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"A War That Must Be Won: Why Veterans Should Emerge Victorious In Their Battle Against The VA's Flawed Fiduciary System" by Benjamin Pomerance

A War That Must Be Won: Why Veterans Should Emerge Victorious In Their Battle Against The VA's Flawed Fiduciary System

by Benjamin Pomerance


Robert Solze was evaluated to be 100% disabled by the United States Veterans Administration (VA) in 2011. See Order To Show Cause at 2, Solze v. Shinseki, No. 12-1512 (United States Court of Appeals for Veterans' Claims 2012). Based on the effective date of his filing, the VA also awarded him a substantial amount of money in retroactive disability compensation benefits: a grand total of more than $10,500. Id.

Yet the 90-year-old retired Lieutenant Colonel from the Marine Corps has seen very little of these benefits. See id.; see also Petitioners' Response to the Secretary's Show Cause Response at 10, Solze v. Shinseki, No. 12-1512 (United States Court of Appeals for Veterans' Claims 2012). In fact, the VA has not paid one cent of his benefits since September 2011. See Solze, Order To Show Cause at 3 (stating that at that point, the VA "payments stopped without notice."). And if the agency has its way, Lt. Col. Solze will never have any control over his VA benefits for the remainder of his life.

The problem arose from a VA determination in April 2011 that Solze was incompetent, and thus could not properly manage his benefits. See Solze, Petitioners' Response, Exhibit A (Letter from the Togus Regional Office of the VA to Robert Solze informing him of the VA's findings that he was not competent to manage his VA benefits). From here, the steps would seem to be simple. A decade earlier, he had executed a durable Power of Attorney, naming his wife as his attorney-in-fact -- the person who would manage Solze's financial affairs in his best interest if he became incapacitated -- and naming his daughter as his alternate. Solze, Order To Show Cause, at 2. By the time the VA declared Solze incapacitated, his wife had passed away, but his daughter was still alive. Id. In fact, she had been caring for her father's financial matters for more than a decade. Id. Logically, one would expect that Solze's daughter, under the authority of her father's durable Power of Attorney, would automatically step in to manage his VA benefits, just as she had done for his other financial concerns. See id.

Yet there was a problem. The VA does not recognize durable Powers of Attorney when it comes to deciding who should manage the benefits of a veteran whom they deem incompetent. See, e.g., 38 C.F.R. §13.55 (2012); see also H.R. REP. No. 112-678, Amending Title 38, United States Code, to Improve the Supervision of Fiduciaries of Veterans Under the Laws Administered by the Secretary of Veterans Affairs, And for Other Purposes, at Sect. 2 (2012), available at http://www.gpo.gov/fdsys/pkg/CRPT-112hrpt678/pdf/CRPT-112hrpt678.pdf. Instead, the agency, pursuant to their standard procedure, declared that they should appoint a fiduciary on Solze's behalf. Solze, Order To Show Cause, at 2. Solze's daughter would have to submit to a field examination by VA personnel in order to be considered as a candidate to accept her father's VA benefits on his behalf. See 38 C.F.R §13.2 (2012) ("Field Examinations").

Even then, the VA could unilaterally determine that Solze's daughter was unfit and appoint someone else -- even somebody whom Solze had never laid eyes on -- to fill the fiduciary's role. See, e.g., H.R. REP. No. 112-678, at Sect. 2; Eric Nalder & Lise Olsen, Disabled Vets' Families Fights VA Over Fiduciaries, HOUSTON CHRONICLE, June 18, 2012; PRO8NEWS, May 24, 2011; John Schwartz, Instead of Helping, Trustee Program is Hurting Veterans>, Families Say, N.Y. TIMES, Apr. 7, 2011. When Solze's daughter objected, citing the Power of Attorney and her decade-long rack record of managing her father's finances as evidence that he was being "very well cared for," the VA ultimately stopped paying Solze's benefits entirely. Solze, Order To Show Cause, at 2-3.

For now, this is a story without an ending. Currently, Mr. Solze's case is pending before the United States Court of Appeals for Veterans Claims. See id. at 5. How the Court decides this case could play a major role in the future of perhaps the most damaging aspect of the VA's system for older veterans: the agency's "fiduciary process." One can only hope that it will at least mark the turn in the correct direction for a program that has gotten severely off track.

A System That Ultimately Hurts More Than It Helps

Up front, the fiduciary concept seems acceptable. In situations where the VA deems a veteran beneficiary unable to manage his or her own benefits, the VA possesses the discretion to appoint a fiduciary to accept the payments on the veteran's behalf and use the money in the veteran's best interest. See 38 U.S.C. §5502 et seq. (2012); 38 C.F.R. §13.1 (2012). The fiduciary would protect the incapacitated veteran, using the money to pay the veteran's bills in a timely manner and to ensure that the veteran had adequate "food, shelter, clothing, medical expenses, and other necessities." H.R. REP. No. 112-678, at Sect. 2

Additionally, the federal regulations for this program provide due process safeguards for the veteran's personal autonomy. For instance, absent medical evidence which "leaves no doubt as to the person's incompetency," the regulations prohibit the agency from finding the veteran to be incompetent. 38 C.F.R. §3.353 (c) (2012). Any doubts are to be resolved in favor of a finding that the veteran is competent. 38 C.F.R. §3.353 (d) (2012). Such standards are meant to protect the veteran's ability to use his or her own benefits unless the veteran clearly lacks capacity to do so.

Yet like other apparently-well-intentioned policies discussed in this article, the VA fiduciary system has not produced desired results. Instead, it has created a messy situation of delay, corruption, and actions which seem to run contrary to some of the United States' most basic principles of justice.

i. Failure To Honor A Veteran's Power Of Attorney

Of all the flaws in the fiduciary program, the worst may be the VA's failure to recognize durable Powers of Attorney. As a result of this, a veteran who uses a legal instrument to assign a particular individual -- presumably somebody whom he or she knows and trusts -- to manage his affairs in the event of his incompetence is denied this right once his or her faculties are gone. Instead, the veteran must rely on the VA field examiners to decide whether to appoint the person named in the Power of Attorney as the fiduciary for his VA benefits. See 38 C.F.R. §13.2 (2012) (implicitly showing the VA's authority to do this).

Thus, instead of honoring the autonomy of the veteran, and the conscious choice he or she made by appointing an attorney-in-fact, the veteran becomes helpless as the agency takes over this decision. In the end, if the VA does not find the individual appointed as attorney-in-fact to be qualified, the veteran's autonomy can be stripped even further, potentially leaving the veteran with a complete stranger controlling his or her money from the VA. See, e.g., Lise Olsen, Some Vets' Money Managed--And Stolen--By Scoundrels, HOUSTON CHRONICLE., June 18, 2012; Witness Testimony of Katrina J. Eagle, supra; Schwartz, supra.

ii. >"Hiding The Ball" From Veterans

Yet this serious issue is far from the only problem. After the VA appoints a fiduciary, the agency then sends the veteran's payments every month into a bank account over which the fiduciary has exclusive and complete control. See Witness Testimony of Katrina J. Eagle, supra, at 6. Neither the veteran nor a person appointed by the veteran as attorney-in-fact has any access to this bank account. Id. In fact, they are not even told the location of the bank in which the account housed. Id.

To make matters worse, the fiduciary is not required to provide any type of accounting to the veteran noting how the money from their VA benefits is being spent. See id.; see also H.R. REP. No. 112-678, at Sect. 2. Furthermore, the fiduciary is prevented by law from releasing any significant amount of funds from that account to the veteran without pre-approval from the VA. See Interview with Katrina Eagle, supra. Because of the VA's substantial power in this situation, the fiduciaries have been described in testimony before Congress as "micro-managed agents of [the] VA." Witness Testimony of Katrina J. Eagle, supra note 398, at 4.

iii. Fiduciaries Breaching Their Fiduciary Duty

Far too many of these agents arrive with their own set of problems. Convicted felons --including individuals with a history of financial crimes such as tax fraud -- have been appointed as fiduciaries by the VA. See Jennifer Kraus, VA Hires Convicted Felon to Manage Veteran's Money, CBS (Nashville), Feb. 21, 2011; Olsen, supra; Schwartz, supra. Perhaps not surprisingly, a troubling number of fiduciaries have embezzled significant amounts of benefits money from the veterans whose interests they were assigned to represent. Between October 1998 and March 2010, there have been 132 arrests and more than $7 million recovered for fraud perpetrated by VA fiduciaries. See Schwartz, supra ; see also Eric Nalder & Lise Olsen, Disabled Vets Increasingly Cheated by Fund Managers, SAN FRANCISCO CHRONICLE, June 17, 2012,; Press Release, Houston Attorney and Wife Charged With Misappropriating Funds of Veterans, Making False Statements and Tax Fraud, U.S. Dep't of Justice, June 29, 2010; H.R. REP. No. 112-678, at Sect. 2.

Other issues have arisen from fiduciaries refusing to permit veterans to use money from their VA benefits for certain basic personal needs. In one egregious case, a fiduciary refused to release funds to an older incapacitated veteran for air conditioner repairs in the middle of summer, stating that the VA found the expense to be frivolous. Witness Testimony of Katrina J. Eagle, supra, at 4. In another, the fiduciary rejected a request to release funds to pay for medication which the veteran needed for a heart condition. See id. In still another, a fiduciary simply refused to pay the veteran's utility bills. H.R. REP. No. 112-678, at Sect. 2.

For this work, the fiduciary is eligible to receive a commission of up to 4% of the annual benefits that the veteran receives from the VA -- a commission rate higher than that of Social Security's much larger Representative Payee Program. 38 C.F.R. §13.64 (b) (2012); H.R. REP. No. 112-678, at Sect. 2. Beyond this, reports have shown that certain VA field examiners have violated the law by permitting fiduciaries to take commissions from non-VA benefits as well. See, e.g., Rick Maze, Lawmakers OK Tighter Rules for Vet Fiduciaries, ARMY TIMES, July 11, 2012.

Additional problems stem from the interactions between VA fiduciaries and the family members of the incapacitated veteran. Not surprisingly, this is often a relationship that is contentious at best and dysfunctional at worst. See Interview with Katrina Eagle, supra. Family members can end up using their own savings to assist these veterans while the veteran's payments from the VA sit in a separate bank account, far from the veteran's control. See, e.g., Nalder & Olsen, supra; Schwartz, supra. When family members try to object to the VA, they are too commonly treated with undue suspicion, and are rarely granted any meaningful information from the agency. em>See, e.g., Nalder & Olsen, supra; Schwartz, supra.

Judicial Review At Last . . . But Still Not Enough

Thankfully, a veteran -- or a person legally appointed as an attorney-in-fact or a guardian for that veteran -- now retains the right to appeal VA fiduciary appointments. This right of judicial review for fiduciary appointments was not instituted until 2011, when the Court of Appeals for Veterans Claims decided the case of Freeman v. Shinseki. 24 Vet. App. 404 (2011). Today, these appointments can be appealed to the Board of Veterans' Appeals. See id. at 417-18. Adverse decisions from the Board can be appealed to the Court of Appeals for Veterans Claims, an Article I court which maintains jurisdiction over appeals by veterans regarding their VA benefits. Id. at 417.

Still, this right of appeal, while a vital improvement for the rights of veterans, is not the panacea that it seems at the outset. Given the sheer number of cases in the appellate system, this is hardly a pathway for quick relief for a veteran wronged by the VA's fiduciary program. In the words of a recent House of Representatives report focusing on flaws in the fiduciary system, "the appeals process . . . is difficult, slow, and often results in healthy, capable veterans being unable to remove themselves from the program." H.R. REP. No. 112-678, at Sect. 2.

Indeed, a veteran appealing to the Board of Veterans Appeals waits an average of 886 days for his or her case to be decided. See Witness Testimony of Katrina Eagle, supra, at 3. If the veteran ends up bringing his or her case before the Court of Appeals for Veterans Claims, the battle can stretch on for several years. See id. Thus, even if a veteran is ultimately successful on appeal in terminating a damaging VA fiduciary appointment, the veteran -- and, quite likely, his or her family -- would still suffer for this significant period of time before the matter is resolved.

A Call For Overhaul, And Some Brief Suggestions Of How To Do So

Today, more than 110,000 veterans have their benefits in accounts under fiduciary management. See John Schwartz, Court Rules Against V.A. on Fiduciaries, N.Y. TIMES, Apr. 27, 2011. More than $3 billion is currently under the control of these VA-appointed fiduciaries. Id. A system of this magnitude should not be permitted to operate with so many fundamental flaws remaining unchecked. Veterans and their family members are being hurt by these shortcomings, particularly elderly veterans and their families. Changes are greatly needed before more veterans are wronged.

If there is a single VA benefits-related program which must be eliminated to curb injustice, then the VA's tortured fiduciary system is that program. While there are certainly plenty of upstanding, honest fiduciaries who look out for a veteran's best interest, the very nature of this arrangement goes against some of the most rudimentary concepts of justice that we recognize in our nation.

Every state in the United States recognizes the legally binding status of a Power of Attorney. See LORI STIEGEL & ELLEN KLEM, POWER OF ATTORNEY LAWS: CITATIONS, BY STATE, American Bar Assoc. Comm. On Law and Aging (2008). Under those state statutes, a validly executed Power of Attorney must be respected unless there is some reasonable cause to doubt the attorney-in-fact's authority or if the attorney-in-fact is trying to breach his or her obligation to act in the principal's best interest. See id. Under the VA's fiduciary system, however, the VA is permitted to go against the wishes of a veteran as expressed in a legal document and appoint a total stranger to manage that veteran's benefits.

There are no piecemeal fixes that can revise such a system. First and foremost, the VA must be required by law to recognize the authority of a veteran's validly executed Power of Attorney. Holding otherwise allows this agency to circumvent a basic precept of the American legal system: that an individual possesses the right to determine what should happen with his or her personal property within the bounds of the law. Given that veterans have a constitutional due process property interest in their VA benefits, including those benefits which they are to be paid in the future, it is unjust in every way for the VA to unilaterally assign those benefits to somebody other than the person whom the veteran has chosen to manage his or her assets. As veterans' rights attorney Katrina Eagle put it, "The VA accepts marriage license and birth certificates on their face. A Power of Attorney should be the same thing." Interview with Katrina Eagle, supra.

In addition to this, veterans who do not have a valid Power of Attorney in place should also not be without rights. The VA should require all fiduciaries to provide a monthly accounting to the veteran stating how much the veteran is receiving in VA benefits and precisely what that money is being used for (i.e., how much is presently in the bank account, how much was used during that month for medical expenses, how much for food, etc.).

A more intensive screening process is also necessary to prevent individuals who are convicted felons or who do not have the requisite knowledge about their fiduciary duties from serving in this important role. And without a doubt, the VA should provide greater oversight over these fiduciaries, removing those who are breaching their vital obligation toward the veteran in their care.

With the outcome of Solze and other cases currently hanging in the balance, the landscape of the VA's fiduciary program could change significantly in the upcoming years. Rather than waiting for the courts to force their hand, however, the VA should do the right thing and implement these badly needed alterations to this system. A basic sense of justice for these men and women who served our nation demands it.

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This page contains a single entry from the blog posted on November 12, 2012 10:47 PM.

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