Of course....this is nothing new and is a longstanding diagnosis. Anyone who is adjudicated as "incompetent", veteran or not, is the very definition of what is considered a seriously mentally ill person. Not only can they no longer own guns but they can no longer make any decisions for them self, a caretaker will be placed in charge of all their affairs including finances and other important life decisions. These are the people who would have been institutionalized just a couple of decades ago.
This is not some lax standard they just throw around, it is a very serious diagnosis which must be proven and may be contested. Very few people reach this level and it pretty much encompasses the very top end of the scale which includes people who just cannot function in society in their present state.
It is what is referred to in question F on the Federal 4473.
f. Have you ever been adjudicated mentally defective (which includes having been adjudicated incompetent to manage your own affairs) or have you ever been committed to a mental institution?