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Court Rules Against V.A. on Fiduciaries

A federal appeals court has told the Department of Veteranís Affairs to loosen its grip on benefits decisions for veterans who have been declared incompetent.

The department appoints fiduciaries to manage the benefits of veterans who are no longer able to take care of themselves. There are 110,000 veterans’ accounts under fiduciary management, and the total value is about $3.2 billion.

Veterans’ families have argued in several recent cases that they do not want the financial minders appointed by the department, as an article in The New York Times reported earlier this month.

When families have sued, however, the department has generally argued that while families may have input in the decision to appoint a fiduciary, once the minder is in place the relationship is solely within the jurisdiction of the Department of Veterans Affairs and is not subject to judicial review.

On Tuesday, the United States Court of Appeals for Veterans Claims in Washington ordered the secretary of Veterans Affairs and his department to take a second look at that argument.

In a 20-page opinion, the three-judge panel approved a request to force the department to accept a “notice of disagreement” with the appointment of a fiduciary. The request was made on behalf of the family of William E. Freeman, a veteran with schizophrenia whose sister, Debora C. Allen, wants to manage his affairs. Families should not be shut out of fiduciary decisions, the court found: the laws, regulations and court decisions governing the issue “provide legally meaningful standards by which to evaluate the appointment of a fiduciary,” and the Freemans should be heard.

A spokesman for the Department of Veterans Affairs said that the department could not comment on individual cases, but stated: “The purpose of the Fiduciary Program is to protect the benefits paid to the most vulnerable veterans and beneficiaries who are unable to manage their own financial affairs. It is the Department of Veterans Affairs’ policy to ensure fiduciary decisions, made after careful and appropriate investigations, are based on what is determined to be in the veteransí best interests.”

Douglas J. Rosinski, the lawyer for Mr. Freeman and several other veterans’ families seeking to take back control of benefits, said that instead of protecting “the most vulnerable veterans,” the department had allowed the process “to operate for the benefit of the V.A. and the so-called fiduciaries it enables to ignore, abuse and steal from the veterans that it ensnares.”

He said the federal court’s decision could be “one of the most important in some time because it opens up a previously impenetrable and arrogant part of the V.A. to judicial oversight.” The department needs to take the lead in reforming its processes, Mr. Rosinksi said, “instead of continuing to litigate these issues one by one.”

“Either way, change will occur,” he added. “It is up to V.A. how it comes about.”

Jim Strickland, an activist who writes about veterans affairs on his blog, VAwatchdogtoday.org, and has followed the Freeman case, said, “The unanimous decision by the panel of judges at C.A.V.C. begins to right a wrong perpetrated by V.A.” He called the fiduciary system “corrupt and arbitrary.”

The judges’ decision contains a somewhat surprising footnote. It suggested that the process of paying fiduciaries as much as 4 percent of the veterans’ benefits raises issues of a property right that “is clearly potentially affected” by the arrangement, and pointed out that even a 3 percent payment from the benefits in Mr. Freeman’s case, if applied to the $3.2 billion in managed accounts, “would amount to $96 million in fiduciary fees.”

That might suggest that the court is interested in taking a deeper look at whether the fee system is unjustly enriching fiduciaries at the expense of veterans.

Read the testimony of Attorney Doug Rosinski before the House Committee on Veterans Affairs here: