  3.551(a) and (c)(1)
5.726(a)(2)...............................  3.551(g)
5.726(a)(3)...............................  3.551(c)(1)
5.726(a)(4)...............................  3.501(i)(2)(i), 3.551(c)(1)
5.726(a)(5)...............................  3.551(f)
5.726(b)(1)...............................  3.551(a)
5.726(b)(2) and (3).......................  New.
5.726(c)..................................  3.551(c)(3)
5.726(d)(1)...............................  3.501(i)(2)(iii),
                                             3.551(c)(2)
5.726(d)(2)...............................  New.
5.727(a)(1)...............................  3.551(b)(1)
5.727(a)(2)...............................  3.551(g)
5.727(a)(3)...............................  3.551(b)(1)
5.727(a)(4)(i)............................  3.501(i)(1), 3.551(b)(1)
5.727(a)(4)(ii)...........................  3.551(b)(3)
5.727(b)(1)...............................  3.551(a)
5.727(b)(2) and (3).......................  New.
5.727(c)(1)...............................  3.551(b)(2)
5.727(c)(2)(i)............................  New.
5.727(c)(2)(ii)...........................  3.551(b)(3)
5.728(a)..................................  3.501(b)(1), 3.552(b)(1),
                                             (e) and (j)
5.728(b)..................................  3.552(e)
5.728(c)..................................  3.552(b)(3)
5.729(a)..................................  3.556(a)
5.729(b)..................................  3.556(b) and (d) [third
                                             sentence]
5.729(c)..................................  3.556(c)
5.729(d)..................................  3.556(d) [first sentence]
                                             and (e)
5.730(a)..................................  3.556(a)(1)
5.730(b)..................................  3.556(b)
5.730(c)..................................  3.556(e)
5.730(d)..................................  3.556(d)
5.770.....................................  3.450
5.771.....................................  3.451
5.772(a)..................................  3.452(a)
5.772(b)..................................  3.452(b)
5.772(c)..................................  3.452(c), 3.454
5.772(d)..................................  3.452(d)
5.773.....................................  3.453
5.774.....................................  3.58, 3.458, 3.503(a)(2),
                                             3.901(c), and 3.902(c)
5.780.....................................  3.450(a)(1)(ii), 3.451, and
                                             3.460(b) and (c)
5.781(a)..................................  3.461(a)
5.781(b)..................................  3.461(b)(1)
5.782(a)..................................  3.400(e)(1)
5.782(b)(1)...............................  Introduction to 3.400(e)
5.782(b)(2)...............................  New.
5.782(b)(3)...............................  3.400(e)(2)
5.782(b)(4)...............................  3.665(f)
5.783(a)..................................  3.500(d)(1)
5.783(b)(1) and (2).......................  3.500(g) and (n)
5.783(b)(3)...............................  New.
5.783(b)(4)...............................  New.
5.784(a)..................................  3.1000(b)(2)
5.784(b)(1)...............................  3.1000(b)(1)
5.784(b)(2)...............................  3.1000(b)(3)
5.790(a)..................................  3.353(a)
5.790(b)..................................  3.353(b)
5.790(c)..................................  3.353(c)
5.790(d)..................................  3.353(d)
5.790(e)..................................  3.353(e)
5.790(f)(1)...............................  3.400(x)
5.790(f)(2)...............................  3.400(y)
5.791(a)..................................  3.850(a)
5.791(b)..................................  3.850(c)
5.791(c)..................................  3.850(b)
5.791(d)..................................  3.850(d)
5.791(e)..................................  3.400(n), 3.500(m)

[[Page 2769]]

 
5.792(a)..................................  3.852(a)
5.792(b)..................................  3.852(b), 3.852(d) [first
                                             sentence]
5.792(c)..................................  3.852(d) [second sentence]
5.792(d)..................................  3.852(c)
5.792(e)..................................  3.401(d)
5.792(f)..................................  3.501(j)
5.793.....................................  3.403(a)(2), 3.854
5.794(a)..................................  3.855(a)
5.794(b)(1)...............................  3.855(b)(1)
5.794(b)(2)...............................  3.855(b)(2)
5.794(b)(3)...............................  3.855(b)(3)
5.795.....................................  3.856
5.796.....................................  3.857
5.797.....................................  3.355
5.798.....................................  3.853(c)
5.810(a)..................................  3.665(b)
5.810(b)..................................  New.
5.810(c)..................................  3.665(a) and introduction to
                                             3.666
5.810(d)..................................  New.
5.810(e)..................................  3.665(a) and introduction to
                                             3.666
5.810(f)..................................  3.665(a) and introduction to
                                             3.666
5.811(a)..................................  3.665(a) and (c)
5.811(b)..................................  3.665(j)(3)(ii) and (k)
5.811(c)..................................  3.665(d)(1) and (2) and (j)
5.812(a)..................................  3.665(a) and (c)
5.812(b)..................................  3.665(d)(3)
5.812(c)..................................  3.665(l)
5.812(d)..................................  3.665(k)
5.813(a)..................................  Introduction to 3.666
5.813(b)..................................  3.666(d)
5.814(a)(1)...............................  3.665(a)
5.814(a)(2)...............................  3.665(h)
5.814(b)..................................  3.665(e)
5.814(c)..................................  3.666(a)(1), (a)(2), and
                                             (a)(3)
5.814(d)..................................  3.666(b)(1), (b)(2) and
                                             (b)(4)
5.814(e)..................................  3.665(f), 3.666(a)(4) and
                                             (b)(3)
5.815(a)..................................  3.665(i)
5.815(b)..................................  3.665(i)(1) and (i)(3)
5.815(c)..................................  3.665(i)(2) and (i)(3)
5.815(d)..................................  3.665(m)
5.816.....................................  3.666(c)
5.817(a)..................................  3.665(n)(1) and 3.666(e)(1)
5.817(b)..................................  3.665(n)(2) and (3);
                                             3.666(e)(2) and (3)
------------------------------------------------------------------------

    Readers who use this table to compare the proposed provisions with 
the existing regulatory provisions and 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 regarding the 
subject matter of this rulemaking is accounted for in the table. In 
some instances, other portions of the part 3 sections that are 
addressed in these proposed regulations will appear in subparts of part 
5 that are being published separately for public comment. 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 separate NPRM. The table also does 
not include provisions from part 3 regulations that will not be 
repeated in part 5. Such provisions are discussed specifically under 
the appropriate part 5 heading in this preamble. Readers are invited to 
comment on the proposed part 5 provisions and also on our proposals to 
omit those part 3 provisions from part 5.

Content of Proposed Regulations

Subpart L: Payments and Adjustments to Payments

Hospital, Domiciliary, and Nursing Home Care Reductions and Resumptions
    We propose to rewrite current Sec. Sec.  3.551, 3.552, and 3.556, 
by dividing the disability compensation and pension provisions in those 
sections into separate sections. Each section would address different 
VA benefits.
Section 5.720 Adjustments to Special Monthly Compensation Based on the 
Need for Regular Aid and Attendance While a Veteran Is Receiving 
Hospital, Domiciliary, or Nursing Home Care
    Proposed Sec.  5.720 includes provisions for discontinuing special 
monthly compensation (SMC) that is payable because a veteran is in need 
of regular aid and attendance or a higher level of care while receiving 
hospital, domiciliary, or nursing home care.
    In proposed Sec.  5.720(a), we would define the terms ``hospital 
care'', ``domiciliary or nursing home care'', ``temporary absence'', 
and ``regular'' and ``irregular'' discharge or release for purposes of 
Sec. Sec.  5.720 through 5.730. Current 38 CFR 3.551(a) defines the 
terms ``hospitalized'' and ``hospitalization'' to include ``[h]ospital 
treatment in a Department of Veterans Affairs hospital or in any 
hospital at Department of Veterans Affairs expense'' and 
``[i]nstitutional, domiciliary or nursing home care in a Department of 
Veterans Affairs institution or domiciliary or at Department of 
Veterans Affairs expense.'' We propose to not include the terms 
``institution'' or ``institutional'' in the definition of ``hospital 
care'' in Sec.  5.720(a)(1) or elsewhere in Sec. Sec.  5.720-5.730 
because, with respect to specific types of VA care or facilities, the 
terms are obsolete. In 1978, Congress amended 38 U.S.C. 3203(a)(1), the 
precursor to 38 U.S.C. 5503(a), in part by replacing a reference to 
``hospital treatment, institutional, or domiciliary care'' with 
references to ``domiciliary care'' and ``hospital or nursing home 
care.'' See Veterans' and Survivors' Pension Improvement Act of 1978, 
Public Law 95-588, section 307, 92 Stat. 2497, 2510. Despite this 
change of terminology in the authorizing statute applicable to Improved 
Pension, VA kept references to ``institutional'' care in its part 3 
regulations on hospitalization adjustments because the statutes 
applicable to Section 306 Pension and Old-Law Pension still refer to 
institutional care and do not refer to nursing home care. However, VA 
has interpreted ``institutional care'' in these statutes to include 
``nursing home care''. Accordingly, as stated in Sec.  3.551(a), VA 
applies the definition of ``hospitalized'' that includes ``nursing home 
care'' to Sec. Sec.  3.551 through 3.556, including to those provisions 
pertaining to Section 306 Pension and Old-Law Pension. Therefore, in 
keeping with current 38 U.S.C. 5503(a), we have not included any 
reference to institutional care in proposed Sec. Sec.  5.720-5.730.
    Current 38 CFR 3.556(f) defines a ``regular'' discharge as one 
which ``is granted because of having received maximum hospital 
benefits.'' To further clarify the definition, in proposed Sec.  
5.720(a)(3), we would define the term ``regular discharge or release'' 
to mean ``a veteran, surviving spouse, or child is discharged or 
released at the order of a medical professional based on that 
professional's opinion that there is no medical reason to continue 
care.'' VA's regulations on reduction of pension benefits refer only to 
veterans and surviving spouses. We propose to add ``child'' to 
paragraphs (a)(3)-(a)(5) to make these definitions consistent with 
Veterans' Benefits Act of 2010, Public Law 111-275, section 606, 124 
Stat. 2886.
    Proposed Sec.  5.720(a)(4), defining ``irregular discharge or 
release,'' is derived from current Sec.  3.556(f), which defines the 
term specifically, and current Sec.  3.552(b)(3), which implicitly 
defines the term as it applies to readmissions to hospital, 
domiciliary, or nursing home care. Proposed Sec.  5.720(a)(4) defines 
the term to mean a discharge or release from a period of hospital, 
domiciliary, or nursing home care for any of the following reasons: 
refusal to accept treatment, neglect of treatment, obstruction of 
treatment, disciplinary reasons, refusal to accept transfer to another 
facility, leaving a facility against medical advice, or failure to 
return from unauthorized or authorized absence. The current rules do 
not explicitly address those patients who leave hospital, domiciliary, 
or

[[Page 2770]]

nursing home care without authorization from the staff and fail to 
return. VA's practice is to treat such an absence as an irregular 
discharge or release even if the patient is not formally discharged or 
released at the time of departure. Accordingly, proposed Sec.  
5.720(a)(4), defining ``irregular discharge or release'' would include 
situations in which a veteran, surviving spouse, or child fails to 
return from unauthorized absence.
    Proposed Sec.  5.720(a)(5) would define ``temporary absence'' to 
mean ``a veteran, surviving spouse, or child is placed on non-bed care 
status or authorized absence.'' The definition derives from current 
Sec.  3.556(a). We would also clarify that a temporary absence is not a 
discharge or release.
    In proposed Sec.  5.720(c), describing how to calculate the reduced 
rate of SMC, we have identified the benefits to be reduced and the new 
rates by referring to the appropriate part 5 regulations as a 
convenience for the reader. Identification by implementing regulation 
is not a substantive change from current Sec.  3.552, which identifies 
a given benefit by the benefit's authorizing statute and verbal 
description. More specifically, in proposed Sec.  5.720(c)(4), derived 
from current Sec.  3.552(h), we identify the benefit to be reduced as 
SMC under Sec.  5.326(i). Because the reference to Sec.  5.326(i) 
signifies only SMC payable under 38 U.S.C. 1114(m) for blindness in 
both eyes leaving a veteran so significantly disabled as to need 
regular aid and attendance, Sec.  5.720(c)(4) identifies the same 
benefit as Sec.  3.552(h) does, and it is unnecessary to state in 
proposed Sec.  5.720(c)(4) that vision must be better than light 
perception only. Such language is necessary in Sec.  3.552(h) because 
SMC under section 1114(m) may be paid for either blindness in both eyes 
having only light perception or for blindness in both eyes leaving the 
veteran so significantly disabled as to be in need of regular aid and 
attendance. Only SMC based on the latter condition is reduced based on 
hospital, domiciliary, or nursing home care, and only SMC based on the 
latter condition is payable under Sec.  5.326(i); therefore, further 
clarification is unnecessary in Sec.  5.720(c)(4).
    In proposed paragraphs (c)(1) and (f)(1), we have clarified that 
SMC paid under 38 U.S.C. 1114(r) is discontinued or not payable while a 
veteran is receiving hospital care that is provided at United States 
Government expense. We also specify that the discontinuance required by 
paragraph (c)(1) is made only for the receipt of hospital care and is 
not made for the receipt of domiciliary or nursing home care. Both of 
these clarifications are based upon the plain language of the 
authorizing statute, 38 U.S.C. 5503(c).
    In proposed Sec.  5.720(c)(2)(ii), we have referred to a veteran 
who ``has been awarded the intermediate or next higher rate based on 
additional disability that is independently ratable.'' Although current 
Sec.  3.552(i) refers more specifically to ``disability independently 
ratable at 50 percent or 100 percent'', such specificity is 
unnecessary. The reference in Sec.  5.720(c)(2)(ii) to proposed Sec.  
5.331(d)(1) and (e)(1) implies that the veterans described are those 
with disability independently ratable at 50 percent or higher (under 
Sec.  5.331(d)(1)) or 100 percent (under Sec.  5.331(e)(1)). Further, 
if the proposed rule was specific, it is possible that it would be 
misconstrued to exclude veterans with disability independently ratable 
at 60, 70, 80, or 90 percent.
    Proposed Sec.  5.720(d) restates in plain language exceptions 
contained in Sec.  3.552(a)(1) and (a)(2). As we have proposed 
elsewhere in part 5, we would substitute the phrase ``loss of use'' for 
the current term ``paralysis''. See 73 FR 62004, 62013, 62023 (Oct. 17, 
2008) (pertaining to proposed Sec.  5.330(d)). The term ``paralysis'' 
is not defined for VA purposes. It is a term most commonly associated 
with inability to move or have sensation in a body part as a result of 
an injury or of a disease of the nervous system. This is a narrow 
definition that does not address disabilities resulting from muscle or 
bone damage. The phrase ``loss of use'' is used extensively by VA 
personnel in rating disabilities involving the extremities and 
therefore is an appropriate substitute term. The phrase ``loss of use'' 
will be clearer to the reader.
    Proposed Sec.  5.720(e)(1) is a new provision that states 
explicitly a rule that is implicit in current Sec.  3.552(b)(3). Under 
Sec.  3.552(b)(3), from which Sec.  5.720(e)(2) and (3) are derived, VA 
will, in certain circumstances, immediately reduce a veteran's rate of 
SMC if the veteran is readmitted to hospital, domiciliary, or nursing 
home care after a prior period of care for which VA had reduced or 
discontinued the veteran's SMC. That rule applies if the veteran was 
given an irregular discharge or release from the prior period of care 
and the readmission is less than 6 months thereafter. In contrast, 
proposed Sec.  5.720(e)(1) provides that a readmission to care 
following a regular discharge from a prior period of care will be 
treated as if it were an initial admission (i.e., the reduction will 
not be immediate). Under 38 U.S.C. 5503(c), VA is authorized to 
immediately reduce benefits only if the readmission follows an 
irregular discharge, not a regular discharge. The new provision 
explicitly states current VA practice and is favorable to veterans.
    Proposed Sec.  5.720 includes references to several SMC 
regulations--Sec. Sec.  5.323, 5.324, 5.326, 5.328, 5.330, 5.331, 
5.332, and 5.333--which were published as proposed on October 17, 2008. 
See 73 FR 62004.
Section 5.721 Resumption of Special Monthly Compensation Based on the 
Need for Regular Aid and Attendance After a Veteran Is on Temporary 
Absence From Hospital, Domiciliary, or Nursing Home Care or Is 
Discharged or Released From Such Care
    There is no regulation in current 38 CFR part 3 or any statute in 
38 U.S.C. regarding resumption of benefits after a veteran whose 
special monthly compensation based on the need for regular aid and 
attendance was reduced due to hospital, domiciliary, or nursing home 
care is discharged or released from such care. Proposed Sec.  5.721 
would fill this gap. We have modeled this section on the rules in 
current Sec.  3.556, ``Adjustment on discharge or release'', which 
concerns resumptions of pension benefits upon discharge or release from 
hospital, domiciliary, or nursing home care. VA has applied these 
provisions to thousands of veterans' awards over more than 20 years. VA 
staff can administer them efficiently, and they result in fair and 
consistent adjustments of veterans' benefits.
    Section 5.721(b) would incorporate language from current Sec.  
3.556(e), which sets out the rules for resuming benefits following 
regular discharge or release from hospital, domiciliary, or nursing 
home care. Section 3.556(e) states that the award resuming benefits 
``will be based on the most recent rating''. The intent of this 
provision is to ensure that the veteran is paid the proper amount upon 
discharge or release. For consistency, we have also inserted similar 
language in Sec. Sec.  5.725(c)(1) and (2), 5.729(d), and 5.730(c) and 
(d). Throughout Sec.  5.721(b) and these other sections, instead of 
using the phrase ``based on the most recent rating'', we would state, 
``Payment will be resumed at the rate in effect before the reduction 
based on [receipt of such care], unless the evidence of record shows 
that a different rate is required.'' The use of this broader language 
throughout these regulations would also encompass beneficiaries whose 
benefits are not based on a rating decision, such as Improved Pension 
recipients 65 years of

[[Page 2771]]

age or over (to whom proposed Sec.  5.725(c)(2) might apply).
    We use the same language in the proposed regulations that govern 
the resumption of benefits following an irregular discharge. Similar 
language is not contained in current Sec.  3.556(d), which covers 
irregular discharge or release. VA regulations originally made no 
distinction between regular and irregular discharges or releases; the 
award of benefits following either type of discharge or release was to 
be based on ``the last valid rating.'' Vet. Reg. No. 6(c), Instruction 
No. 2, para. IV(e) (Oct. 18, 1934). When VA amended its regulations to 
distinguish between these types of discharges or releases, VA 
inadvertently failed to provide for the resumption of the rate in 
effect prior to the period of care that ended with the irregular 
discharge or release. See R&PR 1256(A) (Mar. 4, 1947).
Section 5.722 Reduction of Improved Pension While a Veteran Is 
Receiving Domiciliary or Nursing Home Care
    Proposed Sec.  5.722 addresses the reduction of Improved Pension 
while a veteran is receiving domiciliary or nursing home care.
    In proposed Sec.  5.722(a), we would clarify that the requirement 
that VA reduce Improved Pension being paid to a veteran who receives 
domiciliary or nursing home care for three full calendar months applies 
only if such care is continuous. This is consistent with long-standing 
VA practice.
    Proposed Sec.  5.722(b) would provide that VA will not reduce a 
veteran's Improved Pension if any one of the exceptions listed applies. 
Although current Sec.  3.551 provides exceptions to the reduction of 
pension, the current regulation is not complete. It is important to 
clearly state when VA will not reduce Improved Pension payable to a 
veteran who is receiving domiciliary or nursing home care. Therefore, 
we have added provisions in proposed paragraphs (b)(2) and (3) to 
expand upon the rules carried forward from current Sec.  3.551. The 
additions are exceptions for veterans maintained in a State soldiers' 
home or receiving domiciliary or nursing home care in a State home and 
the only payment made by VA to the State for the State home is the per 
diem rate under 38 U.S.C. 1741. The provisions reflect VA's long-
standing practice not to reduce benefits when one of the described 
situations occurs. Regarding veterans receiving care in a State home, 
such practice is mandated by 38 U.S.C. 1741. Section 1741(e) 
specifically provides that per diem payments to a State may not be 
considered a liability of a third party or otherwise be used to offset 
or reduce any other payment made to assist veterans.
    Although proposed Sec.  5.722 generally pertains to veterans who 
have no spouse for VA purposes, the law provides for apportionment of 
pension benefits to a veteran's spouse in certain situations. See 38 
U.S.C. 5503(a)(2). We have included in proposed paragraph (c) a cross 
reference to proposed Sec.  5.772(c)(2)(ii), which provides the 
specific provision relating to such apportionments. The maximum amount 
that may be apportioned to the spouse is the difference, if any, 
between $90 and the amount that the veteran would be entitled to 
receive if he or she were being paid as a married veteran. That 
information is contained in current Sec.  3.454(b)(3) and its part 5 
counterpart, Sec.  5.772(c)(2)(ii). We have not included the 
information about the rate payable to a married veteran in Sec.  
5.722(c), even though it is contained in its part 3 counterpart, 
current Sec.  3.551(e), which refers to 38 U.S.C. 1521(c). By 
eliminating the redundant material, proposed Sec.  5.722(c) is easier 
to read and understand than current Sec.  3.551(e).
    Proposed Sec.  5.722(d)(1) is based on current Sec. Sec.  
3.501(i)(5)(ii) and 3.551(e)(2), which govern payments when a veteran 
is readmitted within 6 months after a period of domiciliary or nursing 
home care for which Improved Pension was reduced. Proposed paragraph 
(d)(2) is a new provision, which provides that, if a veteran is 
readmitted 6 months or more after a period of domiciliary or nursing 
home care for which Improved Pension was reduced, the readmission will 
be considered a new admission. This new provision, based on a long-
standing VA procedure, would make Sec.  5.722 more explicit and easier 
to apply than current Sec.  3.551.
    Proposed Sec.  5.722(f) would address veterans who are provided 
nursing home care as part of a prescribed program of rehabilitation 
under 38 U.S.C. chapter 17. The provisions are derived from current 
Sec.  3.551(h) with a few changes. The reference to ``Chief Medical 
Director'' is outdated because Congress has changed the title ``Chief 
Medical Director'' to ``Under Secretary for Health.'' Public Law 102-
405, section 302(a), 106 Stat. 1972, 1984 (1992). We use the current 
title.
    Proposed Sec.  5.722(g) would state that, ``If a veteran becomes 
entitled to Improved Pension while receiving domiciliary or nursing 
home care, VA will reduce pension, or pay a reduced rate of pension, in 
accordance with this section.'' This rule is implicit in both the 
statute, 38 U.S.C. 5503(a), and current Sec.  3.551(e), but is explicit 
in part 5 to reflect current VA practice regarding new awards of 
Improved Pension.
    We have intentionally not included the provisions in current Sec.  
3.551(d) applicable to reduction of Improved Pension for veterans 
receiving care before February 1, 1990. The current paragraph provides 
that if a veteran without spouse or child was receiving hospital, 
domiciliary, or nursing home care before February, 1, 1990, VA will 
reduce the veteran's pension during such care. With the passage of 
time, these provisions are now unnecessary. It is unlikely that VA 
would now retroactively reduce a veteran's Improved Pension because of 
care provided more than 20 years in the past. Consequently, we have 
also not included current Sec.  3.501(i)(4), which contains effective 
dates for reductions under Sec.  3.551(d).
    Similarly, we also propose to omit the provisions of current Sec.  
3.551(e)(5), which provide that effective February 1, 1990, Improved 
Pension is no longer reduced because of hospital care unless the 
veteran is receiving Improved Pension based on the need for regular aid 
and attendance. Such language is unnecessary because proposed Sec.  
5.722 is limited to domiciliary or nursing home care. Provisions 
related to hospital reductions before February 1, 1990, would not be 
included in part 5.
Section 5.723 Reduction of Improved Pension While a Veteran, Surviving 
Spouse, or Child Is Receiving Medicaid-Covered Care in a Nursing 
Facility
    Proposed Sec.  5.723 concerns situations in which a veteran, 
surviving spouse, or child is receiving Medicaid-covered nursing 
facility care. It is a plain language rewrite of current Sec. Sec.  
3.501(i)(6), 3.502(f), and 3.551(i), except that we have added 
``child'' to make the rule consistent with Veterans Benefits Act of 
2010, Public Law 111-275, section 606, 124 Stat. 2886.
    We propose to use the term ``nursing facility'' instead of the term 
``nursing home'', which is used in the current regulation, because the 
authorizing statute, 38 U.S.C. 5503(d), uses the term ``nursing 
facility''. Proposed Sec.  5.723(a) includes an exception that is 
contained in 38 U.S.C. 5503(d)(1)(B) that is not contained in part 3. 
For veterans receiving care in a State home to which VA makes per diem 
payments under 38 U.S.C. 1741, VA does not reduce benefits under this 
section.
    In proposed Sec.  5.723(b), we have updated the reference to Sec.  
3.103(b)(2), contained in current Sec. Sec.  3.501(i)(6)(i) and 
3.502(f)(1), to refer instead to its proposed part 5 counterpart, Sec.  
5.83(b), ``Right to notice of decisions and

[[Page 2772]]

proposed adverse actions'', which was published as proposed on May 10, 
2005. See 70 FR 24680, 24687.
    Proposed Sec.  5.723(d) is a new provision that states, ``If a 
veteran, surviving spouse, or child described in paragraph (a) of this 
section becomes entitled to Improved Pension while receiving Medicaid-
covered care in a nursing facility, then VA will not pay more than $90 
per month while the veteran, surviving spouse, or child receives such 
care.'' This rule is implicit in both 38 U.S.C. 5503(d) and current 
Sec.  3.551(i), but is explicit in part 5 to reflect current VA 
practice regarding new awards of Improved Pension under these 
circumstances.
Section 5.724 Reduction or Discontinuance of Improved Pension Based on 
the Need for Regular Aid and Attendance While a Veteran Is Receiving 
Hospital, Domiciliary, or Nursing Home Care
    Proposed Sec.  5.724 includes provisions for reduction of Improved 
Pension based on the need for regular aid and attendance while a 
veteran is receiving hospital, domiciliary, or nursing home care. It is 
a plain language rewrite of applicable provisions involving Improved 
Pension in current Sec. Sec.  3.501 and 3.552.
    Proposed Sec.  5.724(b) is based on current Sec.  3.552(a)(1) and 
(2) and 38 U.S.C. 5503(b). Section 5503(b) prohibits the reduction of 
any type of VA pension (including Improved Pension based on the need 
for regular aid and attendance) for VA hospital, institutional, or 
domiciliary care for Hansen's disease. We have included similar 
language regarding VA hospital, domiciliary, or nursing home care for 
Hansen's disease in both Sec.  5.724(b)(2) and Sec.  5.728(b)(2).
    Current Sec.  3.552(a)(2) states that Improved Pension based on the 
need for regular aid and attendance will not be reduced if the 
``pensionable disability is blindness (visual acuity 5/200 or less) or 
concentric contraction of visual field to 5 degrees or less.'' The term 
``pensionable disability'' used in Sec.  3.552(a)(2) is imprecise 
because more than one disability may serve as the basis for pension 
entitlement. The description of blindness in Sec.  3.552(a)(2) is based 
on the description in Sec.  3.351(c)(1), which provides that a veteran 
or surviving spouse with that level of blindness will be considered to 
be in need of regular aid and attendance. Therefore, ``pensionable 
disability'' as used in Sec.  3.552(a)(2) refers to the disability 
causing the need for regular aid and attendance, in this case, 
blindness of the level described in Sec.  3.351(c)(1). (The part 5 
equivalent to current Sec.  3.351(c)(1) is Sec.  5.390(b)(1) or (2), 
which was published as proposed on September 26, 2007. See 72 FR 54776, 
54794.) We have drafted proposed Sec.  5.724(b)(1)(iii) to state the 
intended concept in plain language.
Section 5.725 Resumption of Improved Pension and Improved Pension Based 
on the Need for Regular Aid and Attendance After a Veteran Is on 
Temporary Absence From Hospital, Domiciliary, or Nursing Home Care or 
Is Discharged or Released From Such Care
    Current Sec.  3.556, ``Adjustment on discharge or release'', is the 
only regulation in current 38 CFR part 3 regarding resumption of 
pension benefits after a veteran is discharged or released from 
hospital, domiciliary, or nursing home care. However, much of Sec.  
3.556 refers to Old-Law and Section 306 Pensions. In proposed Sec.  
5.725, we would use Sec.  3.556 as the basis for a new rule regarding 
resumptions of Improved Pension and Improved Pension based on the need 
for regular aid and attendance. Based on VA's experience in applying 
Sec.  3.556, this new rule will result in fair, consistent adjustments 
of Improved Pension and Improved Pension based on the need for regular 
aid and attendance.
Section 5.726 Reduction of Section 306 Pension While a Veteran Is 
Receiving Hospital, Domiciliary, or Nursing Home Care
    Proposed Sec.  5.726, based on the portions of current 38 CFR 3.551 
that pertain to Section 306 Pension, provides for reduction of Section 
306 Pension when a veteran is receiving hospital, domiciliary, or 
nursing home care.
    Proposed Sec.  5.726(a)(2), regarding proof of dependents, is based 
on current Sec.  3.551(g) as it applies to Section 306 Pension. We 
propose to omit from part 5 the first two sentences of current Sec.  
3.551(g), which read, ``The veteran will be considered to have neither 
spouse, child nor dependent parent in the absence of satisfactory 
proof. Statements contained in the claims folder concerning the 
existence of such dependents will be considered a prima facie 
showing.'' The first sentence is superfluous because there must be 
satisfactory proof of every fact to be proven in a veteran's claim. The 
second sentence guides VA staff to refrain from seeking evidence of 
dependents if such evidence is already of record. This guidance is more 
appropriately contained in internal VA procedures or training 
publications.
    Proposed Sec.  5.726(a)(4) is based on current Sec.  3.551(c)(1), 
which applies the same effective date of reduction for domiciliary care 
as for hospital or nursing home care. However, Sec.  3.501(i)(2), which 
is based on Sec.  3.551(c), provides two different effective dates of 
reduction for Section 306 Pension recipients, one for domiciliary care 
(Sec.  3.501(i)(2)(i)) and a later one for hospital or nursing home 
care (Sec.  3.501(i)(2)(ii)). The effective date under Sec.  
3.551(c)(1) for all three types of care is the same as the date used in 
Sec.  3.501(i)(2)(i) for domiciliary care. The basis for the conflict 
between the two current rules, Sec. Sec.  3.551(c)(1) and 
3.501(i)(2)(ii), began in 1979, when both Sec. Sec.  3.501 and 3.551 
were amended to implement section 307 of Public Law 95-588, 92 Stat. 
2497, 2510 (amending former 38 U.S.C. 3203(a), currently section 5503). 
44 FR 45930, 45940-41 (Aug. 6, 1979). Prior to being amended, 
Sec. Sec.  3.501(i)(2) and 3.551(c) provided for the reduction in 
pension to begin after two full calendar months of VA-furnished 
hospital, domiciliary, or nursing home care. 38 CFR 3.501(i)(2) and 
3.551(c) (1978). With regard to VA-furnished hospital and nursing home 
care, section 307 of Public Law 95-588 delayed the reduction by one 
full month. 92 Stat. at 2510. VA applied this liberalization to both 
Improved Pension and Section 306 Pension. 44 FR at 45940-41. However, 
in VAOPGCPREC 19-90, 55 FR 40990 (Oct. 5, 1990), VA's General Counsel 
held that the liberalizations made to the limitation contained in 
former 38 U.S.C. 3203(a) were not intended to apply to Section 306 
Pension. Therefore, in February 1991, VA proposed amendments to Sec.  
3.551 to comply with VAOPGCPREC 19-90. 56 FR 7630, 7632 (Feb. 25, 
1991). When the final rule was published in December 1991, VA also 
amended Sec.  3.501(i), purportedly ``to conform with the newly adopted 
amendments to [Sec.  3.551].'' 56 FR 65848 (Dec. 19, 1991). However, 
amended Sec.  3.501(i)(2)(ii) did not conform with Sec.  3.551(c)(1). 
Id. at 65849, 65850. Accordingly, Sec.  3.551(c)(1), as amended, is 
consistent with former 38 U.S.C. 3203(a)(1) and VAOPGCPREC 19-90, but 
Sec.  3.501(i)(2)(ii) is not. Therefore, we propose not to include any 
equivalent to Sec.  3.501(i)(2)(ii) in part 5.
    The second sentence of Sec.  3.551(f) uses the phrase, ``exclusive 
of authorized absences in excess of 96 hours.'' The phrase is redundant 
of the reference to authorized absences in the first sentence of 
paragraph (f), so we propose not to include it in part 5.
    Current Sec.  3.551(f) also contains a reference to a 90-day period 
of hospitalization. However, paragraph (f) refers solely to calculating 
hospitalization periods under paragraph

[[Page 2773]]

(c), which only refers to 60-day periods. The ``90-day'' reference is 
another artifact of the 1979 amendments, discussed above, and is no 
longer necessary. Therefore, we propose not to include the reference in 
part 5.
    Proposed Sec.  5.726(b) would state the circumstances in which VA 
will not reduce Section 306 Pension while the veteran is receiving 
hospital, domiciliary, or nursing home care. The paragraph would 
incorporate current Sec.  3.551(a) and add two other exceptions that 
are based on long-standing VA practice, that is, veterans receiving 
care in a State soldiers' home or in a State home. See the discussion 
earlier in this NPRM related to proposed Sec.  5.722(b)(2) and (3) for 
more information concerning these exceptions to the general reduction 
rule.
    Provisions regarding apportionment of Section 306 Pension benefits 
to the veteran's spouse are included in proposed Sec.  5.726(c). We 
have included a cross reference to proposed Sec.  5.772, which provides 
the specific rules relating to such apportionments.
    Proposed Sec.  5.726(d)(2) provides that if a veteran is readmitted 
6 months or more after a period of hospital, domiciliary, or nursing 
home care, the readmission will be considered a new admission. This 
provision, based on a long-standing VA procedure, has been added to 
increase the clarity of the rule stated in current Sec.  3.551.
Section 5.727 Reduction of Old-Law Pension While a Veteran Is Receiving 
Hospital, Domiciliary, or Nursing Home Care
    Proposed Sec.  5.727 addresses veterans receiving Old-Law Pension 
and the reduction of such benefits while the veteran is receiving 
hospital, domiciliary, or nursing home care.
    Proposed Sec.  5.727(a)(1) is based on current Sec.  3.551(b)(1). 
Current Sec.  3.551(b)(1) unnecessarily contains the term ``dependent 
parent'' as it refers to dependents of a veteran who is in receipt of 
Old-Law Pension. Prior to being amended in 1972, 38 CFR 3.551(b) 
applied to reductions of disability compensation and pension. Whereas a 
veteran receiving disability compensation may receive an additional 
allowance for dependent parents, payment of Old-Law Pension is neither 
adjusted nor otherwise affected because of a dependent parent. See 38 
U.S.C. 503, 521, 522 (1958) (providing the statutory authority for Old-
Law Pension, as in effect June 30, 1960, prior to amendment by Pub. L. 
86-211). When Sec.  3.551(b) was amended in 1972 to apply only to 
pension, the term was nevertheless retained. See 37 FR 19132, 19133 
(Sept. 19, 1972). In addition to being unnecessary, the use of 
``dependent parent'' in Sec.  3.551(b) is potentially misleading 
because it implies that a veteran receiving Old-Law Pension could have 
a dependent parent. Therefore, in proposed Sec.  5.727(a)(1), we are 
not including the term.
    Proposed Sec.  5.727(a)(2), regarding proof of dependents, is based 
on current Sec.  3.551(g) as it applies to Old-Law Pension.
    In proposed Sec.  5.727(a)(4)(i), we clarify that VA excludes any 
month (other than the month of admission) that contains an authorized 
absence from its calculation of the effective date. This rule is not 
stated in current Sec.  3.551(b)(1) but is based on current Sec.  
3.551(b)(3), which pertains to veterans who have been irregularly 
discharged and then readmitted prior to the effective date of the 
reduction. To the extent that this clarification is not explicit in 
part 3, including it in part 5 is favorable to veterans. To apply the 
rule excluding periods of authorized absence only when a veteran has 
been irregularly discharged would be unfair to veterans who have 
complied with their care.
    Proposed Sec.  5.727(a)(4)(ii) describes the effect of an irregular 
discharge that occurs prior to the initial reduction of Old-Law 
Pension. The first sentence is based on Sec.  3.551(b)(3) and provides 
that the reduction is effective without regard to the irregular 
discharge if the readmission occurs before the general effective date. 
The second sentence of proposed Sec.  5.727(a)(4)(ii) provides that if 
the veteran is readmitted after the first day of the seventh calendar 
month after the month of admission to hospital, domiciliary, or nursing 
home care, the readmission will be considered a new admission. Although 
this provision is not explicitly stated in part 3, it is based on 
current VA practice and is favorable to veterans.
    Proposed Sec.  5.727(b) would state the circumstances in which VA 
will not reduce Old-Law Pension while the veteran is receiving 
hospital, domiciliary, or nursing home care. The paragraph would 
include language from current Sec.  3.551(a) and add two other 
exceptions based on long-standing VA practice. See the discussion above 
related to proposed Sec.  5.722(b)(2) and (3) for more information 
concerning these exceptions to the general reduction rule.
    Proposed Sec.  5.727(c)(2)(i) is a new provision based on paragraph 
(a)(1) of 38 U.S.C. 3203 (the predecessor to current 38 U.S.C. 5503) as 
in effect on June 30, 1960, which provides that if a veteran is 
readmitted to VA hospitalization following an irregular discharge from 
a prior VA hospitalization during which Old-Law Pension was reduced, 
Old-Law Pension will be reduced effective from the date of readmission. 
See Public Law 85-857, 72 Stat. 1105, 1234 (1958). That paragraph, as 
it pertains to Old-Law Pension, was amended by section 3 of Public Law 
89-362, 80 Stat. 30 (1966), to limit the rule to readmissions that are 
within 6 months of the date of irregular discharge or release from the 
prior hospitalization.
Section 5.728 Reduction of Old-Law Pension or Section 306 Pension Based 
on the Need for Regular Aid and Attendance While a Veteran Is Receiving 
Hospital, Domiciliary, or Nursing Home Care
    Proposed Sec.  5.728 would provide for reduction of Old-Law Pension 
or Section 306 Pension based on the need for regular aid and attendance 
while a veteran is receiving hospital, domiciliary, or nursing home 
care. It is a plain language rewrite for clarity of the Old-Law Pension 
and Section 306 Pension provisions in current 38 CFR 3.501 and 3.552. 
VA intends no substantive change by this rewording.
    As discussed above regarding Sec.  5.724(b), the term ``the 
pensionable disability'' used in Sec.  3.552(a)(2) refers to the 
disability for which the veteran is receiving regular aid and 
attendance under Sec.  3.351(c)(1). There is no part 5 equivalent to 
Sec.  3.351(c)(1) for either Old-Law Pension or Section 306 pension. 
Therefore, Sec.  5.728(b)(1)(iii) would simply state the blindness 
criteria.
    Current Sec.  3.552(e) and (j) in part refer to a reduced rate of 
Section 306 Pension based on the need for regular aid and attendance 
that applies ``if the veteran was age 78 or older on December 31, 
1978.'' There are no beneficiaries who fit this category as they would 
be at least 109 years old. Accordingly, similar references do not need 
to be carried forward to part 5.
Section 5.729 Resumption of Section 306 Pension and Section 306 Pension 
Based on the Need for Regular Aid and Attendance After a Veteran Is on 
Temporary Absence From Hospital, Domiciliary, or Nursing Home Care or 
Is Discharged or Released From Such Care
    We propose to separate the provisions of current 38 CFR 3.556 into 
two new sections, Sec.  5.729 for Section 306 Pension and Sec.  5.730 
for Old-Law Pension. We intend no substantive changes as a result of 
the separation. This would provide readers with a clear and organized 
description of the rules governing the resumption of Section 306

[[Page 2774]]

Pension and Old-Law Pension after the monthly pension rates are reduced 
under Sec.  5.726, ``Reduction of Section 306 Pension while a veteran 
is receiving hospital, domiciliary, or nursing home care'', or under 
Sec.  5.727, ``Reduction of Old-Law Pension while a veteran is 
receiving hospital, domiciliary, or nursing home care.'' The proposed 
regulations will also address the resumption of pension based on the 
need for regular aid and attendance under these two pension programs 
when the benefit is reduced under Sec.  5.728, ``Reduction of Old-Law 
Pension or Section 306 Pension based on the need for regular aid and 
attendance while a veteran is receiving hospital, domiciliary, or 
nursing home care.''
    Proposed Sec.  5.729 would restate the portions of current Sec.  
3.556 that pertain to the resumption of benefits under the Section 306 
Pension program after a veteran is on temporary absence, or is 
discharged or released from hospital, domiciliary, or nursing home 
care.
    In Sec.  3.556(c) and (e), the phrase ``subject to prior payments'' 
refers to the prior payments made at the reduced rate. It is implicit 
that VA will not make duplicative payments for these amounts when it 
resumes payment of the unadjusted (full) rate. Stating in only some 
regulations that VA makes payments subject to prior payments could 
cause confusion about the absence of that language in other 
regulations. For example, current Sec.  3.556(a) does not contain the 
phrase ``subject to prior payments''; whereas Sec.  3.556(c) does 
contain the phrase. In order to avoid such confusion, we have not used 
this phrase in Sec.  5.729 or Sec.  5.730.
    Proposed Sec.  5.729(d)(2) contains one difference from current 
Sec.  3.556(e). It addresses the effective date of the discontinuance 
of an apportionment following a regular discharge or release from 
hospital care. The current rule provides a later effective date if an 
overpayment to the apportionee would result under the general effective 
date rule. As explained by VA's General Counsel in VAOPGCPREC 74-90, 55 
FR 43253 (Oct. 26, 1990), such an alternative date is impermissible. We 
have explained this more fully below in the discussion of proposed 
Sec.  5.783. Therefore, we have not included the alternative effective 
date rule in proposed Sec.  5.729(d)(2).
Section 5.730 Resumption of Old-Law Pension and Old-Law Pension Based 
on the Need for Regular Aid and Attendance After a Veteran Is on 
Temporary Absence From Hospital, Domiciliary, or Nursing Home Care or 
Is Discharged or Released From Such Care
    Proposed Sec.  5.730 would restate the portions of current 38 CFR 
3.556 that pertain to Old-Law Pension. It would address the resumption 
of benefits under the Old-Law Pension program after a veteran is 
discharged or released from hospital, domiciliary, or nursing home 
care.
Other Changes to Hospital Reduction Rules
    Finally, we would omit current 38 CFR 3.558 from proposed part 5 
because it implements 38 U.S.C. 5503(b) as in effect prior to its 
repeal on December 27, 2001. See Public Law 107-103, Sec.  204(a)(1), 
115 Stat. 976, 990 (2001) (repealing 38 U.S.C. 5503(b) and 
redesignating former subsection 5503(d) as 5503(b)). It required VA to 
withhold benefits from certain incompetent veterans and provided for 
resumption of payment of those benefits under prescribed circumstances. 
Because VA no longer withholds benefits from incompetent veterans, 
current Sec.  3.558 cannot apply to a claim to which part 5 would 
apply.
    For consistency throughout part 5, we would not use the phrase 
``involving aid and attendance''. We would use the phrase ``based on 
the need for * * * aid and attendance'', which is more accurate. For 
the same reason, part 5 would use the phrase ``regular aid and 
attendance'' rather than ``aid and attendance''.

Subpart M: Apportionments to Dependents and Payments to Fiduciaries and 
Incarcerated Beneficiaries

Determining Eligibility for Apportionments
    We propose to repeat the provisions of VA's current apportionment 
regulations (38 CFR 3.450-3.461) in part 5 with minimal changes because 
VA is currently reviewing its apportionment program to determine if the 
program can be improved. We expect that Sec. Sec.  3.450-3.461 will be 
amended following that review. VA will then include these new rules in 
part 5.
Section 5.770 Apportionment Claims
    Proposed Sec.  5.770 is based on current 38 CFR 3.450. Paragraph 
(a)(2) of Sec.  3.450 refers to apportioning the ``compensation * * * 
payable to the surviving spouse''. Paragraph (d) of Sec.  3.450 states, 
``Any amounts payable for children under Sec. Sec.  3.459, 3.460 and 
3.461 will be equally divided among the children.'' The reference to 
``compensation'' in Sec.  3.450(a)(2) and the reference to Sec.  3.459 
in Sec.  3.450(d) both pertain to the apportionment of death 
compensation. We propose not to refer to compensation payable to a 
surviving spouse in Sec.  5.770. We also propose not to include an 
equivalent to current Sec.  3.459 or any reference thereto. There are 
less than 300 beneficiaries currently receiving death compensation. 
Except for one small group of beneficiaries, death compensation is 
payable only if the veteran died prior to January 1, 1957. VA has not 
received a claim for death compensation in more than 10 years, and we 
do not expect to receive any claims for apportionment of death 
compensation. Dependency and indemnity compensation (DIC) is a much 
greater benefit than death compensation. VA automatically awards DIC 
rather than death compensation pending confirmation of the DIC 
election. See 38 CFR 3.702, ``Dependency and indemnity compensation''. 
Because of the small number of beneficiaries of death compensation and 
the unlikelihood of a claim for apportionment of such benefits, the 
provisions concerning death compensation do not need to be carried 
forward to part 5.
    We propose not to include paragraph (f) of current Sec.  3.450, 
which states, ``Prior to release of any amounts[,] the relationship of 
the claimant and the dependency of a parent will be fully developed, 
and the necessary evidence secured.'' In every apportionment claim, VA 
must verify the relationships of all claimants and fully develop the 
claim for relevant evidence. Other proposed part 5 VA regulations would 
state how VA determines dependency (for example, RIN 2900-AL94, 
``Dependents and Survivors'', 71 FR 55052, Sept. 20, 2006); therefore, 
there is no need to propose an equivalent to Sec.  3.450(f).
    We propose not to include paragraph (g) of current Sec.  3.450, a 
cross reference to Sec.  3.460, ``Death pension'', because it does not 
aid the reader's understanding of the apportionment process and is 
therefore unnecessary.
Section 5.771 Special Apportionments
    Proposed Sec.  5.771 restates current 38 CFR 3.451 and reorganizes 
the content for clarity. In particular, in Sec.  5.771(a), we have 
clarified that the section applies without regard to any other 
apportionment provision not merely without regard to those 
apportionment provisions where hardship is shown. We have also 
clarified that Sec.  5.774(b)

[[Page 2775]]

and (c), the part 5 equivalents to Sec.  3.458(b) and (c), are 
exceptions to that rule. However, we have not limited the exception to 
only paragraphs (b) and (c) of Sec.  5.774. We also included Sec.  
5.774(f), which is based on current Sec. Sec.  3.458(f), 3.901(c), and 
3.902(c). The statutory authority for apportionment based on hardship 
is 38 U.S.C. 5307 which provides, generally, that the specified 
benefits ``may'' be apportioned as prescribed by the Secretary. The 
permissive language of the apportionment statute indicates that 
Congress intended VA to have significant discretion to determine when 
an apportionment will be made. However, in exercising that 
discretionary authority, VA may not violate other statutes. The 
prohibitions on apportionment in Sec.  5.774(f) are mandated by other 
statutes. See 38 U.S.C. 6103, 6104, and 6105.
    Further, the phrase in Sec.  3.451, ``may be specially apportioned 
between the veteran and his or her dependents or the surviving spouse 
and children'', would have a second ``between'', to read, ``* * * 
between the veteran and his or her dependents or between the surviving 
spouse and a child''. The parallel structure clarifies that there are 
two sets of apportionment options.
    Additionally, proposed Sec.  5.771(b)(2) refers to the ``net worth, 
income, and expenses'' of the primary beneficiary and the apportionment 
claimants instead of referring to ``other resources and income'' as 
stated in Sec.  3.451. This change reflects VA's long-standing practice 
and helps VA accurately determine the extent of any hardship.
Section 5.772 Veteran's Benefits Apportionable
    Proposed Sec.  5.772 is based primarily on current 38 CFR 3.452. In 
proposed Sec.  5.772(a), we added the condition that ``the veteran is 
not reasonably discharging his or her responsibility for the spouse's 
or child's support,'' to be consistent with similar language in 
proposed Sec.  5.770(a)(1)(ii).
    Proposed Sec.  5.772(c), is based on current Sec.  3.454 as well as 
Sec.  3.452(c). Current Sec.  3.454 is essentially redundant of Sec.  
3.452(c). Although current Sec.  3.454(a) specifies that if an 
incompetent veteran is receiving care in a government institution and 
is entitled to pension VA will pay $25 per month as an institutional 
award and pay the balance of the pension to the veteran's spouse or 
child or, if the veteran has no spouse or child but has a dependent 
parent, apportion pension to the dependent parent as a special 
apportionment. We have not included this specific information in Sec.  
5.772(c) because it is obsolete. To the extent that Sec.  3.454(a) 
provides that an institutional award is limited to $25, it conflicts 
with 38 CFR 13.61, which does not limit the amount of such payments. 
(Section 13.61 is discussed further below in conjunction with proposed 
Sec.  5.792.) To the extent that it provides that the balance of 
pension will be apportioned to a veteran's spouse or child, it 
conflicts with proposed Sec.  5.792(d), which is based on current Sec.  
3.852(c) and is discussed further below, which provides that the amount 
of the apportionment will be determined based on hardship. Because the 
amount of the institutional award is not fixed by regulation, VA 
determines the amount of the apportionment on a case-by-case basis. 
Finally, VA does not apportion a veteran's pension to a dependent 
parent. A parent may not be a dependent for disability pension. Whereas 
a veteran receiving disability compensation may receive an additional 
allowance for dependent parents, Congress authorizes an increased 
maximum annual pension rate only for a spouse or child, not for a 
dependent parent. See 38 U.S.C. 1542.
    We would also not include Sec.  3.454(b)(2). To the extent that 
Sec.  3.454(b)(2) is based on a reduction under current Sec.  3.551(d) 
(reducing Improved Pension for veterans receiving care before February 
1, 1990) it is unnecessary, as explained above with regard to proposed 
Sec.  5.722. To the extent that Sec.  3.454(b)(2) is purportedly based 
on a reduction under Sec.  3.551(e), it is obsolete. VA no longer 
reduces Improved Pension to $60 under current Sec.  3.551(e). The $60 
was increased to $90, effective February 1, 1990, by Public Law 101-
237, section 111, 103 Stat. 2062, 2064-65 (1989).
Section 5.773 Veterans Disability Compensation
    Proposed Sec.  5.773 is based on current 38 CFR 3.453, which 
states, ``Rates of apportionment of disability compensation, service 
pension or retirement pay will be determined under Sec.  3.451.'' 
``Service pension'' is another term for Spanish-American War pension. 
We propose to not include this benefit in Sec.  5.773 because there are 
only about 200 surviving beneficiaries receiving such pension and they 
are survivors of deceased veterans. It is very unlikely that VA will 
receive an apportionment claim from a dependent of one of these 
beneficiaries. ``Retirement pay'' refers to emergency officers' 
retirement pay. There are no longer any veterans receiving this 
benefit. Therefore, we also propose not to include this benefit in 
Sec.  5.773.
Section 5.774 Benefits Not Apportionable
    Proposed Sec.  5.774 is based on current 38 CFR 3.458. It would 
restate Sec.  3.458, using plainer language and reorganized for 
clarity.
    Paragraph (c) of Sec.  3.458 states that VA will not apportion 
benefits ``[f]or purported or legal spouse of the veteran if it has 
been determined that he or she has lived with another person and held 
herself or himself out openly to the public to be the spouse of such 
other person, except * * *'' Under the apportionment statute 38 USC 
5307 VA may not apportion benefits to a ``purported'' spouse, so the 
distinction between ``purported'' spouse and ``legal'' spouse is 
unnecessary. We therefore propose not to include such language in 
paragraph (c) of Sec.  5.774.
    Paragraph (d) of Sec.  3.458 states that a veteran's benefits may 
not be apportioned ``[w]here the child of the disabled person has been 
legally adopted by another person, except the additional compensation 
payable for the child.'' The exception in Sec.  3.458(d) is limited to 
disability compensation and does not mention the additional dependency 
and indemnity compensation payable to a surviving spouse for the child. 
However, current Sec.  3.58 states, ``A child of a veteran adopted out 
of the family of the veteran either prior or subsequent to the 
veteran's death is nevertheless a child within the meaning of that term 
as defined by Sec.  3.57 and is eligible for benefits payable under all 
laws administered by the Department of Veterans Affairs.'' Consistent 
with Sec.  3.58, we propose to include ``the additional dependency and 
indemnity compensation payable to a surviving spouse for the child'' in 
the exception in Sec.  5.774(d), which is otherwise derived from 
current Sec.  3.458(d).
    In proposed Sec.  5.774(e)(2), we have included the relevant 
effective date provision based on current Sec.  3.503(a)(2).
    In proposed Sec.  5.774(f), we have included a cross reference to 
the provisions on forfeiture for fraud (Sec.  5.676), treasonable acts 
(Sec.  5.677), and subversive activity (Sec.  5.678), which were 
published as proposed on May 31, 2006. See 71 FR 31056, 31064-66. Those 
proposed regulations contain the complete rules on forfeiture and 
apportionments when benefits have been forfeited. In proposed Sec.  
5.774(f)(1) we have combined the provisions contained in current 
Sec. Sec.  3.458(f)(1), 3.901, and 3.902. Current Sec.  3.458(f)(1) 
prohibits an apportionment for forfeitures declared before September 2, 
1959, if a veteran's dependent ``is

[[Page 2776]]

determined by [VA] to have been guilty of mutiny, treason, sabotage, or 
rendering assistance to an enemy of the United States or its allies.'' 
Current Sec. Sec.  3.901 (forfeiture for fraud) and Sec.  3.902 
(forfeiture for treason), both permit apportionments to a beneficiary's 
dependents under certain circumstances if the forfeiture was declared 
prior to September 2, 1959, but prohibit an apportionment to any 
dependent who participated in the acts causing the forfeiture. 
Accordingly, proposed Sec.  5.774(f)(1) states that benefits will not 
be apportioned to any beneficiary's dependent who is determined by VA 
to have been guilty of mutiny, treason, sabotage, or rendering 
assistance to an enemy of the United States or its allies or who 
participated in the acts that caused forfeiture for fraud or 
treasonable acts.
Section 5.780 Eligibility for Apportionment of Pension
    Proposed Sec.  5.780 is based on current 38 CFR 3.460, regarding 
death pension. Proposed Sec.  5.780 states that apportionment of 
Improved Death Pension will be based on proposed Sec.  5.771, ``Special 
apportionments.'' Because this same rule applies to disability pension, 
we propose to include it here. Part 3 does not contain a specific 
regulation to this effect for disability pension; however, the hardship 
standard in current Sec.  3.451, ``Special apportionments'', applies 
``[w]ithout regard to any other provision regarding apportionment''. To 
be consistent with Sec.  5.770(a)(1)(ii), we included the condition 
that ``the veteran is not reasonably discharging his or her 
responsibility for the spouse's or child's support''.
    Proposed Sec.  5.780 would not include the second sentence of the 
introductory paragraph of current Sec.  3.460. Although not apparent 
from the current regulation, this provision only applies to surviving 
spouses of Spanish-American War veterans. See 38 U.S.C. 1536(a) 
(stating that surviving spouses of Spanish-American War veterans will 
receive $75 instead of $70 if married to the veteran during the period 
of war). As discussed above regarding proposed Sec.  5.773, we are not 
specifically including Spanish-American War pension in part 5. If an 
apportionment claim were to arise, we would adjudicate it under 
proposed Sec.  5.771, ``Special apportionments''. We think that it is 
reasonable and appropriate that an apportionment claimant should be 
required to demonstrate hardship in order to receive an apportionment 
of nonservice-connected death pension.
    Proposed Sec.  5.780 would also not include the provisions in 
current Sec.  3.460(a) regarding apportionment of death pension 
benefits payable to dependents of the Civil and Indian wars. There are 
only two individuals receiving VA death pension based on Civil War 
service and no individuals receiving benefits based on Indian Wars 
service. Because it is very unlikely that VA will receive an 
apportionment claim from one of these beneficiary's dependents, we 
propose not to include those provisions of current Sec.  3.460(a). If 
an apportionment claim were to arise, we would adjudicate it under 
proposed Sec.  5.771, ``Special apportionments''.
Section 5.781 Eligibility for Apportionment of a Surviving Spouse's 
Dependency and Indemnity Compensation
    Proposed Sec.  5.781 is based on current 38 CFR 3.461. We propose 
not to include the last sentence of current Sec.  3.461(b)(1) in 
proposed Sec.  5.781. This sentence limits apportionments such that 
``the surviving spouse's share will not be reduced to an amount less 
than 50 percent of that to which the surviving spouse would otherwise 
be entitled.'' This sentence is obsolete and was added in 1940 when the 
death compensation program did not allow for additional benefits for 
each child. There are now situations in which it would be fair and 
appropriate for VA to apportion more than 50 percent of a surviving 
spouse's dependency and indemnity compensation (DIC) award. For 
example, if there were five minor children, the additional benefit 
payable for the children (from December 1, 2008 through November 30, 
2009) would be $1,430 ($286 multiplied by 5). If an apportionment of 
$286 were awarded to each child, the total amount apportioned ($1,430) 
would be more than 50 percent of the surviving spouse's award of $2,584 
(basic surviving spouse rate of $1,154 plus the $1,430 for the 
children). Therefore, we propose not to include the 50-percent 
limitation in proposed Sec.  5.781.
    We propose not to include Sec.  3.461(b)(2) in proposed Sec.  
5.781. Paragraph (b)(2) of Sec.  3.461 provides that, ``The additional 
amount of aid and attendance, where applicable, will be added to the 
surviving spouse's share and not otherwise included in the 
computation.'' This provision is obsolete. In the DIC program, the 
dependents' allowances for children under age 18 are the same whether 
or not the surviving spouse is entitled to additional special monthly 
DIC for regular aid and attendance.
    We also propose not to include current Sec.  3.461(b)(3) in 
proposed Sec.  5.781. Under that current rule, if a surviving spouse 
has elected to receive DIC instead of death compensation, the child's 
share of an apportionment will be either the rate prescribed by the 
Under Secretary for Benefits or the share that would have been payable 
as death compensation, but not more than the total DIC amount. There is 
no longer any circumstance in which the child's death compensation 
apportionment could be greater than the total DIC amount. The DIC rate, 
in all cases, will be greater than the death compensation rate. 
Therefore, the language is obsolete.
Section 5.782 Effective Date of Apportionment Grant or Increase
    Proposed Sec.  5.782 is based on current 38 CFR 3.400(e) and 
3.665(f). Proposed paragraph (a) states the general rule that the 
effective date of an apportionment or an increased apportionment is the 
first day of the month after the month in which VA receives an 
apportionment claim or a claim for an increased apportionment. The 
first two exceptions to the general rule are based on the introduction 
of current Sec.  3.400(e) stating, ``On original claims, in accordance 
with the facts found.'' Proposed Sec.  5.782(b)(1) provides the 
effective date of an apportionment award where a primary beneficiary 
has a claim for VA benefits pending on the date that VA receives an 
apportionment claim. Proposed Sec.  5.782(b)(2) provides the effective 
date where an apportionment claim is received within one year of the 
award of benefits to the primary beneficiary and the dependant has not 
yet been established on the primary beneficiary's award. The effective 
date of the apportionment will be the same as the effective date of the 
primary beneficiary's award, if the apportionment claimant is otherwise 
shown to be entitled to an apportionment from that date.
Section 5.783 Effective Date of Apportionment Reduction or 
Discontinuance
    Proposed Sec.  5.783 is based on current 38 CFR 3.500(d), (g), and 
(n). Proposed Sec.  5.783(a), based on current Sec.  3.500(d)(1), 
provides the general effective date rule for discontinuance or 
reduction of an apportionment. As explained by VA's General Counsel in 
VAOPGCPREC 74-90, 55 FR 43253 (Oct. 26, 1990), current Sec.  
3.500(d)(1) means that VA should discontinue an apportionment effective 
the first day of the month following the date that the reason for the 
apportionment no longer exists. We propose not to include an

[[Page 2777]]

equivalent of Sec.  3.500(d)(2) in proposed Sec.  5.783. The rule from 
paragraph Sec.  3.500(d)(2) has been described by the General Counsel, 
in VAOPGCPREC 74-90, as ``constitutionally faulty'' because it provides 
a later effective date if an overpayment would result by applying the 
general rule. As explained by the General Counsel, delaying the 
effective date for the administrative convenience of avoiding an 
overpayment deprives a veteran of VA benefits that Congress intended 
the veteran to have and causes such a veteran to receive a lesser 
amount of VA benefits than a veteran to whom the general rule could 
apply. With the exception eliminated, the remaining rule is the same as 
the general rule and unnecessary as a separate provision.
    Paragraph (b) of proposed Sec.  5.783 provides the most common 
exceptions to the general rule stated in proposed paragraph (a). 
Proposed paragraph (b)(3) explicitly states the principle, implied by 
VA's current apportionment regulations, that when the primary benefit 
is discontinued, the apportionment is discontinued effective the same 
day. Proposed paragraph (b)(4) informs the reader that when a primary 
beneficiary is released from incarceration, the effective date of 
discontinuance of the apportionment will be set in accordance with 
Sec.  5.815 or Sec.  5.816.
Section 5.784 Special Rules for Apportioned Benefits on Death of 
Beneficiary or Apportionee
    Proposed Sec.  5.784 is based on current 38 CFR 3.1000(b). In a 
prior proposed part 5 rulemaking--the portion concerning accrued 
benefits--we proposed Sec.  5.563, ``Special rules when a beneficiary 
dies while receiving apportioned benefits'', as the part 5 equivalent 
to current Sec.  3.1000(b). That section was published as proposed on 
October 1, 2004. See 69 FR 59072, 59088. Because the rule relates more 
to apportionments than to accrued benefits, we would place this rule 
with the other apportionment rules instead of where it was previously 
proposed. Further, we have clarified how the payment of benefits in 
these circumstances relates to the payment of accrued benefits.
    Proposed Sec.  5.784(a) is based on Sec.  3.1000(b)(2). We have 
clarified that the apportionment should be paid to the apportionee and 
should not be treated as accrued benefits that were due to the deceased 
beneficiary. Further, we have included death benefits in Sec.  5.784(a) 
even though Sec.  3.1000(b)(2) applies only to apportionments of a 
veteran's benefits. In practice, VA applies the rule expressed in Sec.  
3.1000(b)(2) to death benefits as well.
    Proposed Sec.  5.784(b)(1) is based on current Sec.  3.1000(b)(1), 
which 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. The 
current rule essentially repeats the broad authority given to VA under 
38 U.S.C. 5121(a)(1); however, it does not specify how VA makes 
determinations concerning payment to survivors. Proposed Sec.  
5.784(b)(1), 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 due to the veteran 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)(1), 
``Persons entitled to accrued benefits.'' Section 5.551 was published 
as proposed on October 1, 2004. See 69 FR 59072, 59085-86. If there are 
no eligible claimants who are dependents, then under 38 U.S.C. 
5121(a)(5), VA may pay the unpaid apportionment to reimburse the person 
who bore the expense of the deceased person's last sickness or burial.
    Proposed Sec.  5.784(b)(2) is based on current Sec.  3.1000(b)(3), 
which provides that when a child receiving an apportionment of a 
surviving spouse's death benefits dies, then the unpaid apportionment 
is payable only as reimbursement to the person who bore the expense of 
the deceased child's last sickness or burial. Current Sec.  
3.1000(b)(3) appears to conflict with current Sec.  3.1000(a)(3), which 
provides that when a child beneficiary dies, then accrued benefits are 
payable to the surviving children of the veteran. Current Sec.  
3.1000(b)(3) is based on an outdated interpretation of the predecessor 
to 38 U.S.C. 5121(a). Prior to the establishment of the dependency and 
indemnity compensation (DIC) and Improved Pension programs, VA benefits 
were payable directly to a child only if there were no surviving 
spouse. Prior to the existence of those programs, the correct 
interpretation of the accrued benefits statute was that if there were a 
surviving spouse and the child apportionee died, the only provision of 
the statute that could apply was that portion providing for payment as 
reimbursement of expenses of the last sickness or burial. See 
Administrator's Decision, Veterans Administration, No. 666 (Sept. 22, 
1945). However, under the current VA benefits system, a surviving child 
may directly receive Improved Death Pension benefits and, if 18 years 
of age or older, DIC benefits. Therefore, it is illogical to continue 
to interpret 38 U.S.C. 5121(a)(4)--which provides for payment to the 
surviving children--as not applying merely because there is a current 
surviving spouse. Accordingly, in Sec.  5.784(b)(2), we propose that 
upon the death of a child receiving an apportionment of a surviving 
spouse's death benefits, the apportionment is first payable as accrued 
benefits to the veteran's surviving child. If there is no surviving 
child claimant, only then are benefits payable to reimburse the person 
who bore the expense of the last sickness or burial of the apportionee.

Incompetency and Payments to Fiduciaries and Minors

    We propose to repeat the provisions of VA's current fiduciary 
regulations (38 CFR 3.353, 3.355, and 3.850 through 3.857) in part 5 
with minimal changes. We are doing this because VA is currently 
rewriting its fiduciary regulations (RIN 2900-AM90, ``Fiduciary 
Activities'') to conform to the Veterans Benefits Improvement Act of 
2004, Public Law 108-454, which increased protections for VA 
beneficiaries. See 118 Stat. 3612. Upon the completion of that 
rulemaking, we will incorporate the revised part 3 fiduciary 
regulations into part 5.
Section 5.790 Determinations of Incompetency and Competency
    Proposed Sec.  5.790 is based on current Sec. Sec.  3.353 and 
3.400(x) and (y). Proposed Sec.  5.790(c) is based on current 38 CFR 
3.353(c) which begins, ``Unless the medical evidence is clear, 
convincing and leaves no doubt as to the person's incompetency, the 
[agency of original jurisdiction] will make no determination of 
incompetency without a definite expression regarding the question by 
the responsible medical authorities.'' The phrase ``clear, convincing 
and leaves no doubt'' is inconsistent with traditional legal 
evidentiary standards. Traditionally, ``clear and convincing'' is a 
distinct standard. ``Leaves no doubt'', however, suggests a 
significantly higher standard. Further, if compared to the standard for 
conviction in a criminal case (``beyond a reasonable doubt''), ``leaves 
no doubt'' could be considered an even higher standard that is 
inconsistent with other areas of the law. Therefore, we are removing 
the term ``leaves no doubt'' and instead simply specifying a ``clear

[[Page 2778]]

and convincing'' standard. ``Clear and convincing'' is a high 
evidentiary standard that will permit VA to make a determination of 
incompetency without requesting an essentially unnecessary medical 
opinion. Further, the standard is sufficiently high to prevent 
unwarranted determinations of incompetency. See Thomas v. Nicholson, 
423 F.3d 1279, 1283 (Fed. Cir. 2005) (``The `clear and convincing' 
standard is `reserved to protect particularly important interests in a 
limited number of civil cases' where there is a clear liberty interest 
at stake, such as commitment for mental illness, deportation, or 
denaturalization.'') (citations omitted).
    Proposed paragraph (f) is the part 5 counterpart to current Sec.  
3.400(x) and (y).
    In proposed Sec.  5.790, we have updated references in current 
Sec.  3.353--to Sec. Sec.  3.102, 3.103, and 3.327(a)--to refer instead 
to their respective proposed part 5 counterparts--Sec. Sec.  5.3(b)(2), 
5.83, and 5.102. Proposed Sec.  5.3(b)(2) was published on March 31, 
2006. See 71 FR 16464, 16475. Proposed Sec. Sec.  5.83 and 5.102 were 
published on May 10, 2005. See 70 FR 24680, 24687-88, 24689-90.
Section 5.791 General Fiduciary Payments
    Proposed Sec.  5.791 is based on current Sec.  3.850. In proposed 
Sec.  5.791(a), to be consistent with the statutory authority of 38 
U.S.C. 5502(a)(1), we clarify that the phrase ``regardless of any legal 
disability'' applies only to any legal disability on the part of the 
beneficiary. Also, in order to ensure that readers are aware of 
fiduciary-related regulations located elsewhere in title 38, we have 
added a cross reference to part 13 at the end of Sec.  5.791(a).
    Proposed Sec.  5.791(c) and (d) are based on current Sec.  3.850(b) 
and (d) respectively. The part 3 rules are identical in substance to 
provisions in Sec. Sec.  13.63 and 13.62 of part 13. In part 5, we 
propose to use the same language used in the part 13 regulations and 
provide cross references thereto in order to eliminate confusion about 
whether the slightly different phrasing between the part 3 regulations 
and the part 13 regulations is intended to convey a different meaning. 
Although the regulations are redundant, it is useful to VA personnel to 
have the same rules located in distinct parts of the CFR. VA's 
adjudication personnel typically refer to part 3, whereas VA's 
fiduciary personnel typically refer to part 13.
    Proposed paragraph (e) of Sec.  5.791 is the part 5 counterpart to 
current Sec. Sec.  3.400(n) and 3.500(m).
Section 5.792 Institutional Awards
    Proposed Sec.  5.792(a) is based on current Sec.  3.852(a), 
pertaining to payments to the chief officer of a facility housing an 
incompetent veteran. However, we propose to track language from 38 CFR 
13.61 instead of tracking the current part 3 language. Under current 
Sec.  3.852, institutional awards may be made only when no fiduciary 
has been appointed, when payments to an unsatisfactory fiduciary have 
been discontinued, or when a fiduciary is not furnishing funds required 
for the veteran's comforts and desires. These conditions reflect 
limitations on VA's statutory authority to appoint fiduciaries that 
existed prior to 1974. In 1974, Public Law 93-295 liberalized the 
provisions for payments to and appointment of fiduciaries. See Public 
Law 93-295, section 301, 88 Stat. 180, 183-84. Under Sec.  13.61, an 
institutional award may be made if it would adequately provide for the 
veteran's needs and eliminate the need for appointment of another 
fiduciary. Because VA's authority to make an institutional awards is no 
longer limited to the circumstances provided in Sec.  3.852(a), we 
propose that Sec.  5.792(a) should reflect VA's current practice as 
stated in Sec.  13.61.
    Current Sec.  3.852(b) likewise no longer reflects current VA 
practice. Accordingly, in proposed Sec.  5.792(b), which is based upon 
Sec.  3.852(b), we have stated the current practice. Current Sec.  
3.852(b) contains obsolete monthly limits on amounts payable to chief 
officers of VA or non-VA institutions that house incompetent veterans. 
Those limits conflict with 38 CFR 13.61, which states that ``all or 
part'' of an institutionalized veteran's award may be paid to the chief 
officer if certain conditions are met. Under Sec.  13.61, the amount of 
an institutional award is based on a determination by the Veterans 
Service Center Manager regarding the amount necessary to provide for 
the veteran's needs. We believe that is the appropriate standard for 
institutional awards, and we therefore would not repeat the monetary 
limits in Sec.  3.852(b). Rather, in proposed Sec.  5.792(b)(1), we 
refer to Sec.  13.61.
    Proposed Sec.  5.792(b)(2) is based on the first sentence of Sec.  
3.852(d). We have included the rule as part of paragraph (b) of Sec.  
5.792 because, like the rest of Sec.  5.792(b), it pertains to non-VA 
institutional awards.
    In proposed Sec.  5.792(b)(3), which is based upon Sec.  
3.852(b)(1), we would clarify that the paragraph applies to non-VA 
institutional awards to reflect current VA practice.
    We propose not to include equivalents to Sec.  3.852(b)(2) and (3) 
in part 5 because those provisions are obsolete. They state procedures 
necessary because of limits on the amount of institutional awards that, 
as discussed above, are obsolete. The procedures described in Sec.  
3.852(b)(2) and (3) are likewise obsolete.
    We propose to include the second sentence of current Sec.  3.852(d) 
as Sec.  5.792(c) with only minor changes for readability.
    Proposed Sec.  5.792(d) is based on current Sec.  3.852(c), which 
states, ``Where there arises a situation as enumerated in paragraph 
(a)(1) of this section, apportionment to dependents will be under Sec.  
3.451.'' Dependents may apply for an apportionment of any 
institutionalized incompetent veteran's benefits and are not limited to 
the circumstances in Sec.  3.852(a)(1). We therefore propose to state 
in Sec.  5.792(d), ``An institutionalized incompetent veteran's 
benefits may be apportioned to his or her dependents under Sec.  5.771, 
Special apportionments.''
    Proposed paragraphs (e) and (f) are the part 5 counterparts to 
current Sec. Sec.  3.401(d) and 3.501(j) respectively. We note that 
proposed Sec.  5.792(e) provides the effective-date rule for payments 
to the chief officer of both VA and non-VA institutions and uses the 
phrasing of Sec.  3.401(d)(2). In current, Sec.  3.401, paragraph 
(d)(1) provides the effective-date rule for non-VA institutions, and 
paragraph (d)(2) provides the effective-date rule for VA institutions. 
Although paragraphs (d)(1) and (d)(2) are phrased differently, the rule 
provided in both is the same. Proposed Sec.  5.792(e) follows the 
phrasing of Sec.  3.401(d)(2) because that paragraph is clearer than 
Sec.  3.401(d)(1).
    Since the sections on incompetency and payments to fiduciaries and 
minors were written in 38 CFR parts 3 and 13, VA has established 
Pension Management Centers to process pension claims. The Pension 
Management Center Manager has the same authority as a Veterans Service 
Center Manager regarding these matters. We therefore propose to add 
``Pension Management Center Manager'' to ``Veterans Service Center 
Manager'' in the following paragraphs: Sec. Sec.  5.790(b)(2) and 
(b)(3), 5.791(a)(2)-(4), 5.792(a), and 5.794(a)(2) and (a)(3).
Section 5.793 Limitation on Payments for a Child
    Proposed Sec.  5.793 is based on current Sec.  3.854. The second 
sentence of proposed Sec.  5.793(a), stating that VA will retroactively 
pay the child any benefits that were not paid for a period before

[[Page 2779]]

the child attained the age of majority, is based on current Sec.  
3.403(a)(2).
Section 5.794 Beneficiary Rated or Reported Incompetent
    Proposed Sec.  5.794 is based on current Sec.  3.855, ``Beneficiary 
rated or reported incompetent.''
Section 5.795 Change of Name of Fiduciary
    Proposed Sec.  5.795 is a plain language restatement of current 
Sec.  3.856, with changes to make the regulation gender-neutral.
    We propose not to include paragraph (l) of current Sec.  3.500 in 
part 5. This paragraph indicates that VA would suspend a payment 
because of a fiduciary's name change and provides the effective date 
therefore. This provision is obsolete. It refers to Sec.  3.856. When 
VA amended Sec.  3.856 to remove the rule about suspending benefits, VA 
failed to amend Sec.  3.500(l) accordingly. See VA Compensation and 
Pension Transmittal Sheet 203 (May 29, 1959).
Section 5.796 Child's Benefits to a Fiduciary of an Incompetent 
Surviving Spouse
    Proposed Sec.  5.796 is a plain language restatement of current 
Sec.  3.857.
Section 5.797 Testamentary Capacity for VA Insurance Purposes
    Proposed Sec.  5.797 is a plain language rewrite of current Sec.  
3.355, which involves the testamentary capacity of an insured to 
execute designations or changes of beneficiary or designations or 
changes of option. We also made the regulation gender-neutral.
    Current Sec.  3.355(c) begins, ``Lack of testamentary capacity 
should not be confused with insanity or mental incompetence. An insane 
person might have a lucid interval during which he would possess 
testamentary capacity. On the other hand, a sane person might suffer a 
temporary mental aberration during which he would not possess 
testamentary capacity.'' We propose to omit this guidance about the 
relationship between testamentary capacity and insanity or mental 
incompetence. Elsewhere in proposed part 5, we have substantially 
revised the definition of insanity from the current definition in Sec.  
3.354. See 71 FR 16464, 16468-69 (Mar. 31, 2006) (discussing the 
proposed definition of ``insanity'' in Sec.  5.1); see also 69 FR 4820, 
4830 (Jan. 30, 2004) (discussing use of ``lack of mental capacity to 
contract'' versus use of ``insane'' in proposed Sec.  5.38). The 
guidance in Sec.  3.355(c) is not essential to understanding and 
applying the general rule that there is a rebuttable presumption that 
every insured person possesses testamentary capacity when performing a 
testamentary act. Given the proposed revisions to the definition of 
insanity, we have not included this additional guidance in proposed 
Sec.  5.797(c). We believe that retaining the guidance from Sec.  
3.355(c) would only confuse readers about how to apply the general 
rule. At the end of proposed Sec.  5.797(c), we have added a cross 
reference to the benefit-of-the-doubt rule in Sec.  5.3(b)(2), which 
was published as proposed on March 31, 2006. See 71 FR at 16475. We 
believe that the cross reference will aid readers in understanding the 
last sentence of Sec.  5.797(c), which states, ``[R]easonable doubt 
should be resolved in favor of testamentary capacity.''
Section 5.798 Payment of Disability Compensation Previously Not Paid 
Because an Incompetent Veteran's Estate Exceeded $25,000
    Proposed Sec.  5.798 is based on current Sec.  3.853(c). Under 
Sec.  3.853, VA discontinued disability compensation to an incompetent 
veteran who had no dependents and had an estate that exceeded $25,000. 
There are no part 5 equivalents to Sec.  3.853(a) and (b). Paragraph 
(a) of Sec.  3.853 limits the discontinuance of disability compensation 
to the period from November 1, 1990, through September 30, 1992. Part 
5, as proposed, will not apply to the payment of benefits for that 
period. (Accordingly, we also propose not to include Sec.  3.501(n), 
which provides the effective date for a discontinuance under Sec.  
3.856(a) in part 5.) Paragraph (b) of Sec.  3.853 pertains to the 
resumption of benefits prior to October 1, 1992, and is likewise 
unnecessary. However, the first sentence of paragraph (c) of Sec.  
3.853 provides that disability compensation that has been withheld 
under Sec.  3.853 must be paid to the veteran in a lump-sum if the 
veteran is subsequently rated competent for a continuous period of more 
than 90 days. It is possible that a veteran whose disability 
compensation was discontinued under Sec.  3.853(a) and has not yet been 
paid under Sec.  3.853(c) will regain competency for more than 90 days. 
Therefore, proposed Sec.  5.798 provides for the lump-sum payment of 
that withheld disability compensation under such circumstances. We 
propose not to include the second sentence of Sec.  3.853(c), which 
states, ``However, a lump-sum payment shall not be made to or on behalf 
of a veteran who, within such 90-day period, dies or is again rated 
incompetent.'' This sentence is unnecessary because, any veteran ``who, 
within such 90-day period, dies or is again rated incompetent'' could 
not possibly satisfy the requirements of the first sentence of 
paragraph (c).

Payments to Incarcerated Beneficiaries

    The next seven regulations in this NPRM include general provisions 
relating to payments to incarcerated beneficiaries. Throughout these 
seven regulations, we propose to use the term ``incarcerated'' rather 
than ``imprisoned''. Although the relevant pension statute uses the 
term ``imprisoned'' (see 38 U.S.C. 1505) and the relevant compensation 
statute uses the term ``incarcerated'' (38 U.S.C. 5313), we have 
determined that the terms are synonymous. We propose to use 
``incarceration'' because we believe it is the term more commonly used 
by the public.
Section 5.810 Incarcerated Beneficiaries--General Provisions and 
Definitions
    Proposed Sec.  5.810(a) defines terms for the purposes of the rules 
regarding incarcerated beneficiaries. Proposed paragraph (a)(1) defines 
the term ``incarceration''. The first sentence of proposed Sec.  
5.810(a)(1) provides that confinement in a privately owned and 
privately managed penal institution pursuant to a contract with a 
Federal, State, or local unit of government will be considered to be 
``incarceration.'' This clarification has become necessary because 
Federal, State, and local governments have become increasingly reliant 
on private contractors to provide prison services. In August 2006, VA's 
General Counsel held that incarceration in a private facility under a 
contract with a State is incarceration in a ``State penal 
institution''. VAOPGCPREC 5-2006, 72 FR 5801 (Feb. 7, 2007). 
Subsequently, the authorizing statutes, 38 U.S.C. 1505 and 5313, were 
amended from ``Federal, State, or local penal institution'' to 
``Federal, State, local, or other penal institution.'' See Public Law 
109-461, section 1002, 120 Stat. 3403, 3464-65 (Dec. 22, 2006).
    The next sentence of proposed Sec.  5.810(a)(1) describes types of 
internment not considered to be ``incarceration'' and is derived from 
current Sec.  3.665(b). The current regulation defines the term 
``release from incarceration'' and includes a list of programs within 
this definition. The list includes participation in a work release or 
halfway house program, parole, and completion of sentence. By defining 
participation in work release and similar programs as ``release from 
incarceration'', the current rule implicitly excludes those programs 
from the definition of incarceration. Proposed

[[Page 2780]]

Sec.  5.810(a)(1) explicitly states that work release, parole, and 
residence in a halfway house are not included in the definition of 
incarceration. Proposed Sec.  5.810(a)(1) includes residential re-entry 
centers. ``Residential re-entry center'' is a term now used by the 
Federal Bureau of Prisons as an alternative to the traditional term, 
``halfway house''. See Federal Bureau of Prisons, Community 
Corrections, http://www.bop.gov/locations/cc/index.jsp.
    The proposed rule also lists two forms of confinement that VA's 
General Counsel has determined are not ``incarceration''. First, we 
adopt the rationale set out in VAOPGCPREC 59-91, 56 FR 50149, 50151 
(Oct. 3, 1991), holding that participating in a community control 
program is not incarceration. Second, the proposed rule codifies the 
holding of VA's General Counsel that a veteran is not subject to 
reduction of compensation and pension benefits under 38 U.S.C. 1505 and 
5313 while the veteran is incarcerated in a foreign prison. VAOPGCPREC 
10-2001, 66 FR 33309, 33313 (June 21, 2001). Although that General 
Counsel opinion only addressed veterans, its rationale would apply 
likewise to all beneficiaries whose benefits are subject to reduction 
or discontinuance because of incarceration. This is so because 38 
U.S.C. 1505 and 5313 apply to any VA beneficiary who is incarcerated, 
not only to veterans.
    Proposed paragraph (a)(2) defines the term ``felony'' and is 
derived from the definition contained in current Sec.  3.665(b). 
Although the definitions of ``incarceration'' and ``felony'' are 
derived from current Sec.  3.665, which pertains only to disability 
compensation, the proposed definitions would apply to pension, and 
dependency and indemnity compensation (DIC), as well as disability 
compensation. Current Sec.  3.666, as it pertains to incarcerated 
beneficiaries and pension benefits, does not define ``felony'' or 
``incarceration''. The definitions in current Sec.  3.665 are generic, 
however, and in the interest of consistency and uniformity, we propose 
to apply them to compensation and to pension cases.
    Proposed Sec.  5.810(b) explains how to categorize foreign offenses 
and states that a felony includes an offense that is prosecuted by a 
foreign country if the offense is equivalent to a felony under the laws 
of the United States. Likewise, a misdemeanor includes an offense that 
is prosecuted by a foreign country if the offense is equivalent to a 
misdemeanor under the laws of the United States. This proposed 
paragraph is new and reflects an additional conclusion of VA's General 
Counsel in VAOGCPREC 10-2001 (discussed above regarding incarceration 
in a foreign prison). The General Counsel concluded that if a veteran 
is transferred to a Federal, State, or local penal institution in the 
United States to serve the remainder of a sentence for a foreign 
conviction of an offense that is equivalent to a felony (or a 
misdemeanor under 38 U.S.C. 1505) under the laws of the United States, 
then the veteran is thereafter subject to reduction of pension and 
compensation benefits under 38 U.S.C. 1505 and 5313. As explained above 
regarding incarceration in a foreign prison, although the opinion only 
addressed veterans, the rationale of the opinion would apply to all 
beneficiaries whose benefits are subject to reduction or discontinuance 
because of incarceration.
    Proposed Sec.  5.810(c) states that VA begins counting the 60-day 
period of incarceration that must precede a reduction under Sec. Sec.  
5.811 through 5.813 on the day after the beneficiary is convicted of a 
felony (or of a misdemeanor for pension). This explains that time 
served prior to conviction will not be considered as part of the 60-day 
period. In addition, paragraph (c) would state that VA begins counting 
the 60-day period even if the beneficiary is not sentenced on the same 
day that he or she is convicted, if the beneficiary is incarcerated as 
of that date, and that a new 60-day period begins on the first full day 
of reincarceration after a conditional release. This accords with 38 
U.S.C. 1505 and 5313, which are concerned with the time spent 
imprisoned for a felony, or for a misdemeanor in pension cases, and not 
with the amount of time that the beneficiary is sentenced to serve. It 
also accords with VAOPGCPREC 3-2005, 72 FR 5801, 5802 (Feb. 7, 2007), 
and current VA policy.
    Proposed Sec.  5.810(d) is a new paragraph that explicitly states 
the requirement that claimants or beneficiaries inform VA if they are 
incarcerated. We think that this is logical, fair, and consistent with 
other current provisions that require claimants or beneficiaries to 
inform VA of changes in circumstances affecting entitlement to 
benefits. See Sec.  3.652, ``Periodic certification of continued 
eligibility'', and Sec.  3.660(a)(1), ``Dependency, income and 
estate''. In addition, enabling VA to adjust benefits promptly on the 
61st day would be advantageous to claimants, beneficiaries, and VA 
because if benefits are not promptly adjusted, VA must establish an 
overpayment and recoup the debt.
    Proposed Sec.  5.810(e) restates portions of current Sec.  3.665(a) 
and the introductory language of current Sec.  3.666 pertaining to 
notice to incarcerated beneficiaries regarding potential apportionees 
and conditions under which VA may resume benefits. We intend no 
substantive change.
Section 5.811 Limitation on Disability Compensation During 
Incarceration
    Proposed Sec.  5.811 pertains to the limitations on the amount of 
disability compensation payable to a veteran who has been incarcerated 
for more than 60 days following conviction of a felony.
    Proposed Sec.  5.811(a) restates current Sec.  3.665(a) and (c), 
but where the current rule refers to a reduction of disability 
compensation, in part 5 we would refer to a ``limit'' on disability 
compensation, because the rule affects ongoing awards as well as awards 
of increased disability compensation based on increased disability. 
Moreover, because the amount of unpaid disability compensation may be 
apportioned, see Sec.  5.814, it is not entirely accurate to 
characterize VA's actions as a ``reduction''. Finally, we also note 
that the applicable statute, 38 U.S.C. 5313, also uses the term 
``limitation''. We intend no substantive change.
    In a parenthetical sentence in Sec.  5.811(a)(2), we propose to 
clarify that the limitation of payment amounts under that paragraph 
applies only to the payment of disability compensation after September 
30, 1980.
    Similarly, a parenthetical sentence in proposed Sec.  5.811(a)(3) 
states that the payment limitation under paragraph (a)(3) applies only 
to the payment of disability compensation after March 31, 2002. This 
language incorporates the applicability date of Public Law 107-103, 
Sec.  506(c), 115 Stat. 976, 996 (2001), which states, ``This section 
shall apply with respect to the payment of compensation for months 
beginning on or after the end of the 90-day period beginning on the 
date of the enactment of this Act.'' The Act was enacted on December 
27, 2001, the 90-day period from the date of enactment ended on March 
26, 2002, and the first month thereafter was April 2002. No similar 
provision is shown in current Sec.  3.665(c)(3). We are correcting this 
omission in part 5.
    Proposed Sec.  5.811(b) repeats current Sec.  3.665(k) as it 
pertains to retroactive payments of disability compensation during 
incarceration.
    Proposed Sec.  5.811(c) states the maximum rates of disability 
compensation payable to an

[[Page 2781]]

incarcerated veteran. It is based on paragraphs (d) and (j) of Sec.  
3.665. Although current Sec.  3.665 addresses increased disability 
compensation in Sec.  3.665(j)(2) and existing or initial awards in 
Sec.  3.665(d)(1) and (2), the resulting rate of payment is the same 
whether the award is an existing, initial, or increased award. VA will 
not pay veterans covered by this rule more than the 10-percent 
disability rate or one-half the 10-percent rate. To assist the reader, 
we propose to specify that for such veterans, the rate of disability 
compensation payable under 38 U.S.C. 1114(a) may not exceed the rate 
payable for a veteran rated 10 percent disabled.
    In paragraph (c)(2), we propose to restate the parenthetical 
statement from current Sec.  3.665(d)(2), ``(even though the rate for 
38 U.S.C. 1114(k) or (q) is paid)'', by stating that the rate provided 
in proposed (c)(2) applies ``even if such a veteran is entitled to 
special monthly compensation under 38 U.S.C. 1114(k) or (q).'' The 
parenthetical in current Sec.  3.665(d)(2) clarifies that, even if a 
veteran with a disability rating of less than 20 percent is entitled to 
receive compensation in an amount equal to or greater than the 20 
percent rate, the veteran's rate of compensation would nevertheless be 
reduced under current Sec.  3.665 (proposed Sec.  5.811) to one-half 
the 10-percent rate. Such a situation could arise if a veteran with a 
disability rating of less than 20 percent were also entitled to special 
monthly compensation under 38 U.S.C. 1114(k) or (q). We have restated 
the language from the parenthetical to be clearer.
    Current Sec.  3.665(j)(3) pertains to additional circumstances in 
which VA will withhold increased disability compensation that is 
awarded to a veteran after he or she is incarcerated--generally, 
circumstances involving veterans who committed felonies before October 
8, 1980, but were not incarcerated on October 1, 1980. Section 5313 
specifies the circumstances under which VA may limit disability 
compensation to incarcerated veterans. Those circumstances are stated 
in proposed Sec.  5.811(a). We are therefore not incorporating the 
provisions of Sec.  3.665(j)(3) in part 5.
Section 5.812 Limitation on Dependency and Indemnity Compensation 
During Incarceration
    Proposed Sec.  5.812(a), derived from current Sec.  3.665(a) and 
(c), states the general rule that VA will limit dependency and 
indemnity compensation (DIC) if the beneficiary has been incarcerated 
for more than 60 days following conviction of a felony. We have not 
included any reference to death compensation in proposed Sec.  5.812 or 
in proposed Sec.  5.815, which pertains to the resumption of benefits 
and is also based on Sec.  3.665. As explained above regarding proposed 
Sec.  5.770, VA does not expect to receive any more claims for death 
compensation, and the provisions concerning death compensation do not 
need to be carried forward to part 5. Any action pertaining to death 
compensation will be processed or adjudicated under part 3.
    In the second sentence of Sec.  5.812(a)(2), we propose to clarify 
that the limitation of payment amounts under that paragraph applies 
only to the payment of DIC after September 30, 1980.
    Proposed Sec.  5.812(b), derived from current Sec.  3.665(d)(3), 
establishes that VA will not pay DIC at a rate greater than one-half of 
the amount of disability compensation payable to a veteran rated 10 
percent disabled. The current rule requires VA to pay that amount but 
does not recognize that one-half of the 10 percent disability 
compensation rate could be higher than the parents' DIC rate. 
Therefore, the proposed rule clarifies that the rate cannot be ``more 
than'' one-half of the 10 percent disability compensation rate.
    Proposed Sec.  5.812(c), restates with no substantive changes 
current Sec.  3.665(l) concerning parents' DIC rates when one parent is 
incarcerated.
    Proposed Sec.  5.812(d) repeats current Sec.  3.665(k) as it 
pertains to retroactive payments of DIC during incarceration.
Section 5.813 Discontinuance of Pension During Incarceration
    Proposed Sec.  5.813, derived from the first sentence and paragraph 
(d) of current Sec.  3.666, pertains to the discontinuance of pension 
to or for a person who is incarcerated for more than 60 days following 
conviction of a felony or of a misdemeanor. No substantive changes are 
intended.
Section 5.814 Apportionment When a Primary Beneficiary is Incarcerated
    Proposed Sec.  5.814 addresses apportionment of benefits not paid 
to an incarcerated beneficiary. It is based on several provisions in 
current Sec. Sec.  3.665 and 3.666. Proposed paragraph (a) restates in 
plain language the part 3 rules regarding notice. It is derived from 
the third sentence of current Sec.  3.665(a) and from Sec.  3.665(h), 
which apply to disability compensation and to dependency and indemnity 
compensation (DIC). Proposed Sec.  5.814(a)(1) provides for VA notice 
to dependents of their potential entitlement to an apportionment and 
proposed paragraph (a)(2) provides for VA notice to apportionees that 
VA immediately discontinues an apportionment when the primary 
beneficiary is released. Although current Sec.  3.666, regarding 
pension, does not contain similar provisions, VA's long-standing 
practice has been to provide the same notice when a beneficiary is 
incarcerated, regardless of the type of benefit. Accordingly, notice 
under proposed Sec.  5.814(a) is provided regardless of whether the 
benefit is disability compensation, DIC, or pension.
    Proposed paragraph (b) pertains to apportionments of disability 
compensation and DIC and is based on current Sec.  3.665(e). The net 
worth of the apportionee claimants has been included as a factor in 
determining individual need. Net worth is not listed as a factor in 
current Sec.  3.665(e); however, its inclusion in proposed Sec.  
5.814(b) will help VA determine individual need more accurately.
    Proposed paragraph (c) restates current paragraphs (a)(1), (a)(2), 
and (a)(3) of current Sec.  3.666 concerning apportionments of pension 
to a veteran's spouse or child when the veteran is incarcerated. 
Section 9 of the Veterans' Pension Act of 1959, Public Law 86-211, 73 
Stat. 432, repealed Old-Law Pension and replaced it with Section 306 
Pension, effective July 1, 1960. Public Law 95-588, 92 Stat. 2497 
(1978), repealed Section 306 Pension and replaced it with Improved 
Pension, effective January 1, 1979. Under these changes in law, no one 
may become entitled under a pension program once it has been repealed. 
Therefore, VA can only apportion Old-Law Pension or Section 306 Pension 
to a dependent who was recognized by VA as a dependent while those 
pension programs were still in effect. We have stated this limitation 
in proposed paragraph (c). Further, we clarify that references in Sec.  
3.666(a)(2) and (3) to ``death pension'' refer to Improved Death 
Pension because VA does not make new eligibility or rate determinations 
for the repealed pension programs.
    Proposed Sec.  5.814(d) is based on current Sec.  3.666(b)(1), (2), 
and (4). When a surviving spouse or child is incarcerated and thereby 
disqualified from receiving pension, an unincarcerated surviving spouse 
or child may receive the pension amount that would be payable to him or 
her if the incarcerated surviving spouse or child did not exist. See 38 
U.S.C. 1505(c). Under 38 U.S.C. 1505(c), this payment is not 
characterized as an apportionment; however, the effective-date 
provisions of proposed Sec. Sec.  5.814(e)

[[Page 2782]]

and 5.816(c) apply just as they would if the payment were an 
apportionment.
    Proposed Sec.  5.814(e) is based on current Sec.  3.665(f) and 
paragraphs (a)(4) and (b)(3) of current Sec.  3.666, which pertain to 
the effective date of apportionment of a beneficiary's unpaid 
disability compensation, DIC, or pension benefits. Note that the rule 
in current Sec.  3.666(b)(3), pertaining to death pension, differs from 
the rule contained in current Sec. Sec.  3.665(f), pertaining to 
disability compensation and DIC, and 3.666(a)(4), pertaining to 
disability pension. Therefore, proposed Sec.  5.814(e)(2)(ii), 
pertaining to death pension, provides that the effective date of the 
apportionment is the 61st day of the primary beneficiary's 
incarceration following conviction if evidence of income is received no 
later than 1 year after the date of VA's request for the evidence; 
whereas, proposed Sec.  5.814(e)(2)(i), pertaining to disability 
compensation, DIC, and disability pension, provides that the 
retroactive effective date applies only if a claim for an apportionment 
is received no later than 1 year after the notice to the incarcerated 
beneficiary required by proposed Sec.  5.810(e) and if any necessary 
evidence is received no later than 1 year after the date it is 
requested by VA. The proposed rule is consistent with the effective 
dates provided in the respective part 3 provisions.
    Additionally, proposed Sec.  5.813(e)(3) would clarify that VA will 
not re-pay an apportionee any benefits already paid to an incarcerated 
primary beneficiary. This is the meaning of the phrase in the current 
part 3 paragraphs, ``subject to payments made to the [primary 
beneficiary] over the same period''. If VA paid the primary beneficiary 
a portion of payments that it should have paid the apportionee 
beginning on the effective date of the apportionment award and ending 
on the first day of the month that follows the month for which VA last 
paid the primary beneficiary, then the benefits are considered as 
having been paid to the apportionee. In this manner, the family unit 
retains appropriate benefits and the primary beneficiary's overpayment 
is lessened or in some cases eliminated. Recouping an overpayment from 
the incarcerated beneficiary to then pay the same funds to the 
beneficiary's family would impose an unnecessary administrative burden 
on VA. Proposed Sec.  5.813(e)(3) is consistent with the purpose of 38 
U.S.C. 1505 and 5313(b) of eliminating a double burden on the taxpayers 
because the incarcerated veteran is already being supported by 
government funds provided for the operation of the penal institution. 
See VAOPGCPREC 3-2005, 72 FR 5801 (Feb. 7, 2007).
Section 5.815 Resumption of Disability Compensation or Dependency and 
Indemnity Compensation Upon a Beneficiary's Release From Incarceration
    Proposed Sec.  5.815 is derived from paragraphs (i) and (m) of 
current Sec.  3.665 and pertains to resumptions of disability 
compensation or dependency and indemnity compensation (DIC) when a 
beneficiary is released from incarceration. Proposed paragraph (a) 
states that VA will resume payment to a beneficiary effective the date 
of release if VA is informed of the release less than 1 year after the 
date of release; otherwise, VA will resume payments effective the date 
VA is informed of the release. Proposed paragraph (a) states that VA 
will resume payments to the beneficiary upon release ``if the 
beneficiary remains entitled * * *.'' This clause makes explicit an 
obvious point, which part 3 left implicit.
    The rules in proposed Sec.  5.815(a) are subject to proposed 
paragraphs (b) and (c), which pertain to resumption of benefits where 
benefits were apportioned during the beneficiary's incarceration.
    Current Sec.  3.665(i)(3) provides the rule for resumption of 
benefits when an apportionment has been made to a dependent parent. 
This rule differs from the rule in Sec.  3.665(i)(2) for resumptions of 
benefits involving apportionments to a dependent spouse or child who 
has not been reunited with the incarcerated beneficiary. Section 
3.665(i)(3) provides that an apportionment to a dependent parent made 
solely because the beneficiary is incarcerated will be discontinued 
after the veteran has been released from incarceration--essentially 
treating the parent as having been reunited with the released 
beneficiary, regardless of whether that is the case. Accordingly, in 
the introductory paragraphs of proposed Sec.  5.815(b) and (c), we have 
stated that for purposes of those paragraphs, a dependent parent 
apportionee, receiving an apportionment under Sec.  5.814(b), will be 
considered as having been reunited with the released beneficiary. No 
substantive change from current Sec.  3.665(i)(3) is intended.
Section 5.816 Resumption of Pension Upon a Beneficiary's Release From 
Incarceration
    Proposed Sec.  5.816 governs the resumption of pension benefits 
when a beneficiary whose benefits were discontinued is released from 
incarceration. The proposed regulation is derived from current Sec.  
3.666(c). We propose to make it clear that the beneficiary must show 
entitlement to the benefit for VA to resume it.
    In proposed Sec.  5.816(b), we provide rules for resumptions of 
disability pension involving apportionments. In proposed Sec.  
5.816(c), we provide separate rules for resumptions of death pension 
involving an allocation. In current Sec.  3.666(c), the same rules 
describes both situations, but we believe that the separate paragraphs 
clarify that payments of death pension under Sec.  5.814(d) may be made 
to a surviving spouse or surviving child who has entitlement to death 
pension that is independent from that of the incarcerated beneficiary. 
While it is appropriate to refer to the reduction or discontinuance of 
death pension, such a reference is confusing in the context of 
disability pension. For disability pension, the apportionment of 
pension will be discontinued, not reduced. Further, with regard to 
disability pension, slightly different rules apply because the veteran 
may elect disability compensation while incarcerated if he or she is 
dually entitled to pension and disability compensation. By providing 
separate paragraphs in the proposed rule, we intend to eliminate 
confusion over differences between disability pension and death 
pension.
Section 5.817 Fugitive Felons
    Proposed Sec.  5.817 restates in plain language current Sec. Sec.  
3.665(n) and 3.666(e), which implement 38 U.S.C. 5313B, prohibiting the 
payment of VA benefits based on the entitlement of a fugitive felon.
    Proposed paragraph (a) would specify that the prohibition on 
payment of benefits to, for, or on behalf of fugitive felons applies to 
``Improved Pension'', whereas Sec.  3.666(e) states ``pension'' and 
``death pension''. Accordingly, proposed Sec.  5.817 would not bar 
payment of Old-Law Pension or Section 306 Pension. The authorizing 
statute precludes, in pertinent part, payment of any benefit under 38 
U.S.C. chapter 15. VA construes the statute to mean current chapter 15, 
which authorizes the payment of Improved Pension. Old-Law Pension and 
Section 306 Pension are not benefits under current chapter 15. The 
proposed regulation accurately states current VA practice.
    We propose not to include in part 5 current Sec.  3.665(n)(4) or 
the identical definition from Sec.  3.666(e)(4), which state, ``For the 
purposes of paragraph (n) [or (e)] of this section, the term dependent 
means a spouse, surviving spouse, child, or dependent parent of a 
veteran.'' When combined with veterans,

[[Page 2783]]

this definition describes all potential beneficiaries and apportionees 
of compensation or pension benefits. Proposed Sec.  5.817(a) is clear 
in providing, ``VA will not pay or apportion disability compensation, 
dependency and indemnity compensation, or Improved Pension to, for, or 
on behalf of a person for any period during which that person is a 
fugitive felon.'' Therefore, we do not think the definition of 
``dependent'' is needed for the purposes of the fugitive felon 
regulation.

Non-Inclusion of Certain Part 3 Rules in Part 5

    We now discuss current part 3 regulations or portions of 
regulations that we propose not to include in part 5. Before turning to 
a specific regulation, however, we describe two overall non-inclusions 
in part 5.

References to Emergency Officers' Retirement Pay and Service Pension

    Proposed part 5 would not include references to emergency officers' 
retirement pay or to ``retirement pay.'' Emergency officers' retirement 
pay is an obsolete World War I benefit. There are no longer any 
veterans receiving this benefit, and we propose not to include 
references to it in part 5. VA no longer pays a benefit called 
retirement pay.
    Proposed part 5 would not include references to service pension. 
There are no known surviving veterans of the Spanish-American War.

All of Current Sec.  3.851

    We propose not to include in part 5 the provisions in current Sec.  
3.851, ``St. Elizabeths Hospital, Washington, DC.'' Under former 24 
U.S.C. 191 et seq. and its implementing regulation, current Sec.  
3.851, current and former members of the Armed Forces who had become 
insane were to be admitted to St. Elizabeths Hospital, which was the 
only Federal hospital dedicated to the treatment of the insane. In 
1984, Congress transferred the pertinent Federal duties relating to the 
treatment of persons institutionalized at St. Elizabeths to the 
District of Columbia. See Public Law 98-621, 98 Stat. 3369. The 
District of Columbia government was charged to fully assume those 
responsibilities no later than October 1, 1993. See 24 U.S.C. 
225(b)(1). Because St. Elizabeths is no longer a Federal facility 
dedicated to the treatment of insane veterans, there is no longer any 
reason to provide specialized rules relating to care at St. Elizabeths. 
We now treat a veteran in that hospital as we would any other 
institutionalized veteran.

Endnote Regarding Amendatory Language

    We intend ultimately to remove part 3 entirely, but we are not 
including amendatory language to accomplish that at this time. VA will 
provide public notice before removing part 3.

Paperwork Reduction Act of 1995

    All collections of information under the Paperwork Reduction Act of 
1995 (44 U.S.C. 3501-3521) referenced in this proposed rule have 
existing OMB approval. No changes are made in these proposed rules to 
those collections of information.

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. Therefore, pursuant to 5 U.S.C. 605(b), this 
proposed amendment is exempt from the initial and final regulatory 
flexibility analysis requirements of Sec. Sec.  603 and 604.

Executive Order 12866

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

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any 1 year. This proposed rule would have no such effect 
on State, local, and tribal governments, or on the private sector.

Catalog of Federal Domestic Assistance Numbers and Titles

    The Catalog of Federal Domestic Assistance program numbers and 
titles for this proposal are 64.102, Compensation for Service-Connected 
Deaths for Veterans' Dependents; 64.104, Pension for Non-Service-
Connected Disability for Veterans; 64.105, Pension to Veterans 
Surviving Spouses, and Children; 64.109, Veterans Compensation for 
Service-Connected Disability; 64.110, Veterans Dependency and Indemnity 
Compensation for Service-Connected Death; 64.115, Veterans Information 
and Assistance; and 64.127, Monthly Allowance for Children of Vietnam 
Veterans Born with Spina Bifida.

Signing Authority

    The Secretary of Veterans Affairs, or designee, approved this 
document and authorized the undersigned to sign and submit the document 
to the Office of the Federal Register for publication electronically as 
an official document of the Department of Veterans Affairs. John R. 
Gingrich, Chief of Staff, Department of Veterans Affairs, approved this 
document on December 28, 2011, for publication.

List of Subjects in 38 CFR Part 5

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

    Dated: January 5, 2011.
William F. Russo,
Director, Regulations Management, Department of Veterans Affairs.

    For the reasons set forth in the preamble, VA proposes to amend 38 
CFR part 5, as proposed to be added at 69 FR 4832, January 30, 2004, 
and as

[[Page 2784]]

amended at 73 FR 65223, October 31, 2008, as follows:

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

    1. Revise Subpart L, as proposed to be added at 73 FR 65223, 
October 31, 2008, to read as follows:
Subpart L--Payments and Adjustments to Payments

Hospital, Domiciliary, and Nursing Home Care Reductions and Resumptions

Sec.
5.720 Adjustments to special monthly compensation based on the need 
for regular aid and attendance while a veteran is receiving 
hospital, domiciliary, or nursing home care.
5.721 Resumption of special monthly compensation based on the need 
for regular aid and attendance after a veteran is on temporary 
absence from hospital, domiciliary, or nursing home care or is 
discharged or released from such care.
5.722 Reduction of Improved Pension while a veteran is receiving 
domiciliary or nursing home care.
5.723 Reduction of Improved Pension while a veteran, surviving 
spouse, or child is receiving Medicaid-covered care in a nursing 
facility.
5.724 Reduction or discontinuance of Improved Pension based on the 
need for regular aid and attendance while a veteran is receiving 
hospital, domiciliary, or nursing home care.
5.725 Resumption of Improved Pension and Improved Pension based on 
the need for regular aid and attendance after a veteran is on 
temporary absence from hospital, domiciliary, or nursing home care 
or is discharged or released from such care.
5.726 Reduction of Section 306 Pension while a veteran is receiving 
hospital, domiciliary, or nursing home care.
5.727 Reduction of Old-Law Pension while a veteran is receiving 
hospital, domiciliary, or nursing home care.
5.728 Reduction of Old-Law Pension or Section 306 Pension based on 
the need for regular aid and attendance while a veteran is receiving 
hospital, domiciliary, or nursing home care.
5.729 Resumption of Section 306 Pension and Section 306 Pension 
based on the need for regular aid and attendance after a veteran is 
on temporary absence from hospital, domiciliary, or nursing home 
care or is discharged or released from such care.
5.730 Resumption of Old-Law Pension and Old-Law Pension based on the 
need for regular aid and attendance after a veteran is on temporary 
absence from hospital, domiciliary, or nursing home care or is 
discharged or released from such care.
5.731-5.739 [Reserved]

Subpart L--Payments and Adjustments to Payments

Hospital, Domiciliary, and Nursing Home Care Reductions and Resumptions


Sec.  5.720  Adjustments to special monthly compensation based on the 
need for regular aid and attendance while a veteran is receiving 
hospital, domiciliary, or nursing home care

    (a) Definitions. For purposes of this section and Sec. Sec.  5.721 
through 5.730:
    (1) Hospital care. Except as provided in paragraphs (c)(1) and 
(f)(1) of this section, hospital care means treatment provided in a VA 
hospital or provided in any hospital at VA expense.
    (2) Domiciliary or nursing home care means treatment provided in a 
VA domiciliary or nursing home or in any domiciliary or nursing home at 
VA expense.

    Note to paragraphs (a)(1) and (2):  When multiple types of care 
are referred to consecutively (for example, ``hospital, domiciliary, 
or nursing home care''), VA will consider transfers between the 
different types of care as a continuous period of all such care.

    (3) Regular discharge or release means a veteran, surviving spouse, 
or child is discharged or released at the order of a medical 
professional based on that professional's opinion that there is no 
medical reason to continue care.
    (4) Irregular discharge or release means a veteran, surviving 
spouse, or child is discharged or released for any of the following 
reasons:
    (i) Refusal to accept treatment;
    (ii) Neglect of treatment;
    (iii) Obstruction of treatment;
    (iv) Disciplinary reasons;
    (v) Refusal to accept transfer to another facility;
    (vi) Leaving the facility against medical advice; or
    (vii) Failure to return from unauthorized or authorized absence.
    (5) Temporary absence means a veteran, surviving spouse, or child 
is placed on non-bed care status or authorized absence. A temporary 
absence is not a discharge or release. When calculating a period of 
temporary absence, VA includes the day on which the temporary absence 
begins.
    (b) Adjustment of special monthly compensation while receiving 
hospital, domiciliary, or nursing home care. VA will discontinue 
special monthly compensation (SMC) payable because a veteran needs 
regular aid and attendance or a higher level of care if the veteran is 
admitted to hospital, domiciliary, or nursing home care and the veteran 
remains in such care on the first day of the second calendar month 
after the date of admission. In such cases, VA will reduce SMC to a 
rate specified in paragraph (c) of this section. The effective date of 
the reduced rate of SMC will be the first day of the second calendar 
month after the date of admission. However, VA will make no reduction 
or discontinuance under this paragraph if:
    (1) The rate of special monthly compensation payable would be the 
same with or without an award for regular aid and attendance; or
    (2) An exception in paragraph (d) of this section applies.
    (c) Calculating reduction of the rate of special monthly 
compensation. If appropriate under paragraph (b) of this section, VA 
will reduce a veteran's SMC rate as follows:
    (1) Discontinuance of special monthly compensation under Sec.  
5.332. VA will discontinue SMC paid under Sec.  5.332, Additional 
allowance for regular aid and attendance under 38 U.S.C. 1114(r)(1) or 
for a higher level of care under 38 U.S.C. 1114(r)(2). For the purposes 
of this paragraph (c)(1), ``hospital care'' means treatment in any 
hospital, including a private hospital, at United States Government 
expense. The discontinuance required by this paragraph (c)(1) is made 
only for hospital care; it is not made for domiciliary or nursing home 
care. VA will also make a reduction under paragraph (c)(3) of this 
section, if the veteran's circumstances meet any of those criteria.
    (2) Reduction of special monthly compensation under Sec. Sec.  
5.324 and 5.331. VA will reduce the following payments to the rate 
payable under Sec.  5.333, Special monthly compensation under 38 U.S.C. 
1114(s):
    (i) Special monthly compensation paid at the rate under Sec.  
5.324, Special monthly compensation under 38 U.S.C. 1114(l), if 
entitlement is based on the need for regular aid and attendance.
    (ii) Special monthly compensation paid under Sec.  5.331(d)(1) or 
(e)(1), Special monthly compensation under 38 U.S.C. 1114(p), because a 
veteran is entitled to the rate under Sec.  5.324 based on the need for 
regular aid and attendance and has been awarded the intermediate or 
next higher rate based on additional disability that is independently 
ratable.
    (3) Reduction of special monthly compensation under Sec.  5.330(e). 
Special monthly compensation paid at the rate under Sec.  5.330(e), 
Special monthly compensation under 38 U.S.C. 1114(o), based on the need 
for regular aid and attendance will be reduced as follows:

[[Page 2785]]

    (i) If the veteran is entitled to the rate under Sec.  5.324 both 
for the need for regular aid and attendance and for some other 
disability or combination of disabilities without considering any 
disabilities twice, then VA will reduce the special monthly 
compensation to the rate payable under Sec.  5.326, Special monthly 
compensation under 38 U.S.C. 1114(m).
    (ii) If the veteran is entitled to the rate under Sec.  5.324 based 
on the need for regular aid and attendance and is entitled to the rate 
under Sec.  5.326 without considering any disabilities twice, then VA 
will reduce the special monthly compensation to the rate payable under 
Sec.  5.328, Special monthly compensation under 38 U.S.C. 1114(n).
    (iii) If the veteran is entitled to the rate under Sec.  5.324 
based on the need for regular aid and attendance and is entitled to the 
rate under Sec.  5.328 without considering any disabilities twice, then 
VA will not reduce the SMC rate payable under Sec.  5.330.
    (4) Reduction of special monthly compensation under Sec.  5.326(i). 
VA will reduce SMC paid under Sec.  5.326(i) to the rate payable under 
Sec.  5.324.
    (5) Additional disability compensation based on having dependents. 
In addition to the rates specified in paragraphs (c)(1) through (c)(4) 
of this section, VA will pay the additional amount of disability 
compensation payable to a veteran for dependents if he or she is 
entitled to disability compensation based on disabilities evaluated at 
30 percent or more disabling.
    (6) Additional ratings under Sec.  5.323. In addition to the rates 
specified in paragraphs (c)(1) through (c)(4) of this section, SMC 
under Sec.  5.323, Special monthly compensation under 38 U.S.C. 
1114(k), based on independently ratable disability, is payable subject 
to the statutory ceiling on the total amount of compensation specified 
in Sec.  5.323(b).
    (d) Exceptions. Except for the discontinuances required by 
paragraph (c)(1) and (f)(1) of this section, VA will not reduce or 
discontinue SMC under this section if the need for regular aid and 
attendance is caused by disability resulting from:
    (1) Loss of use of both lower extremities and loss of anal and 
bladder sphincter control; or
    (2) Hansen's disease.
    (e) Readmission after discharge or release. (1) Regular discharge 
or release. If a veteran is readmitted to hospital, domiciliary, or 
nursing home care after a regular discharge or release, VA will 
consider the readmission to be a new admission subject to the 
provisions of paragraph (b) of this section.
    (2) Irregular discharge or release. (i) Readmission less than 6 
months after a period of hospital, domiciliary, or nursing home care. 
VA will pay a reduced rate of SMC under paragraph (c) of this section 
effective on the date of readmission if all of the following are true:
    (A) SMC is reduced or discontinued under paragraph (b) of this 
section;
    (B) The veteran is given an irregular discharge or release from 
hospital, domiciliary, or nursing home care; and
    (C) The veteran is readmitted to hospital, domiciliary, or nursing 
home care less than 6 months after discharge or release.
    (ii) Readmission 6 months or more after a period of hospital, 
domiciliary, or nursing home care. If a veteran described in paragraph 
(e)(2)(i)(A) and (B) of this section is readmitted to hospital, 
domiciliary, or nursing home care 6 months or more after discharge or 
release, VA will consider the readmission to be a new admission subject 
to the provisions of paragraph (b) of this section.
    (f) Entitlement to special monthly compensation based on the need 
for regular aid and attendance established while a veteran is receiving 
hospital, domiciliary, or nursing home care. (1) If a veteran becomes 
entitled to SMC under Sec.  5.332 while receiving hospital care 
effective on or after the date of admission into such care, then VA 
will not pay that benefit until the date of discharge or release from 
hospital care. This does not affect payments for periods prior to 
admission. For the purposes of this paragraph (f)(1), ``hospital care'' 
means treatment in any hospital, including a private hospital, at 
United States Government expense.
    (2) If a veteran becomes entitled to SMC under any other provision 
of this part based on the need for regular aid and attendance while 
receiving hospital, domiciliary, or nursing home care effective on or 
after the date of admission into such care, then VA will pay reduced 
SMC under paragraphs (c)(2) through (c)(4) of this section unless 
entitlement is based on one of the exceptions in paragraph (d) of this 
section. This does not affect payments for periods prior to admission.

(Authority: 38 U.S.C. 501(a), 5503)

Sec.  5.721  Resumption of special monthly compensation based on the 
need for regular aid and attendance after a veteran is on temporary 
absence from hospital, domiciliary, or nursing home care or is 
discharged or released from such care.

    (a) Temporary absence from hospital, domiciliary, or nursing home 
care-- (1) Temporary absence for 30 days or more. If a veteran is on 
temporary absence from hospital, domiciliary, or nursing home care for 
30 days or more, VA will resume any payment reduced or discontinued 
under Sec.  5.720. The effective date of the resumed payment is the 
date the temporary absence begins. If the veteran returns to hospital, 
domiciliary, or nursing home care, then VA will reduce or discontinue 
special monthly compensation under Sec.  5.720 effective the date that 
the veteran returns to such care.
    (2) Temporary absence for less than 30 days. If a veteran is on 
temporary absence from hospital, domiciliary, or nursing home care for 
less than 30 consecutive days, VA will not resume any payments reduced 
or discontinued under Sec.  5.720. If the veteran is later discharged 
or released, VA will retroactively pay the amounts that were unpaid 
during any such temporary absence.
    (b) Discharge or release. If a veteran is discharged or released 
from hospital, domiciliary, or nursing home care, VA will resume any 
payment reduced or discontinued under Sec.  5.720 effective the date 
the veteran was discharged or released. Payment will be resumed at the 
rate in effect before the reduction based on hospital, domiciliary, or 
nursing home care, unless the evidence of record shows that a different 
rate is required.

(Authority: 38 U.S.C. 501(a), 5503)

Sec.  5.722  Reduction of Improved Pension while a veteran is receiving 
domiciliary or nursing home care.

    (a) General provisions-- (1) Veterans affected. Except as provided 
in paragraph (b) or (f) of this section, VA will reduce Improved 
Pension paid to a veteran who receives domiciliary or nursing home care 
continuously for 3 full calendar months or who receives such care along 
with hospital care, as provided in paragraph (e)(2) of this section, 
and who:
    (i) Does not have a spouse or child; or
    (ii) Is married or has a child but is receiving Improved Pension as 
a veteran without dependents.
    (2) Rate payable. VA will reduce Improved Pension under this 
section to $90 per month.
    (3) Effective date of reduction. Except as provided in paragraph 
(f) of this section, a reduction under paragraph (a)(1) of this section 
will be effective on the first day of the fourth calendar month after 
the month of admission to domiciliary or nursing home care.
    (b) Exceptions. VA will not reduce Improved Pension under this 
section if a veteran is:

[[Page 2786]]

    (1) Receiving domiciliary or nursing home care for Hansen's 
disease;
    (2) Maintained in a State soldiers' home;
    (3) Receiving domiciliary or nursing home care in a State home and 
the only payment made by VA to the State for the State home is the per 
diem rate under 38 U.S.C. 1741; or
    (4) Receiving pension as a veteran without a dependent because it 
is reasonable that part of his or her child's net worth be consumed for 
the child's maintenance before the child can be established as a 
dependent. See Sec.  5.414(e), Net worth determinations for Improved 
Pension.
    (c) Apportionment of benefits to a spouse. Improved pension in 
excess of the $90 may be apportioned to the veteran's spouse under 
Sec.  5.772(c)(2)(ii), Veteran's benefits apportionable.
    (d) Readmission--(1) Less than 6 months after prior period of 
domiciliary or nursing home care. If a veteran is readmitted to 
domiciliary or nursing home care less than 6 months after a period of 
domiciliary or nursing home care for which Improved Pension was reduced 
under this section, VA will reduce Improved Pension to $90 per month 
effective the first day of the month after the month of readmission.
    (2) Six months or more after prior period of domiciliary or nursing 
home care. If a veteran is readmitted 6 months or more after a period 
of domiciliary or nursing home care for which Improved Pension was 
reduced under this section, the readmission will be considered a new 
admission subject to the provisions of paragraph (a) of this section.
    (e) Transfers--(1) Transfer from hospital care. If a veteran is 
receiving hospital care and is transferred to domiciliary or nursing 
home care, VA will not consider the period of hospital care as 
domiciliary or nursing home care.
    (2) Transfers from domiciliary or nursing home care. (i) If a 
veteran is transferred from domiciliary or nursing home care to 
hospital care then back to domiciliary or nursing home care, VA will 
consider the entire period as continuous domiciliary or nursing home 
care unless the period of hospital care exceeds 6 months.
    (ii) If a veteran is transferred from domiciliary or nursing home 
care to hospital care and then dies while hospitalized, VA will 
consider the entire period as continuous domiciliary or nursing home 
care unless the period of hospital care exceeds 6 months.
    (iii) VA will consider domiciliary or nursing home care completed 
on the date of transfer to hospital care if a veteran is discharged or 
released from VA care after his or her hospital stay.
    (iv) VA will consider domiciliary or nursing home care completed on 
the date of transfer to hospital care if the period of hospital care 
exceeds 6 months.
    (f) Nursing home care for a prescribed program of rehabilitation--
(1) Delay in reduction. The reduction required by this section for a 
veteran receiving nursing home care will be delayed for up to 3 
additional calendar months after the first day of the fourth calendar 
month referred to in paragraph (a)(3) of this section, or the first day 
of the month following the month of readmission referred to in 
paragraph (d)(1), if the Under Secretary for Health, or his or her 
designee, certifies that the primary purpose for the veteran's 
additional period of nursing home care is to provide a prescribed 
program of rehabilitation, under 38 U.S.C. chapter 17, designed to 
restore the veteran's ability to function within the veteran's family 
and community.
    (2) Continued nursing home care for rehabilitation. The delay in 
reduction may be extended beyond the 3-month period provided by 
paragraph (f)(1) of this section if both of the following are true:
    (i) The veteran continues to receive nursing home care; and
    (ii) The Under Secretary for Health, or his or her designee, 
certifies that the primary purpose for the veteran's continued nursing 
home care is to provide a prescribed program of rehabilitation, under 
38 U.S.C. chapter 17, designed to restore the veteran's ability to 
function within the veteran's family and community.
    (3) Rehabilitation ends. The veteran's Improved Pension will be 
reduced under this section effective the first day of the calendar 
month after the date on which the program of rehabilitation ends.
    (g) Entitlement to Improved Pension established while a veteran is 
receiving domiciliary or nursing home care. If a veteran becomes 
entitled to Improved Pension while receiving domiciliary or nursing 
home care, VA will reduce pension, or pay a reduced rate of pension, in 
accordance with this section.

(Authority: 38 U.S.C. 501(a), 5503)


Sec.  5.723  Reduction of Improved Pension while a veteran, surviving 
spouse, or child is receiving Medicaid-covered care in a nursing 
facility.

    (a) General provision. Until September 30, 2011, VA will reduce 
Improved Pension being paid to a veteran without a spouse or child, to 
a surviving spouse without a child, or to a child, to $90 per month 
when that veteran or surviving spouse is receiving Medicaid-covered 
care in a nursing facility. VA will not reduce Improved Pension under 
this section if a veteran is receiving Medicaid-covered care in a State 
home to which VA makes per diem payments under 38 U.S.C. 1741.
    (b) Effective date of reduction. Except as provided in paragraph 
(c) of this section, the effective date of reduction of Improved 
Pension payments under this section will be the latest of:
    (1) The first day of the month after the month in which Medicaid-
covered care begins;
    (2) The first day of the month after the month during which the 60-
day period prescribed in Sec.  5.83(b) expires; or
    (3) The first day of the month after the month for which VA last 
paid benefits.
    (c) Willful concealment. If a veteran, surviving spouse, or child 
willfully conceals information that would lead to a reduction of 
Improved Pension payments under this section, and VA subsequently 
reduces Improved Pension under this section, the effective date of the 
reduction will be the first day of the month after the month in which 
the willful concealment occurred. In such a case, the beneficiary will 
be liable for any payments in excess of $90 per month made after the 
effective date of the reduction if the willful concealment prevented VA 
from reducing benefits during that period.
    (d) Entitlement to Improved Pension established while a veteran, 
surviving spouse, or child is receiving Medicaid-covered care in a 
nursing facility. If a veteran, surviving spouse, or child described in 
paragraph (a) of this section becomes entitled to Improved Pension 
while receiving Medicaid-covered care in a nursing facility, then VA 
will not pay more than $90 per month while he or she receives such 
care.

(Authority: 38 U.S.C. 5503(d))


Sec.  5.724  Reduction or discontinuance of Improved Pension based on 
the need for regular aid and attendance while a veteran is receiving 
hospital, domiciliary, or nursing home care.

    (a) Reduction or discontinuance of Improved Pension. (1) If a 
veteran who is receiving Improved Pension based on the rate for regular 
aid and attendance receives hospital, domiciliary, or nursing home care 
for at least 1 full calendar month, VA will pay Improved Pension based 
on the housebound rate.
    (2) The resulting reduction or discontinuance of Improved Pension 
will be effective the first day of the

[[Page 2787]]

second calendar month after the date of admission.
    (3) VA will not reduce or discontinue Improved Pension under this 
paragraph (a) if an exception in paragraph (b) of this section applies.
    Cross Reference: Sec. Sec.  5.400(b) and (c) for the housebound and 
regular aid and attendance rates; 5.722 for reductions of Improved 
Pension after 3 full calendar months of domiciliary or nursing home 
care.
    (b) Exceptions. VA will not reduce or discontinue Improved Pension 
under this section if:
    (1) The need for regular aid and attendance is caused by disability 
resulting from:
    (i) Loss of use of both lower extremities and loss of anal and 
bladder sphincter control;
    (ii) Hansen's disease; or
    (iii) Blindness pursuant to Sec.  5.390(b)(1) or (2); or
    (2) The veteran is receiving hospital, domiciliary, or nursing home 
care for Hansen's disease.
    (c) Readmission after discharge or release--(1) Regular discharge 
or release. If a veteran is readmitted to hospital, domiciliary, or 
nursing home care after a regular discharge or release, then VA will 
consider the readmission to be a new admission subject to the 
provisions of paragraph (a) of this section.
    (2) Irregular discharge or release. (i) If a veteran whose Improved 
Pension was reduced or discontinued under this section is readmitted to 
hospital, domiciliary, or nursing home care less than 6 months after an 
irregular discharge or release, then VA will pay Improved Pension based 
on the housebound rate effective on the date of the readmission.
    (ii) If a veteran is readmitted to hospital, domiciliary, or 
nursing home care 6 months or more after an irregular discharge or 
release, then VA will consider the readmission to be a new admission 
subject to the provisions of paragraph (a) of this section.
    (d) Entitlement to Improved Pension based on the need for regular 
aid and attendance established while a veteran is admitted to hospital, 
domiciliary, or nursing home care. If a veteran who is admitted to 
hospital, domiciliary, or nursing home care becomes entitled to 
Improved Pension based on the need for regular aid and attendance, with 
an effective date on or after the date of admission, then VA will pay 
Improved Pension based on the housebound rate. VA will not reduce or 
discontinue benefits under this paragraph (d) if an exception in 
paragraph (b) of this section applies.

(Authority: 38 U.S.C. 501(a), 5503)

Sec.  5.725  Resumption of Improved Pension and Improved Pension based 
on the need for regular aid and attendance after a veteran is on 
temporary absence from hospital, domiciliary, or nursing home care or 
is discharged or released from such care.

    (a) Temporary absence from hospital, domiciliary, or nursing home 
care for 30 days or more--(1) Improved Pension based on the need for 
regular aid and attendance. If a veteran is on temporary absence from 
hospital, domiciliary, or nursing home care for 30 days or more, VA 
will resume any payment discontinued under Sec.  5.724. The effective 
date of the resumed payment is the date the temporary absence began. If 
the veteran returns to hospital, domiciliary, or nursing home care, 
then VA will discontinue Improved Pension based on the need for regular 
aid and attendance under Sec.  5.724 effective the date that the 
temporary absence ends.
    (2) Improved Pension. (i) General. If a beneficiary is on temporary 
absence from any domiciliary or nursing home care facility, or a 
Medicaid-covered nursing facility, for 30 days or more, VA will resume 
any payment reduced under Sec.  5.722 or Sec.  5.723. The payment will 
be resumed at the rate that is appropriate based on the beneficiary's 
income. The effective date of the resumed payment is the date that the 
temporary absence began. If the beneficiary returns to such facility, 
then VA will reduce Improved Pension under Sec.  5.722 or Sec.  5.723 
effective the date that the temporary absence ends.
    (ii) Apportionment of benefits to a spouse. If benefits reduced 
under Sec.  5.722 have been apportioned to a veteran's spouse, the 
apportionment will be discontinued on the day that the temporary 
absence began, unless it is determined that the apportionment will 
continue under Sec.  5.771, Special apportionments.
    (b) Temporary absence for less than 30 days. (1) Improved Pension 
based on the need for regular aid and attendance. If a veteran is on 
temporary absence from hospital, domiciliary, or nursing home care for 
less than 30 consecutive days, VA will not resume any payments 
discontinued under Sec.  5.724. If the veteran is later discharged or 
released from hospital, domiciliary, or nursing home care, VA will 
retroactively pay the amounts that were unpaid during any such 
temporary absence.
    (2) Improved Pension. If a beneficiary is on temporary absence from 
domiciliary care, nursing home care, or Medicaid-covered nursing 
facility care, for less than 30 consecutive days, VA will not resume 
any payments reduced under Sec.  5.722 or Sec.  5.723. If the 
beneficiary is later discharged or released from domiciliary care, 
nursing home care, or Medicaid-covered nursing facility care, VA will 
retroactively pay the amounts that were unpaid during any such 
temporary absence.
    (c) Discharge or release--(1) Improved Pension based on the need 
for regular aid and attendance. If a veteran is discharged or released 
from hospital, domiciliary, or nursing home care, VA will resume any 
payment reduced or discontinued under Sec.  5.724 effective the date 
the veteran is discharged or released. Payment will be resumed at the 
rate in effect before the reduction or discontinuance based on such 
care unless the evidence of record shows that a different rate is 
required.
    (2) Improved Pension. If a beneficiary is discharged or released 
from domiciliary care, nursing home care, or Medicaid-covered nursing 
facility care, VA will resume any payment reduced under Sec.  5.722 or 
Sec.  5.723 effective the date the beneficiary is discharged or 
released. Payment will be resumed at the rate in effect before the 
reduction or discontinuance based on domiciliary care, nursing home 
care, or Medicaid-covered nursing facility care, unless the evidence of 
record shows that a different rate is required.
    (3) Apportionment of benefits to a spouse. If benefits reduced 
under Sec.  5.722 have been apportioned to a veteran's spouse, the 
apportionment will be discontinued on the day that the veteran is 
discharged or released from domiciliary or nursing home care, unless it 
is determined that the apportionment will continue under Sec.  5.771, 
Special apportionments.

(Authority: 38 U.S.C. 5503)


Sec.  5.726  Reduction of Section 306 Pension while a veteran is 
receiving hospital, domiciliary, or nursing home care.

    (a) General provisions-- (1) Veterans affected. Except as provided 
in paragraph (b) of this section, VA will reduce Section 306 Pension 
paid to a veteran who receives hospital, domiciliary, or nursing home 
care continuously for 2 full calendar months and who:
    (i) Does not have a spouse or child; or
    (ii) Is married or has a child, but is receiving Section 306 
Pension as a veteran without dependents.
    (2) Proof of dependents. If VA requests evidence about a spouse or 
child but such evidence is not received before the effective date of 
the reduction, then VA will reduce the veteran's Section 306 Pension 
under this section on the basis of no dependents. If the evidence is 
received

[[Page 2788]]

within 1 year after the date of VA's request, VA will pay the full rate 
from the date of reduction.
    (3) Rate payable. VA will reduce Section 306 Pension under this 
section to $50 per month.
    (4) Effective date of reduction. A reduction under paragraph (a) of 
this section will be effective on the first day of the third calendar 
month after the month of admission to hospital, domiciliary, or nursing 
home care.
    (5) Calculation of period. For purposes of calculating continuous 
periods of hospital, domiciliary, or nursing home care under this 
section, authorized absences for periods of 96 hours or less will be 
included as periods of hospital, domiciliary, or nursing home care. For 
authorized absences for periods of more than 96 hours, the entire 
period will be excluded from the total number of days, but will not be 
considered a break in the continuous period of hospital, domiciliary, 
or nursing home care. Sixty total days of hospital, domiciliary, or 
nursing home care will be considered 2 calendar months of such care.
    (b) Exceptions. VA will not reduce Section 306 Pension under this 
section if a veteran is:
    (1) Receiving hospital, domiciliary, or nursing home care for 
Hansen's disease;
    (2) Maintained in a State soldiers' home; or
    (3) Receiving hospital, domiciliary, or nursing home care in a 
State home and the only payment made by VA to the State for the State 
home is the per diem rate under 38 U.S.C. 1741.
    (c) Apportionment of benefits to a spouse. Benefits in excess of 
the $50 per month may be apportioned to the veteran's spouse under 
Sec.  5.772(c)(2)(i), Veteran's benefits apportionable.
    (d) Readmission--(1) Less than 6 months after admission. If a 
veteran is readmitted to hospital, domiciliary, or nursing home care 
less than 6 months after a period of hospital, domiciliary, or nursing 
home care for which Section 306 Pension was reduced under this section, 
VA will reduce Section 306 Pension effective the first day of the month 
after the month of readmission.
    (2) Six months or more after admission. If a veteran is readmitted 
6 months or more after a period of hospital, domiciliary, or nursing 
home care for which Section 306 Pension was reduced under this section, 
the readmission will be considered a new admission subject to the 
provisions of paragraph (a) of this section.

(Authority: 38 U.S.C. 5503; Pub. L. 95-588, Sec. 306, 92 Stat. 2497)


Sec.  5.727  Reduction of Old-Law Pension while a veteran is receiving 
hospital, domiciliary, or nursing home care.

    (a) General provisions--(1) Veterans affected. Except as provided 
in paragraph (b) of this section, VA will reduce Old-Law Pension being 
paid to a veteran who has received hospital, domiciliary, or nursing 
home care continuously for 6 full calendar months and who does not have 
a spouse or child.
    (2) Proof of dependents. If VA requests evidence about a spouse or 
child but such evidence is not received within 60 days, then VA will 
reduce the veteran's Old-Law Pension under this section on the basis of 
no dependents. If the evidence is received within 1 year after the date 
of VA's request, VA will pay the full rate from the date of reduction.
    (3) Rate payable. VA will reduce Old-Law Pension under this section 
to either $30 per month or 50 percent of the amount of Old-Law Pension 
otherwise payable to the veteran, whichever amount is greater.
    (4) Effective date of reduction--(i) General. The effective date of 
reduction under paragraph (a) of this section is the first day of the 
seventh calendar month after the month of admission to hospital, 
domiciliary, or nursing home care. VA excludes any month (others than 
the month of admission) that contains an authorized absence from its 
calculation of the effective date.
    (ii) Effect of irregular discharge prior to reduction. The 
reduction will be effective on that date even if a veteran is 
irregularly discharged or released from hospital, domiciliary, or 
nursing home care and is readmitted to such care before that effective 
date. If the veteran is readmitted after the first day of the seventh 
calendar month after the month of admission to hospital, domiciliary, 
or nursing home care, the readmission will be considered a new 
admission subject to the provisions of paragraph (a) of this section.
    (b) Exceptions. VA will not reduce Old-Law Pension under this 
section if a veteran is:
    (1) Receiving hospital, domiciliary, or nursing home care for 
Hansen's disease;
    (2) Maintained in a State soldiers' home; or
    (3) Receiving hospital, domiciliary, or nursing home care in a 
State home and the only payment made by VA to the State for the State 
home is the per diem rate under 38 U.S.C. 1741.
    (c) Readmission--(1) Readmission after regular discharge or 
release. If a veteran is readmitted to hospital, domiciliary, or 
nursing home care after a regular discharge or release, VA will 
consider the readmission to be a new admission subject to the 
provisions of paragraph (a) of this section unless the veteran was 
discharged or released for purposes of admission to another facility 
for hospital, domiciliary, or nursing home care.
    (2) Readmission after irregular discharge or release--(i) Less than 
6 months after discharge or release. If a veteran is readmitted to 
hospital, domiciliary, or nursing home care less than 6 months after 
being irregularly discharged or released from a prior period of 
hospital, domiciliary, or nursing home care for which Old-Law Pension 
was reduced under this section, VA will reduce Old-Law Pension 
effective the first day of the month after the month of readmission.
    (ii) Six months or more after discharge or release. If a veteran is 
readmitted 6 months or more after being irregularly discharged or 
released from a prior period of hospital, domiciliary, or nursing home 
care for which Old-Law Pension was reduced under this section, the 
readmission will be considered a new admission subject to the 
provisions of paragraph (a) of this section.

(Authority: Pub. L. 95-588, Sec. 306, 92 Stat. 2497)


Sec.  5.728  Reduction of Old-Law Pension or Section 306 Pension based 
on the need for regular aid and attendance while a veteran is receiving 
hospital, domiciliary, or nursing home care.

    (a) Reduction of Old-Law Pension or Section 306 Pension--(1)(i) 
Old-Law Pension. If a veteran who is receiving Old-Law Pension at the 
regular aid and attendance rate ($135.45 monthly) receives hospital, 
domiciliary, or nursing home care for at least 1 full calendar month, 
VA will reduce benefits to the housebound rate ($100 monthly).
    (ii) Section 306 Pension--(A) General. If a veteran who is 
receiving Section 306 Pension based on the regular aid and attendance 
rate receives hospital, domiciliary, or nursing home care for at least 
1 full calendar month, VA will pay benefits based on the housebound 
rate. VA will reduce benefits by $104 per month, which is the 
difference between the aid and attendance allowance ($165) and the 
housebound allowance ($61).
    (B) Reduced aid and attendance allowance. If a veteran who is 
receiving Section 306 Pension at a reduced regular aid and attendance 
rate (under former 38 U.S.C. 521(d)(2), as in effect on December 31, 
1978) receives hospital, domiciliary, or nursing home care for at least 
1 full calendar month, VA will reduce benefits to $61 per month.

[[Page 2789]]

    (2) The resulting reduction of these benefits will be effective the 
first day of the second calendar month after the month of admission.
    (3) VA will not reduce benefits under this paragraph (a) if an 
exception in paragraph (b) of this section applies.
    Cross Reference: Sec.  5.471 for the housebound and regular aid and 
attendance rates.
    (b) Exceptions. VA will not reduce Old-Law Pension or Section 306 
Pension under this section if:
    (1) The need for regular aid and attendance is caused by disability 
resulting from:
    (i) Loss of use of both lower extremities and loss of anal and 
bladder sphincter control;
    (ii) Hansen's disease; or
    (iii) 5/200 visual acuity or less in both eyes with corrective 
lenses or due to concentric contraction of the visual field to 5 
degrees or less in both eyes; or
    (2) The veteran is receiving hospital, domiciliary, or nursing home 
care for Hansen's disease.
    (c) Readmission after discharge or release--(1) Regular discharge 
or release. If a veteran is readmitted to hospital, domiciliary, or 
nursing home care after a regular discharge or release, then VA will 
consider the readmission to be a new admission subject to the 
provisions of paragraph (a) of this section.
    (2) Irregular discharge or release. (i) If a veteran whose Old-Law 
Pension or Section 306 Pension was reduced under this section is 
readmitted to hospital, domiciliary, or nursing home care less than 6 
months after an irregular discharge or release, then VA will reduce 
Old-Law Pension or Section 306 Pension based on the need for regular 
aid and attendance effective on the date of the readmission.
    (ii) If a veteran is readmitted to hospital, domiciliary, or 
nursing home care 6 months or more after an irregular discharge or 
release, then VA will consider the readmission to be a new admission 
subject to the provisions of paragraph (a) of this section.

(Authority: 38 U.S.C. 501(a); Pub. L. 95-588, Sec. 306, 92 Stat. 
2497)


Sec.  5.729  Resumption of Section 306 Pension and Section 306 Pension 
based on the need for regular aid and attendance after a veteran is on 
temporary absence from hospital, domiciliary, or nursing home care or 
is discharged or released from such care.

    (a) Temporary absence from hospital, domiciliary, or nursing home 
care for 30 days or more--(1) General. If a veteran is on temporary 
absence from hospital, domiciliary, or nursing home care for 30 days or 
more, VA will resume any Section 306 Pension payment reduced under 
Sec.  5.726 or Sec.  5.728. The effective date of the resumed payment 
is the date that the temporary absence begins. If the veteran returns 
to hospital, domiciliary, or nursing home care, then VA will reduce 
Section 306 Pension effective the date that the temporary absence ends.
    (2) Apportionment of benefits to a spouse. If benefits reduced 
under Sec.  5.726 have been apportioned to a veteran's spouse, the 
apportionment will be discontinued on the day that the temporary 
absence begins, unless it is determined that the apportionment will 
continue under Sec.  5.771, Special apportionments.
    (b) Temporary absence from hospital, domiciliary, or nursing home 
care for less than 30 days. Except as provided in paragraph (c) of this 
section, if a veteran is on temporary absence from hospital, 
domiciliary, or nursing home care for less than 30 consecutive days, VA 
will not resume any Section 306 Pension payments reduced under Sec.  
5.726 or Sec.  5.728. If the veteran is later discharged or released 
from hospital, domiciliary, or nursing home care, VA will retroactively 
pay the amounts that were unpaid during any such temporary absence.
    (c) Adjustment based on need. (1) If a veteran has been under 
hospital, domiciliary, or nursing home care for more than 6 months and 
the combined periods of absence from such care exceed a total of 30 
days, VA will retroactively pay the amounts that were unpaid under 
Sec.  5.726 during such temporary absences if:
    (i) The director of the facility providing hospital, domiciliary, 
or nursing home care requests payment on behalf of a veteran; and
    (ii) Payment is necessary to meet the veteran's financial needs.
    (2) If the conditions in paragraph (c)(1) of this section are met, 
payment will be restored even if the veteran has not been discharged or 
released from hospital, domiciliary, or nursing home care.
    (d) Discharge or release--(1) General. If a veteran is discharged 
or released from hospital, domiciliary, or nursing home care, VA will 
resume any Section 306 Pension payment reduced under Sec.  5.726 or 
Sec.  5.728 effective the date the veteran was discharged or released. 
Payment will be resumed at the rate in effect before the reduction 
based on hospital, domiciliary, or nursing home care, unless the 
evidence of record shows that a different rate is required.
    (2) Apportionment of benefits to a spouse. If benefits reduced 
under Sec.  5.726 have been apportioned to a veteran's spouse, the 
apportionment will be discontinued on the day that the veteran is 
discharged or released from hospital, domiciliary, or nursing home 
care, unless it is determined that the apportionment will continue 
under Sec.  5.771, Special apportionments.

(Authority: 38 U.S.C. 5503; Pub. L. 95-588, Sec. 306, 92 Stat. 2497)


Sec.  5.730  Resumption of Old-Law Pension and Old-Law Pension based on 
the need for regular aid and attendance after a veteran is on temporary 
absence from hospital, domiciliary, or nursing home care or is 
discharged or released from such care.

    (a) Temporary absence from hospital, domiciliary, or nursing home 
care for 30 days or more. If a veteran is on temporary absence from 
hospital, domiciliary, or nursing home care for 30 days or more, VA 
will resume any Old-Law Pension payment reduced under Sec.  5.727 or 
Sec.  5.728. The effective date of the resumed payment for Old-Law 
Pension reduced under Sec.  5.727 is the date of reduction. The 
effective date of the resumed payment for Old-Law Pension reduced under 
Sec.  5.728 is the date the temporary absence begins. If the veteran 
returns to hospital, domiciliary, or nursing home care, then VA will 
reduce Old-Law Pension effective the date that the temporary absence 
ends.
    (b) Temporary absence from hospital, domiciliary, or nursing home 
care for less than 30 days. If a veteran is on temporary absence from 
hospital, domiciliary, or nursing home care for less than 30 
consecutive days, VA will not resume any Old-Law Pension payments 
reduced under Sec.  5.727 or Sec.  5.728. If the veteran is later 
discharged or released from hospital, domiciliary, or nursing home 
care, VA will retroactively pay the amounts that were unpaid during any 
such temporary absence.
    (c) Regular discharge or release. If a veteran is regularly 
discharged or released from hospital, domiciliary, or nursing home 
care, VA will resume any Old-Law Pension payment reduced under Sec.  
5.727 or Sec.  5.728 effective the date that the veteran was discharged 
or released. Payment will be resumed at the rate in effect before the 
reduction based on hospital, domiciliary, or nursing home care, unless 
the evidence of record shows that a different rate is required. VA will 
also pay any amounts that were unpaid during the veteran's hospital, 
domiciliary, or nursing home care.
    (d) Irregular discharge or release. If a veteran is irregularly 
discharged or released from hospital, domiciliary, or nursing home 
care, VA will resume any

[[Page 2790]]

Old-Law Pension payment reduced under Sec.  5.727 or Sec.  5.728 
effective the date the veteran was discharged or released. Payment will 
be resumed at the rate in effect before the reduction based on 
hospital, domiciliary, or nursing home care, unless the evidence of 
record shows that a different rate is required. If a veteran's 
irregular discharge or release is not changed to a regular discharge or 
release, VA will not pay any Old-Law Pension that was unpaid during the 
veteran's hospital, domiciliary, or nursing home care until 6 months 
after the date the veteran was discharged or released.

(Authority: Pub. L. 95-588, Sec. 306, 92 Stat. 2497)


Sec.  5.731-5.739  [Reserved]

    2. Add subpart M to read as follows:
Subpart M--Apportionments to Dependents and Payments to Fiduciaries and 
Incarcerated Beneficiaries

Determining Eligibility for Apportionments

Sec.
5.770 Apportionment claims.
5.771 Special apportionments.
5.772 Veteran's benefits apportionable.
5.773 Veterans disability compensation.
5.774 Benefits not apportionable.
5.775-5.779 [Reserved]
5.780 Eligibility for apportionment of pension.
5.781 Eligibility for apportionment of a surviving spouse's 
dependency and indemnity compensation.
5.782 Effective date of apportionment grant or increase.
5.783 Effective date of apportionment reduction or discontinuance.
5.784 Special rules for apportioned benefits on death of beneficiary 
or apportionee.
5.785-5.789 [Reserved]

Incompetency and Payments to Fiduciaries and Minors

5.790 Determinations of incompetency and competency.
5.791 General fiduciary payments.
5.792 Institutional awards.
5.793 Limitation on payments for a child.
5.794 Beneficiary rated or reported incompetent.
5.795 Change of name of fiduciary.
5.796 Child's benefits to a fiduciary of an incompetent surviving 
spouse.
5.797 Testamentary capacity for VA insurance purposes.
5.798 Payment of disability compensation previously not paid because 
an incompetent veteran's estate exceeded $25,000.
5.799-5.809 [Reserved]

Payments to Incarcerated Beneficiaries

5.810 Incarcerated beneficiaries--general provisions and 
definitions.
5.811 Limitation on disability compensation during incarceration.
5.812 Limitation on dependency and indemnity compensation during 
incarceration.
5.813 Discontinuance of pension during incarceration.
5.814 Apportionment when a primary beneficiary is incarcerated.
5.815 Resumption of disability compensation or dependency and 
indemnity compensation upon a beneficiary's release from 
incarceration.
5.816 Resumption of pension upon a beneficiary's release from 
incarceration.
5.817 Fugitive felons.
5.818-5.819 [Reserved]

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

Subpart M--Apportionments to Dependents and Payments to Fiduciaries 
and Incarcerated Beneficiaries

Determining Eligibility for Apportionments


Sec.  5.770  Apportionment claims.

    (a) General--(1) Veteran. All or part of the pension or disability 
compensation payable to any veteran may be apportioned:
    (i) For his or her spouse, child, or dependent parents if the 
veteran is incompetent and is being furnished hospital treatment, 
nursing home, or domiciliary care by the United States, or any 
political subdivision thereof.
    (ii) If the veteran is not residing with his or her spouse, or if 
the veteran's child is not residing with the veteran and the veteran is 
not reasonably discharging his or her responsibility for the spouse's 
or child's support.
    (2) Surviving spouse. Where a child of a deceased veteran is not 
living with the veteran's surviving spouse, the dependency and 
indemnity compensation (DIC) or pension otherwise payable to the 
surviving spouse may be apportioned.
    (b) Apportionment to a child on active duty. Except as provided in 
Sec.  5.774(e)(2), no apportionment of disability or death benefits 
will be made or changed solely because a child has entered active duty.
    (c) Apportionment if beneficiary providing for dependents. No 
apportionment will be made where the veteran, the veteran's spouse when 
paid ``as wife'' or ``as husband'', surviving spouse, or fiduciary is 
providing for dependents. The additional benefits for such dependents 
will be paid to the veteran, spouse, surviving spouse, or fiduciary.
    (d) Apportionment of death benefits. Any amounts payable for 
children under Sec. Sec.  5.780, Eligibility for apportionment of 
pension, and 5.781, Eligibility for apportionment of a surviving 
spouse's dependency and indemnity compensation, will be equally divided 
among the children.
    (e) Apportionment to a child not residing with surviving spouse. 
The amount payable for a child in custody of and residing with the 
surviving spouse shall be paid to the surviving spouse. Amounts payable 
to a surviving spouse for a child in his or her custody but residing 
with someone else may be apportioned if the surviving spouse is not 
reasonably contributing to the child's support.

(Authority: 38 U.S.C. 5307, 5502(d))

Sec.  5.771  Special apportionments.

    (a) General. Without regard to any provision regarding 
apportionment other than Sec.  5.774(b), (c), and (f), where hardship 
is shown to exist, pension, disability compensation, or dependency and 
indemnity compensation may be specially apportioned between the veteran 
and his or her dependent or between the surviving spouse and a child. 
Such an apportionment will be based on the facts in the individual 
case. The apportionment may not cause undue hardship to the other 
persons in interest.
    (b) Factors that determine a special apportionment. In determining 
the basis for special apportionment, consideration will be given to 
such factors as:
    (1) The amount of VA benefits payable;
    (2) The net worth, income, and expenses of the beneficiary and any 
dependent on whose behalf apportionment is claimed; and
    (3) The special needs of the veteran, his or her dependent, and the 
apportionment claimant.
    (c) Apportioned amount. The amount apportioned should generally be 
consistent with the total number of dependents involved. Ordinarily, 
apportionment of more than 50 percent of the veteran's benefits would 
constitute undue hardship while apportionment of less than 20 percent 
of his or her benefits would not provide a reasonable amount for any 
apportionee.

(Authority: 38 U.S.C. 5307)


Sec.  5.772  Veteran's benefits apportionable.

    A veteran's benefits may be apportioned:
    (a) General. If the veteran is not residing with his or her spouse 
or his or her child, the veteran is not reasonably discharging his or 
her responsibility for the spouse's or child's support, and a claim for 
apportionment is filed by or for the spouse or child.
    (b) Pending appointment of fiduciary. Pending the appointment of a 
guardian or other fiduciary.
    (c) Veteran receiving hospital, domiciliary, or nursing home care--
(1)

[[Page 2791]]

Incompetent veteran--(i) Spouse or child. Where an incompetent veteran 
without a fiduciary is receiving hospital treatment, nursing home, or 
domiciliary care provided by the United States or a political 
subdivision, his or her benefit may be apportioned for a spouse or 
child unless such benefit is paid to a spouse (``as wife'' or ``as 
husband'') for the use of the veteran and his or her dependents.
    (ii) Dependent parent. Where an incompetent veteran without a 
fiduciary is receiving hospital treatment, nursing home, or domiciliary 
care provided by the United States or a political subdivision, his or 
her disability compensation may be apportioned for a dependent parent, 
unless such benefit is paid to a spouse (``as wife'' or ``as husband'') 
for the use of the veteran and his or her dependents.
    (2) Competent veteran--(i) Section 306 Pension. Where the amount of 
Section 306 Pension payable to a married veteran is reduced to $50 
monthly under Sec.  5.726, Reduction of Section 306 Pension while a 
veteran is receiving hospital, domiciliary, or nursing home care, an 
apportionment may be made to such veteran's spouse upon an affirmative 
showing of hardship. The amount of the apportionment generally will be 
the difference between $50 and the total amount of pension payable on 
December 31, 1978.
    (ii) Improved Pension. Where the amount of Improved Pension payable 
to a married veteran under 38 U.S.C. 1521(b) is reduced to $90 monthly 
under Sec.  5.722, Reduction of Improved Pension while a veteran is 
receiving domiciliary or nursing home care, an apportionment may be 
made to such veteran's spouse upon an affirmative showing of hardship. 
The amount of the apportionment generally will be the difference 
between $90 and the rate payable if pension were being paid under 38 
U.S.C. 1521(c), including the additional amount payable under 38 U.S.C. 
1521(e) if the veteran is so entitled.
    (d) Apportionment of additional disability compensation for 
dependent parent. Where additional disability compensation is payable 
for a parent and the veteran or his or her guardian neglects or refuses 
to contribute such an amount to the support of the parent, the 
additional disability compensation will be paid to the parent upon 
receipt of a claim.

(Authority: 38 U.S.C. 501(a), 5307, 5502, 5503(a); Pub. L. 95-588, 
Sec. 306, 92 Stat. 2497)

    Cross Reference: Sec. Sec.  5.711, Payment to dependents due to the 
disappearance of a veteran for 90 days or more; 5.722, Reduction of 
Improved Pension while a veteran is receiving domiciliary or nursing 
home care; 5.725, Resumption of Improved Pension and Improved Pension 
based on the need for regular aid and attendance after a veteran is on 
temporary absence from hospital, domiciliary, or nursing home care or 
is discharged or released from such care; 5.726, Reduction of Section 
306 Pension while a veteran is receiving hospital, domiciliary, or 
nursing home care; 5.729, Resumption of Section 306 Pension and Section 
306 Pension based on the need for regular aid and attendance after a 
veteran is on temporary absence from hospital, domiciliary, or nursing 
home care or is discharged or released from such care; 5.792, 
Institutional awards; 5.814, Apportionment when a primary beneficiary 
is incarcerated.


Sec.  5.773  Veterans disability compensation.

    Rates of apportionment of disability compensation will be 
determined under Sec.  5.771.


Sec.  5.774  Benefits not apportionable.

    Benefits will not be apportioned:
    (a) If the total benefit payable does not permit payment of a 
reasonable amount to any apportionee.
    (b) If a court of proper jurisdiction has found the veteran's 
spouse guilty of adultery.
    (c) If VA determines that the veteran's spouse has lived with 
another person and has openly held himself or herself out to the public 
to be the spouse of that person unless:
    (1) The spouse subsequently reconciled with the veteran and later 
became estranged from the veteran; or
    (2) The spouse had entered into the relationship with the other 
person in good faith. For purposes of this paragraph (c)(2), ``good 
faith'' means that the spouse had a reasonable basis to believe that 
the marriage to the veteran was legally terminated (for example, due to 
trickery on the part of the veteran).
    (d) If another person legally adopts a veteran's child, except VA 
may apportion the additional disability compensation payable to a 
veteran for the child or the additional dependency and indemnity 
compensation payable to a surviving spouse for the child.
    (e)(1) If the apportionment is claimed for a child who is on active 
duty.
    (2) If a child is receiving apportioned benefits directly and then 
enters active duty. The apportionment will be discontinued and such 
benefits will be paid to the veteran. The effective date of the 
discontinuance will be the first day of the month after the month for 
which VA last paid the apportionment.

    Note to paragraph (e)(2):  In accordance with Sec.  5.770(b), if 
a child is included in an existing apportionment to an estranged 
spouse and then enters active duty, no adjustment in the apportioned 
award will be made based on the child's entry into service.

    (f)(1) To any beneficiary's dependent who:
    (i) Is determined by VA to have been guilty of mutiny, treason, 
sabotage, or rendering assistance to an enemy of the United States or 
its allies; or
    (ii) Participated in the acts that caused forfeiture for fraud or 
treasonable acts.
    (2) If, after September 1, 1959, benefits were forfeited for fraud, 
treasonable acts, or subversive activity.
    Cross Reference: Sec. Sec.  5.676, Forfeiture for fraud, 5.677, 
Forfeiture for treasonable acts, and 5.678, Forfeiture for subversive 
activity.
    (g) Unless the estranged spouse of a veteran files a claim for an 
apportionment. If there is a child of the veteran not in his or her 
custody, an apportionment will not be authorized unless a claim for an 
apportionment is filed by or for the child.

(Authority: 38 U.S.C. 5307, 6103(b), 6104(c), 6105(a))


Sec. Sec.  5.775-5.779   [Reserved]


Sec.  5.780   Eligibility for apportionment of pension.

    (a) Disability pension. Disability pension will be apportioned to 
the veteran's spouse or child, if the veteran is not residing with his 
or her spouse, or if the veteran's child is not residing with the 
veteran, and the veteran is not reasonably discharging his or her 
responsibility for the spouse's or child's support. Apportionment of 
these benefits will be made under Sec.  5.771, Special apportionments.
    (b) Death pension--(1) Old-Law Death Pension or Section 306 Death 
Pension. Old-Law Death Pension or Section 306 Death Pension will be 
apportioned to a child of a deceased veteran who is not in the custody 
of the surviving spouse. Apportionment of these benefits will be made 
at the rates approved by the Under Secretary for Benefits except when 
the facts and circumstances in a case warrant apportionment under Sec.  
5.771, Special apportionments.
    (2) Improved Death Pension. Improved Death Pension will be 
apportioned to the veteran's child if a child of the deceased veteran 
is not in the custody of the surviving spouse. Apportionment of these 
benefits will be

[[Page 2792]]

made under Sec.  5.771, Special apportionments.

(Authority: 38 U.S.C. 5307)


Sec.  5.781  Eligibility for apportionment of a surviving spouse's 
dependency and indemnity compensation.

    (a) Conditions under which apportionment may be made. The surviving 
spouse's award of dependency and indemnity compensation (DIC) will be 
apportioned where there is a child under 18 years of age and not in the 
custody of the surviving spouse. The surviving spouse's award of DIC 
will not be apportioned under this paragraph (a) for a child over the 
age of 18 years.
    (b) Rates payable. The DIC share for each child under 18 years of 
age, including those in the surviving spouse's custody as well as those 
who are not in such custody, will be the additional allowance payable 
for each dependent child, except when the facts and circumstances in a 
case warrant special apportionment under Sec.  5.771, Special 
apportionments. Current and historical DIC rates can be found on the 
Internet at http://www.va.gov or are available from any Veterans' 
Service Center. The share for the surviving spouse will be the 
difference between the children's share and the total amount payable.


Sec.  5.782  Effective date of apportionment grant or increase.

    (a) General rule. Except as provided in paragraph (b) of this 
section, the effective date of an apportionment or an increased 
apportionment is the first day of the month after the month in which VA 
receives an apportionment claim or a claim for an increased 
apportionment.
    (b) Exceptions to general rule--(1) Claim for VA benefits is 
pending. This paragraph (b)(1) applies if a veteran or surviving spouse 
(primary beneficiary) has a claim for VA benefits pending on the date 
that VA receives an apportionment claim. If the primary beneficiary's 
claim is granted, then the effective date of the apportionment will be 
the same as the effective date of the primary beneficiary's award, if 
the apportionment claimant is otherwise shown to be entitled to an 
apportionment from that effective date.
    (2) Apportionment claimant not yet established as the beneficiary's 
dependent. This paragraph (b)(2) applies if VA receives an 
apportionment claim within 1 year of the award of benefits to the 
primary beneficiary and the apportionment claimant has not been 
established as a dependent on the primary beneficiary's award. The 
effective date of the apportionment will be the same as the effective 
date of the primary beneficiary's award, if the apportionment claimant 
is otherwise shown to be entitled to an apportionment from that 
effective date.
    (3) Veteran's or surviving spouse's benefits are reduced or 
discontinued. Except as provided in paragraph (b)(4) of this section, 
this paragraph (b)(3) applies if a veteran's or surviving spouse's 
benefits have been reduced or discontinued but an apportionment of the 
benefits that would otherwise be payable to the primary beneficiary is 
authorized. In this situation, the effective date of the apportionment 
is the same as the date on which the primary beneficiary's benefits 
were reduced or discontinued, if VA receives the apportionment claim 
within 1 year after that date and the apportionment claimant is 
otherwise shown to be entitled to an apportionment from that date.
    (4) The primary beneficiary is incarcerated. The effective date of 
an apportionment or increased apportionment when the primary 
beneficiary is incarcerated is specified in Sec.  5.814(e), 
Apportionment when a primary beneficiary is incarcerated.

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


Sec.  5.783  Effective date of apportionment reduction or 
discontinuance.

    (a) General rule. Except as otherwise provided in this part, if VA 
reduces or discontinues an apportionment because the basis for the 
apportionment no longer exists, then the effective date of the 
reduction or discontinuance will be the first day of the month after 
the month in which the basis for the apportionment ceased to exist.
    (b) Exceptions to general rule. (1) Death, divorce, or marriage of 
an apportionee. The effective date of discontinuance of an 
apportionment due to the death, divorce, or marriage of the apportionee 
is the first day of the month of the event, except the effective date 
of discontinuance of an apportionment of Old-Law Pension or Section 306 
Pension will be January 1 of the calendar year immediately after the 
event.

    Note to paragraph (b)(1):  The effective date of discontinuance 
of the dependency allowance on the primary beneficiary's award due 
to the death, divorce, or marriage of the apportionee is determined 
in accordance with Sec.  5.184, Effective dates for reductions or 
discontinuances based on changes in dependency status, or Sec.  
5.477, Effective dates for Old-Law Pension and Section 306 Pension 
reductions or discontinuances.

    (2) Death or marriage of dependent of apportionee. The effective 
date of discontinuance of an apportionment due to the death or marriage 
of a child included in an existing apportionment to an estranged spouse 
or another custodian of the child is the first day of the month after 
the month of the event.
    (3) Primary beneficiary dies or entitlement ends. The effective 
date of discontinuance of an apportionment because the primary 
beneficiary dies or loses entitlement to the primary benefit is the 
same effective date that applies to the discontinuance of the primary 
benefit.
    (4) Primary beneficiary no longer incarcerated. The effective date 
of discontinuance or reduction of an apportionment because the primary 
beneficiary is no longer incarcerated is specified in Sec.  5.815 or 
Sec.  5.816, depending on the primary benefit being apportioned.

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


Sec.  5.784  Special rules for apportioned benefits on death of 
beneficiary or apportionee.

    (a) Payment to person receiving apportionment when the beneficiary 
dies. If an apportionment has not been paid and the beneficiary dies, 
then VA will pay the apportionee the unpaid apportionment through the 
first day of the month of the beneficiary's death. Except as provided 
in paragraph (b) of this section, the unpaid apportionment is not 
subject to payment as accrued benefits.
    (b) Person receiving apportioned share of VA benefits dies--(1) 
Receiving apportionment of veteran's benefits. If a person receiving an 
apportionment of a veteran's benefits dies, then VA will pay any unpaid 
apportionment to the veteran, if living. If the veteran is not living, 
then the unpaid apportionment is payable only as accrued benefits to 
dependents of the veteran, under Sec.  5.551(b)(1), Persons entitled to 
accrued benefits. If there is no eligible dependent claimant, then the 
unpaid apportionment is payable only as accrued benefits to the person 
who bore the expense of the deceased apportionee's last sickness or 
burial under Sec.  5.551(e), Persons entitled to accrued benefits.
    (2) Receiving apportionment of surviving spouse's death benefits. 
If a child receiving an apportionment of a surviving spouse's 
dependency and indemnity compensation (DIC) or death pension dies, then 
the unpaid apportionment is payable only as accrued benefits to the 
veteran's surviving child who is entitled to death DIC or pension, 
under Sec.  5.551(d)(1), Persons entitled to accrued benefits. If there 
is no eligible surviving child claimant, then the unpaid apportionment 
is payable only as

[[Page 2793]]

accrued benefits to the person who bore the expense of the deceased 
child's last sickness or burial under Sec.  5.551(e), Persons entitled 
to accrued benefits.

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


Sec. Sec.  5.785--5.789   [Reserved]

Incompetency and Payments to Fiduciaries and Minors


Sec.  5.790  Determinations of incompetency and competency.

    (a) Definition of mental incompetency. A mentally incompetent 
person is one who because of injury or disease lacks the mental 
capacity to contract or to manage his or her own affairs, including 
disbursement of funds without limitation.
    (b) Authority. (1) Agencies of original jurisdiction have sole 
authority to make official determinations of incompetency and 
competency for purposes of insurance (38 U.S.C. 1922) and, subject to 
Sec.  13.56 of this chapter, disbursement of benefits. Such 
determinations are final and binding on field stations for these 
purposes.
    (2) Where the beneficiary is rated incompetent, the Veterans 
Service Center Manager or Pension Management Center Manager will:
    (i) Develop information as to the beneficiary's social, economic, 
and industrial adjustment;
    (ii) Appoint or recommend appointment of a fiduciary as provided in 
Sec.  13.55 of this chapter;
    (iii) Select a method of disbursing payment as provided in Sec.  
13.56 of this chapter or, in the case of a married beneficiary, appoint 
the beneficiary's spouse to receive payments as provided in Sec.  13.57 
of this chapter; and
    (iv) Authorize disbursement of the benefit.
    (3) If, in the course of fulfilling the responsibilities assigned 
in paragraph (b)(2) of this section, the Veterans Service Center 
Manager or Pension Management Center Manager develops evidence 
indicating that the beneficiary may be capable of administering the 
funds payable without limitation, he or she will refer that evidence to 
the agency of original jurisdiction with a statement as to his or her 
findings. The agency of original jurisdiction will consider this 
evidence, together with all other evidence of record, to determine 
whether its prior determination of incompetency should remain in 
effect. Reexamination may be requested as provided in Sec.  5.102, 
Meeting reexamination requirements, if necessary to properly evaluate 
the beneficiary's mental capacity to contract or manage his or her own 
affairs.
    (c) Medical opinion. Unless the medical evidence is clear and 
convincing as to the person's incompetency, the agency of original 
jurisdiction will make no determination of incompetency without a 
definite expression regarding the question by the responsible medical 
authorities. Considerations of medical opinions will be in accordance 
with the principles in paragraph (a) of this section. A determination 
of incompetency should be based upon all evidence of record, and there 
should be a consistent relationship between the percentage of 
disability, facts relating to commitment or hospitalization, and the 
determination of incompetency.
    (d) Presumption in favor of competency. Where reasonable doubt 
arises regarding a beneficiary's mental capacity to contract or to 
manage his or her own affairs, including the disbursement of funds 
without limitation, such doubt will be resolved in favor of competency. 
See Sec.  5.3(b)(2), Standards of proof.
    (e) Due process. Whenever it is proposed to make an incompetency 
determination, the beneficiary will be notified of the proposed action 
and of the right to a hearing as provided in Sec.  5.83, Right to 
notice of decisions and proposed adverse actions. Such notice is not 
necessary if the beneficiary has been declared incompetent by a court 
of competent jurisdiction or if a guardian has been appointed for the 
beneficiary based upon a court finding of incompetency. If a hearing is 
requested, it must be held prior to a rating decision of incompetency. 
Failure or refusal of the beneficiary after proper notice to request or 
cooperate in such a hearing will not preclude a rating decision based 
on the evidence of record.
    (f) Effective date--(1) Incompetency determination. The effective 
date of a determination of incompetency is the date of the rating 
decision finding incompetency. (This paragraph (f)(1) does not apply to 
an incompetency determination made for insurance purposes under 38 
U.S.C. 1922.)
    (2) Competency determination. If a beneficiary previously 
determined to be incompetent is later determined to be competent, the 
effective date of the determination of competency is the date the 
evidence of record shows the beneficiary regained competence.
(Authority: 38 U.S.C. 501(a), 5502)


Sec.  5.791  General fiduciary payments.

    (a) Payments to a fiduciary and to or on behalf of a beneficiary. 
(1) Payment to a fiduciary. VA may pay benefits to a duly recognized 
fiduciary on behalf of a person who is mentally incompetent or who is a 
minor.
    (2) Direct payment to or on behalf of a beneficiary. If the 
Veterans Service Center Manager or Pension Management Center Manager 
determines that it is in the best interest of a mentally incompetent or 
minor beneficiary, VA may pay benefits, regardless of any legal 
disability on the part of the beneficiary, directly to:
    (i) The beneficiary; or
    (ii) A relative of the beneficiary, or another person, for the use 
of the beneficiary.
    (3) Direct payment to certain minors. Unless otherwise 
contraindicated by evidence of record, payment will be made directly to 
the following classes of minors without any referral to the Veterans 
Service Center Manager or Pension Management Center Manager:
    (i) Those who are serving in or have been discharged from the 
military forces of the United States; and
    (ii) Those who qualify for survivors benefits as a surviving 
spouse.
    (4) Immediate payment to spouse of incompetent veteran. Unless 
otherwise contraindicated by evidence of record, if a veteran has no 
guardian, VA may immediately pay benefits to the spouse of an 
incompetent veteran for the use of the veteran and his or her 
dependents prior to referral to the Veterans Service Center Manager or 
Pension Management Center Manager. See Sec.  13.57 of this chapter, 
Payment to the wife or husband of incompetent veteran.
    Cross Reference: Part 13 of this title regarding VA fiduciary 
activities.
    (b) Payment to the parent of the child. Where a child is in the 
custody of a natural parent, adoptive parent, or stepparent, benefits 
payable to the child may be paid to the parent as custodian of the 
child.
    (c) Payment to custodian-in-fact. All or any part of a benefit due 
a minor or incompetent adult, payment of which is suspended or withheld 
because payment may not be properly made to an existing fiduciary, may 
be paid temporarily to the person having custody and control of the 
beneficiary. See Sec.  13.63 of this chapter, Payment to custodian-in-
fact.
    (d) Payment to bonded officer of Indian reservation. Any benefits 
due an incompetent adult or minor Indian, who is a recognized ward of 
the Government, may be awarded to the superintendent or other bonded 
officer designated by the Secretary of the Interior to receive funds 
under 25 U.S.C. 14. See Sec.  13.62 of this chapter, Payment to bonded 
officer of Indian reservation.
    (e) Effective date for payment to a fiduciary. The effective date 
of payment

[[Page 2794]]

to a fiduciary is the first day of the month after the month for which 
VA last paid benefits.

    Note to paragraph (e):  The initial payment to the fiduciary 
shall include amounts withheld for possible apportionments as well 
as money in Personal Funds of Patients.

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


Sec.  5.792  Institutional awards.

    (a) General. When an incompetent veteran entitled to pension or 
disability compensation is a patient in a hospital or other 
institution, VA may pay all or part of the benefit to the chief officer 
of the hospital or institution for the veteran's use and benefit if the 
Veterans Service Center Manager or Pension Management Center Manager 
determines that such payment will:
    (1) Adequately provide for the needs of the veteran; and
    (2) Obviate the need for appointment of another type of fiduciary.
    Cross Reference: Sec.  13.61, Payment to the chief officer of 
institution.
    (b) Non-VA hospital or institution. (1) In an institutional award 
of pension or disability compensation, VA may pay to the chief officer 
of a non-VA hospital or institution on behalf of the veteran an amount 
determined under Sec.  13.61 of this chapter.
    (2) Any excess funds held by the chief officer of a non-VA 
institution under this section that are not necessary for the benefit 
of the veteran will be returned to VA or to a fiduciary, if one has 
been appointed.
    (3) If payments are being made to the chief officer of a non-VA 
hospital or institution, VA will deposit all sums otherwise payable in 
excess of the institutional award and any apportionments in Personal 
Funds of Patients.
    (c) Excess funds. Upon the death of an institutionalized 
incompetent veteran with no surviving heirs, excess funds will be 
returned to VA.
    (d) Apportionment. An institutionalized incompetent veteran's 
benefits may be apportioned to his or her dependents under Sec.  5.771, 
Special apportionments.
    (e) Effective date for payment of institutional award. The 
effective date of payment to the chief officer of a hospital or 
institution is:
    (1) The first day of the month after the month for which VA last 
paid benefits; or
    (2) On an initial or resumed award, the date of entitlement to 
benefits, subject to any amounts paid or withheld for apportionment of 
benefits.
    (f) Effective date for discontinuance of institutional award. The 
effective date of discontinuance of payment to the chief officer of the 
hospital or institution is the first day of the month after the month:
    (1) A fiduciary is appointed;
    (2) The veteran is discharged from the hospital or institution; or
    (3) The veteran is rated competent.

(Authority: 38 U.S.C. 501(a), 5307, 5502)


Sec.  5.793  Limitation on payments for a child.

    If a fiduciary has been appointed for a child because the child is 
a minor, then VA will not pay benefits to that fiduciary for any period 
beginning on the date that the child attains the age of majority under 
the law of the State where the child resides. For any period beginning 
on that date, if payment is otherwise in order, then VA will pay 
benefits as follows:
    (a) Competent child reaches age of majority. If the child is 
competent, then VA will pay benefits directly to the child. Under these 
circumstances, VA will retroactively pay the child any benefits that 
were not paid for a period before the child attained the age of 
majority.
    (b) Incompetent child reaches age of majority. If the child is 
incompetent, then VA will pay benefits to a fiduciary appointed for the 
child as a mentally incompetent adult unless benefits are paid directly 
to the child under Sec.  5.791(a)(2)(i), General fiduciary payments.


Sec.  5.794  Beneficiary rated or reported incompetent.

    (a) General. VA will not routinely suspend payments directly to a 
beneficiary who is or may be incompetent while any of the following is 
pending:
    (1) Development of the issue of incompetency;
    (2) Certification of a fiduciary by the Veterans Service Center 
Manager or Pension Management Center Manager; or
    (3) A recommendation by the Veterans Service Center Manager or 
Pension Management Center Manager that payments should be paid directly 
to the beneficiary.
    (b) Application. This policy applies to all cases including, but 
not limited to, cases in which:
    (1) Notice or evidence is received that a guardian has been 
appointed for the beneficiary;
    (2) Notice or evidence is received that the beneficiary has been 
committed to a hospital; or
    (3) The beneficiary has been rated incompetent by VA.


Sec.  5.795  Change of name of fiduciary.

    If a fiduciary changes his or her name because of marriage or 
divorce, VA will accept the fiduciary's statement of the name change.


Sec.  5.796  Child's benefits to a fiduciary of an incompetent 
surviving spouse.

    If benefits are payable to a surviving spouse for a child and the 
child is separated from the surviving spouse because of the surviving 
spouse's incompetency, no apportionment of benefits to the child is 
required. If the fiduciary is adequately taking care of the needs of 
the child from the surviving spouse's estate, either voluntarily or 
pursuant to a decree of court, VA may pay all amounts payable for the 
child to the fiduciary.


Sec.  5.797  Testamentary capacity for VA insurance purposes.

    When VA refers a case to an agency of original jurisdiction 
involving the testamentary capacity of the insured to perform a 
testamentary act (execute a designation or change of beneficiary or 
execute a designation or change of option), the following 
considerations will apply:
    (a) Testamentary capacity means that degree of mental capacity 
necessary to enable a person to perform a testamentary act. This 
generally requires that the insured:
    (1) Reasonably comprehend the nature and significance of his or her 
testamentary act, that is, the subject and extent of his or her 
disposition;
    (2) Recognize the object of his or her bounty; and
    (3) Appreciate the consequences of his or her testamentary act, 
uninfluenced by any material delusion as to the property or persons 
involved.
    (b) VA will consider all evidence of record, with emphasis being 
placed on evidence pertaining to the mental condition of the insured at 
the time, or nearest to the time, that the insured performed the 
testamentary act.
    (c) There is a general but rebuttable presumption that every 
insured person possesses testamentary capacity when performing a 
testamentary act. Therefore, reasonable doubt should be resolved in 
favor of testamentary capacity. See Sec.  5.3(b)(2), Standards of 
proof.


Sec.  5.798  Payment of disability compensation previously not paid 
because an incompetent veteran's estate exceeded $25,000.

    If a veteran who was denied payment of disability compensation 
under Sec.  3.853 of this title is subsequently rated competent for a 
continuous period of more than 90 days, the withheld disability 
compensation shall be paid to the veteran in a lump-sum.

[[Page 2795]]

    Cross Reference: Sec.  3.853 of this title, Incompetents; estate 
over $25,000 (denying payment of disability compensation to an 
incompetent veteran who had no dependents and had an estate that 
exceeded $25,000, during the period from November 1, 1990, through 
September 30, 1992).

(Authority: 38 U.S.C. 5505, as in effect before Nov. 2, 1994)

Sec. Sec.  5.799-5.809  [Reserved]

Payments to Incarcerated Beneficiaries


Sec.  5.810  Incarcerated beneficiaries--general provisions and 
definitions.

    (a) Definitions-- (1) Incarceration means confinement in a Federal, 
State, or local prison, jail, or other penal institution, including a 
private detention facility pursuant to an agreement with a Federal, 
State, or local unit of government. ``Incarceration'' does not include 
house arrest, parole, probation, work release, participation in a 
community control program, commitment to a halfway house or residential 
re-entry center, or confinement in a foreign country's prison.
    (2) Felony, for the purposes of Sec. Sec.  5.811 through 5.817, 
means any offense punishable by death or incarceration for a term 
exceeding 1 year, unless specifically categorized as a misdemeanor 
under the law of the prosecuting jurisdiction.
    (b) Classification of foreign offenses. A felony includes an 
offense that is prosecuted by a foreign country if the offense is 
equivalent to a felony under the laws of the United States. A 
misdemeanor includes an offense that is prosecuted by a foreign country 
if the offense is equivalent to a misdemeanor under the laws of the 
United States.
    (c) Length of incarceration. The 60-day periods of incarceration 
described in Sec. Sec.  5.811 through 5.813 begin on the day after the 
beneficiary is convicted of a felony (or misdemeanor for pension), if 
the beneficiary is incarcerated as of that date, even if the 
beneficiary is not sentenced on that date. For beneficiaries who are 
reincarcerated, such as after conditional release on probation or 
parole, VA will begin counting a new 60-day period on the first full 
day of reincarceration.
    (d) Requirement to inform VA. A claimant or beneficiary must inform 
VA when he or she becomes incarcerated for:
    (1) Conviction of a felony if the person is claiming or receiving 
compensation, pension, or dependency or indemnity compensation; or
    (2) Conviction of a misdemeanor if the person is claiming or 
receiving pension.
    (e) Notice to the incarcerated beneficiary. VA will send notice to 
the incarcerated beneficiary that dependents may be entitled to an 
apportionment while the beneficiary is incarcerated. The notice will 
also include information explaining the conditions under which VA may 
resume payments to the incarcerated beneficiary after the beneficiary 
is released from incarceration.
    (f) Effective dates. Payments of disability compensation, 
dependency and indemnity compensation, or pension will be reduced on 
the 61st day of incarceration after conviction of a felony. Payments of 
pension will also be reduced on the 61st day of incarceration after 
conviction of a misdemeanor.

(Authority: 38 U.S.C. 501, 1505, 5313)


Sec.  5.811  Limitation on disability compensation during 
incarceration.

    (a) General. VA will limit the amount of disability compensation 
paid to a veteran who has been incarcerated for more than 60 days after 
conviction of a felony if:
    (1) The veteran committed the felony after October 7, 1980;
    (2) The veteran was incarcerated on October 1, 1980, for conviction 
of the felony and was awarded disability compensation after September 
30, 1980 (This paragraph (a)(2) applies only to the payment of 
disability compensation after September 30, 1980.); or
    (3) The veteran was incarcerated on October 7, 1980, for conviction 
of the felony and remained incarcerated for that felony on December 27, 
2001. (This paragraph (a)(3) applies only to the payment of disability 
compensation after March 31, 2002.)
    (b) Retroactive awards. Whenever disability compensation is awarded 
to an incarcerated person, any amounts due for periods prior to the 
date of reduction under this section shall be paid to the incarcerated 
person.
    (c) Amount payable during incarceration-- (1) Veteran rated 20 
percent or more disabled. For an incarcerated veteran who is rated 20 
percent or more disabled for service-connected disabilities, VA will 
limit disability compensation to no more than the rate payable under 38 
U.S.C. 1114(a) for a veteran rated 10 percent disabled.
    (2) Veteran rated less than 20 percent disabled. For an 
incarcerated veteran who is rated less than 20 percent disabled for 
service-connected disabilities, VA will limit disability compensation 
to no more than one-half the rate payable under 38 U.S.C. 1114(a) for a 
veteran rated 10 percent disabled. This paragraph (c)(2) applies even 
if such a veteran is entitled to special monthly compensation under 38 
U.S.C. 1114(k) or (q).
    Cross Reference: For the rule on total-disability ratings based on 
individual unemployability that would first become effective while a 
veteran is incarcerated, see Sec.  5.284(b).

(Authority: 38 U.S.C. 501(a), 1114, 5313; Pub. L. 107-103, Sec. 506, 
115 Stat. 996-97)


Sec.  5.812  Limitation on dependency and indemnity compensation during 
incarceration.

    (a) General. VA will limit dependency and indemnity compensation 
(DIC) paid to a beneficiary who has been incarcerated for more than 60 
days after conviction of a felony if:
    (1) The beneficiary committed the felony after October 7, 1980; or
    (2) The beneficiary was incarcerated on October 1, 1980 for 
conviction of the felony and was awarded DIC after September 30, 1980. 
(This paragraph (a)(2) applies only to the payment of DIC after 
September 30, 1980.)
    (b) Amount payable during incarceration. VA will limit DIC to no 
more than one-half the rate of disability compensation payable under 38 
U.S.C. 1114(a) to a veteran rated 10 percent disabled.
    (c) Parents' DIC--Effect on non-incarcerated parent. If two parents 
are both entitled to DIC and were living together before the benefits 
payable to one were reduced due to incarceration, VA will determine 
entitlement to DIC for the other parent as if they were not living 
together.
    (d) Retroactive awards. Whenever DIC is awarded to an incarcerated 
person, any amounts due for periods prior to the date of reduction 
under this section shall be paid to the incarcerated person.

(Authority: 38 U.S.C. 501(a), 1114, 5313)


Sec.  5.813  Discontinuance of pension during incarceration.

    (a) General provision. VA will discontinue pension payments to or 
for a person who has been incarcerated for more than 60 days after 
conviction of a felony or of a misdemeanor. This section applies to any 
pension that VA administers under a public or private law.
    (b) Veteran entitled to pension and disability compensation. When 
an incarcerated veteran is disqualified from receiving pension payments 
under this section but is also entitled to disability compensation, VA 
will pay disability compensation in lieu of pension under either of the 
circumstances described in paragraphs (b)(1) or (b)(2) of this section.
    (1) If the veteran does not have a spouse or child, then the award 
of

[[Page 2796]]

disability compensation in such cases will be effective on the date 
pension is discontinued under this section.
    (2) If the veteran has a spouse or child but elects to receive 
disability compensation after VA has notified the veteran of the effect 
of electing disability compensation on the amount available for 
apportionment, then the award of disability compensation will be 
effective on the later of the date VA received the veteran's election 
or the date of discontinuance of pension under paragraph (a) of this 
section. (If the veteran does not elect disability compensation, 
pension will nevertheless be discontinued under paragraph (a) of this 
section.)

(Authority: 38 U.S.C. 501(a), 1505)


Sec.  5.814  Apportionment when a primary beneficiary is incarcerated--

    (a) Notice to dependents of incarcerated beneficiary. (1) When VA 
limits or discontinues benefits under Sec. Sec.  5.811 through 5.813, 
VA will send notice to any dependent of the right to apply for an 
apportionment if VA is aware of the dependent's existence and can 
obtain the necessary address.
    (2) If an apportionment is awarded, VA will send notice to the 
apportionee that VA will immediately discontinue the apportionment when 
the incarcerated beneficiary is released. The notice will also inform 
the apportionee that if the apportionee and the incarcerated 
beneficiary do not live together when the incarcerated beneficiary is 
released, the apportionee may submit a new apportionment claim.
    (b) Apportionment of disability compensation or dependency and 
indemnity compensation--(1) Eligibility for apportionment. (i) VA may 
apportion an incarcerated veteran's unpaid disability compensation to 
the veteran's spouse, child, or dependent parent.
    (ii) VA may apportion an incarcerated surviving spouse's unpaid 
dependency and indemnity compensation (DIC) to a child.
    (iii) VA may apportion an incarcerated child's unpaid DIC to the 
surviving spouse or to another child.
    (2) Amount of apportionment. The apportionment amount of a 
beneficiary's unpaid disability compensation or DIC benefits will be 
based on individual need. In determining individual need, VA will 
consider factors such as:
    (i) The amount of VA benefits available to be apportioned;
    (ii) The net worth, income, and expenses of the apportionment 
claimant(s); and
    (iii) The special needs of the apportionment claimant(s).
    (c) Apportionment of veteran's pension--(1) Requirements. VA may 
apportion an incarcerated veteran's unpaid pension to the veteran's 
spouse or child if all of the following conditions are met:
    (i) The veteran would continue to be entitled to pension if not for 
the incarceration;
    (ii) The annual income of the spouse or child is such that Improved 
Death Pension would be payable;
    (iii) If the veteran was receiving Old-Law Pension, the spouse or 
child was recognized by VA as the veteran's dependent before July 1, 
1960; and
    (iv) If the veteran was receiving Section 306 Pension, the spouse 
or child was recognized by VA as the veteran's dependent before January 
1, 1979.
    (2) Amount of apportionment. VA will apportion an amount of such 
unpaid pension equal to the lesser of:
    (i) The amount of Improved Death Pension that would be payable to 
the apportionee; or
    (ii) The amount of pension that the veteran received for the month 
before incarceration.
    (d) Allocation of death pension. The effective date rules in 
paragraph (e) of this section and in Sec.  5.816(c) apply to the 
allocation of death pension under this paragraph (d).
    (1) If a surviving spouse is disqualified from receiving pension 
payments under Sec.  5.813, VA may pay a child the rate of Improved 
Death Pension that would be payable if the incarcerated surviving 
spouse did not exist.
    (2) If a surviving child is disqualified from receiving pension 
payments under Sec.  5.813, VA may pay a surviving spouse or another 
child the rate of Improved Death Pension that would be payable if the 
incarcerated child did not exist.
    (e) Effective date of apportionment because of incarceration--(1) 
General. Except as provided in paragraph (e)(2) of this section, the 
effective date of an apportionment or allocation is the date VA 
receives an apportionment claim.
    (2) Specific effective dates--(i) Disability compensation, 
dependency and indemnity compensation, and disability pension. The 
effective date of an apportionment of disability compensation, 
dependency and indemnity compensation (DIC), or disability pension is 
the date of the reduction or discontinuance of benefits to the 
incarcerated primary beneficiary (that is, the 61st day of 
incarceration following conviction) if VA receives an apportionment 
claim no later than 1 year after the notice required by Sec.  5.810(e) 
(notifying the incarcerated beneficiary that his or her dependents may 
be entitled to an apportionment) and if any necessary evidence is 
received by VA no later than 1 year after the date of VA's request for 
the evidence.
    (ii) Death pension. The effective date of an allocation of death 
pension is the date of the discontinuance of benefits to the 
incarcerated primary beneficiary (that is, the 61st day of 
incarceration following conviction) if evidence of income is received 
by VA no later than 1 year after the date of VA's request for the 
evidence.
    (3) Retroactive awards. If VA retroactively grants an apportionment 
or allocation under this section, VA will:
    (i) Not re-pay to the apportionee any benefits previously paid to 
the primary beneficiary; and
    (ii) Consider any amounts that were paid to the primary 
beneficiary, but were due to the apportionee, as having been paid to 
the apportionee.

(Authority: 38 U.S.C. 501, 1505, 5313)


Sec.  5.815  Resumption of disability compensation or dependency and 
indemnity compensation upon a beneficiary's release from incarceration.

    (a) Effective date of benefit resumption. Except as provided in 
paragraph (d) of this section, if the beneficiary remains entitled to 
disability compensation or dependency and indemnity compensation (DIC):
    (1) The effective date of resumption of the full benefit rate upon 
a beneficiary's release from incarceration is the date of release if VA 
is informed of the release less than 1 year after the release. Payment 
of the full benefit rate is subject to paragraphs (b) and (c) of this 
section.
    (2) The effective date of resumption of the full benefit rate is 
the date VA is informed of the release if VA is informed of the release 
1 year or more after the release. Payment of the full benefit rate is 
subject to paragraphs (b) and (c) of this section.
    (b) Benefits were apportioned and all apportionees reunited. This 
paragraph (b) applies if VA apportioned benefits under Sec.  5.814(b) 
and the released beneficiary is reunited with all apportionees. For 
purposes of paragraphs (b) and (c) of this section, a dependent parent 
apportionee, receiving an apportionment under Sec.  5.814(b), will be 
considered as having been reunited with the beneficiary.
    (1) Effective date of apportionment discontinuance. As soon as VA 
is informed that the beneficiary has been released, VA will discontinue 
the apportionment effective the first day of the month after the month 
for which VA last paid the apportionment.

[[Page 2797]]

    (2) Retroactive payments to released beneficiary. For the period 
from the effective date of resumption of the full benefit rate to the 
effective date of the discontinuance of the apportionment, VA will 
retroactively pay the released beneficiary the full benefit rate minus 
an amount equal to the sum of:
    (i) The apportionment rate paid to the apportionee for that period; 
and
    (ii) The incarcerated rate paid to the beneficiary for that period.
    (c) Released beneficiary not reunited with all apportionees. This 
paragraph (c) applies if VA apportioned benefits under Sec.  5.814(b) 
and the released beneficiary is not reunited with all apportionees. For 
purposes of paragraphs (b) and (c) of this section, a dependent parent 
apportionee, receiving an apportionment under Sec.  5.814(b), will be 
considered as having been reunited with the beneficiary.
    (1) Effective date of apportionment reduction or discontinuance. As 
soon as VA is informed that the beneficiary has been released, VA will:
    (i) Discontinue the apportionment to an apportionee with whom the 
beneficiary is reunited effective the first day of the month after the 
month for which VA last paid the apportionment; and
    (ii) Reduce an apportionment to an apportionee with whom the 
beneficiary is not reunited to the additional amount payable to the 
beneficiary for the apportionee effective the first day of the month 
after the month for which VA last paid the apportionment. VA will pay 
the beneficiary the full benefit rate minus the new apportionment 
amount effective on date of the apportionment reduction.
    (2) Retroactive payments to released beneficiary. For the period 
from the effective date of resumption of the full benefit rate to the 
effective date of the discontinuance or reduction of the apportionment, 
VA will retroactively pay the released beneficiary the full benefit 
rate minus an amount equal to the sum of:
    (i) The apportionment rate paid to the apportionee for that period; 
and
    (ii) The incarcerated rate paid to the beneficiary for that period.
    (d) Conviction overturned on appeal. If a conviction is overturned 
on appeal and the beneficiary remains entitled to disability 
compensation or DIC, the effective date of resumption of the full 
benefit rate is the date of reduction of benefits. Payment of the full 
benefit rate is subject to paragraphs (b) and (c) of this section.

(Authority: 38 U.S.C. 501(a), 5313)

Sec.  5.816  Resumption of pension upon a beneficiary's release from 
incarceration.

    (a) Effective date of benefit resumption. If the beneficiary 
remains entitled to pension:
    (1) The effective date of resumption of pension upon a 
beneficiary's release from incarceration is the date of release if VA 
is informed of the release less than 1 year after the release. Payment 
of pension is subject to paragraphs (b) and (c) of this section.
    (2) The effective date of resumption of pension is the date VA is 
informed of the release if VA is informed of the release 1 year or more 
after the release. Payment of pension is subject to paragraphs (b) and 
(c) of this section.
    (b) Disability pension was apportioned. This paragraph (b) applies 
if VA apportioned a veteran's disability pension under Sec.  5.814(c) 
or disability compensation under Sec.  5.814(b) because the veteran 
elected to receive disability compensation in lieu of disability 
pension under Sec.  5.813(b)(2).
    (1) Effective date of apportionment discontinuance. As soon as VA 
is informed that the beneficiary has been released, VA will discontinue 
the apportionment effective the first day of the month after the month 
for which VA last paid the apportionment.
    (2) Retroactive payments to released beneficiary. For the period 
from the effective date of resumption of pension to the effective date 
of the discontinuance of the apportionment, VA will retroactively pay 
the released beneficiary the full benefit rate minus an amount equal to 
the sum of:
    (i) The apportionment rate paid to the apportionee for that period; 
and
    (ii) The incarcerated rate paid to the beneficiary for that period 
(under Sec.  5.813(b) if the veteran was entitled to disability 
compensation at the incarcerated rate).
    (c) Death pension was allocated. This paragraph (c) applies if VA 
allocated death pension under Sec.  5.814(d).
    (1) Effective date of reduction or discontinuance. As soon as VA is 
informed that the beneficiary has been released, VA will reduce or 
discontinue the rate of Improved Death Pension paid to a surviving 
spouse or surviving child under Sec.  5.814(d), effective the first day 
of the month after the month for which VA last allocated Improved Death 
Pension.
    (2) Retroactive pension payments to released beneficiary. For the 
period from the effective date of resumption of pension to the 
effective date of the reduction or discontinuance of pension to a 
surviving spouse or surviving child, VA will retroactively pay the 
released beneficiary the full benefit rate minus an amount equal to the 
difference between:
    (i) The rate paid to the surviving spouse or surviving child under 
Sec.  5.814(d) for that period; and
    (ii) The rate that would have been payable to the surviving spouse 
or surviving child for that period if the released beneficiary's 
pension had not been discontinued under Sec.  5.813.

(Authority: 38 U.S.C. 501(a), 1505)


Sec.  5.817  Fugitive felons.

    (a) General rule. VA will not pay or apportion disability 
compensation, dependency and indemnity compensation, or Improved 
Pension to, for, or on behalf of a person for any period during which 
that person is a fugitive felon.
    (b) Definitions. (1) Fugitive felon means a person who is:
    (i) Fleeing to avoid prosecution for a felony or for an attempt to 
commit a felony;
    (ii) Fleeing custody or confinement after conviction of a felony or 
conviction of an attempt to commit a felony; or
    (iii) Fleeing to avoid custody or confinement for violating a 
condition of probation or parole imposed for commission of a felony 
under Federal or State law.
    (2) Felony. For purposes of this Sec.  5.817, felony refers to an 
offense that is classified as a felony under the laws of the place from 
which the person flees; however, it also includes an offense classified 
as a high misdemeanor that would be a felony offense under Federal law.

(Authority: 38 U.S.C. 5313B)


Sec. Sec.  5.818-5.819  [Reserved]

[FR Doc. 2011-228 Filed 1-13-11; 8:45 am]
BILLING CODE 8320-01-P