Five Dangers of Church Designated Funds

If there is a topic that reaches me with frequency, it is the topic of church members designating funds. And the common theme is one of regret. The pastor or other church leader wishes the door of designated funds had never been opened.

For clarity, I am not speaking of designated funds approved by the church body as a whole. Many churches have excellent stewardship approaches that encourage members to give to a building fund or a mission fund, as two examples.

Instead, I am referring to those designated funds given to the church by a single or few members with guidelines not approved by the church as a whole. For example, one pastor shared with me about funds the church received with the strict stipulation that the church had to use them to buy stained-glass windows. The only problem is the church did not want to purchase stained-glass windows.

In another example, a pastor shared with me about a member who would only give designated funds to the youth ministry. The problem is that the youth ministry already had funds in the church budget, but these designated funds gave the youth ministry disproportionate funding compared to the other ministries. To make matters worse, the youth ministry was encouraging the donor to make the designated contribution.

So designated funds are not an intrinsic problem themselves. But they can become a dangerous precedent for several reasons. Here are five of them:

  1. They circumvent the will and the plan of the church as a whole. Designated givers are basically saying they don’t like the unified budget of the church, so they are going rogue and dictating their preferences over the church as a whole. A church with numerous designated funds can find it has a budget with no teeth.
  2. They create division in the church. Each designated giver is doing things his way or her way. Others tend to resent the imposition of will the person demands. Disunity is thus a natural consequence.
  3. They create an environment where advocates of a particular ministry or need of the church solicit designated funds. The youth minister in the example above spent an incredible amount of time and energy currying the favor of designated giving to the youth fund. Instead of ministering to the students, he was spending as much time becoming a fundraiser.
  4. They often come with stipulations that are difficult or impossible to comply. I recently heard from a pastor whose church had a designated endowment fund. The donor to that fund, however, established investment guidelines many years ago that required certain investment instruments that no longer exist.
  5. They often hurt the budget giving of the church. The person who designates to the youth fund is likely taking dollars that would have normally gone to the budget as a whole. In many cases, each designated dollar is thus a dollar deducted from the overall budget.

I encourage church leaders to develop clear guidelines for dealing with designated funds. It will make saying no to a potential donor much easier. And it will also send a clear message that the church seeks to move forward in stewardship unity, rather than different members deciding what their own financial preferences and whims are.

Posted on February 19, 2018

With nearly 40 years of ministry experience, Thom Rainer has spent a lifetime committed to the growth and health of local churches across North America.
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  • Sometimes designated giving is necessary to have the money necessary for children’s programs and youth programs. The church I attended would draw up a budget each year, spend money on non budgeted items or give salary increases above what was originally approved. Then say that there were not funds for the budgeted items for the children and youth due to cash flow problems. I gave the funds necessary for their books and snacks. After reading the Autopsy of a Dying Church, I realized where the church was headed.

    • Christina Thom says on

      We were giving more money to senior ministries than children’s ministries at my old church. The bishop visited my old church last week and my new church (10 years) this week. There was one child in the whole church at my old church and 25 young people between the 6th and 12th grade in my knew church. Not to mention the whole nine o’clock service set aside for the under 10 crowd. 50 years ago our church took a leap of faith and started a school. We are a go to place for just about anyone . We have about every combination of marriages that you can think of. Youth are a not just an other ministry they are our future!

    • Was your church ever held responsible for doing that? Were there any consequences for your church, when they spent the designated giving? What is one supposed to do when their own church is doing the same thing? Are there any laws against them spending the designated giving?

  • This problem is usually solved by labeling EVERYTHING
    as SUGGESTED…….That leaves options open……Our
    board is even “Advisory”………..They still have a say, but
    the ultimate decision is decided by the Pastor…..He will
    not ”stray” far from the opinions of the people…..they
    show their disapproval….It works well…….

  • Robert H Wright Jr says on

    Church members and friends designate funds because they do not trust the church.

  • Carrie Lohr says on

    I’m in children’s ministry. Many times someone will see a need in that department and will want to take their tithe to go buy item to fix that need. I always discourage this. I tell them that they are only seeing one area of the church and that the church has many needs. The leadership is aware of the need, but other needs take priority & if they take their tithe to fix what their perceived need is then the real needs aren’t addressed. I tell them imagine the damage that would be done to the church if everyone did this.

  • Weary & Worn says on

    And don’t forget the person who decides to “tithe to a ministry” instead is to the general offering, because they disagree with the pastor or the church. The actual statement was, “I don’t want my money going into the pastor’s pocket.”

    So many things wrong in this scenario. So much immaturity displayed.

    Some days, it simply boggles the mind.

  • I agree 100%. When individual church members are allowed to create designated funds at their own whims, chaos will be the inevitable result.

  • Friends, just because someone designates funds does not mean the elders or the pastor or the 501c3 are obligated to spend it on that thing. We may FEEL obligated but legally, ethically, and biblically we are not. To be sure, we will need wisdom and grace to thank the donor and explain to him/her why we won’t be able to use the funds for the specified purpose. You might offer them the chance to re-designate to an approved fund or, if the relationship is especially strained, even offer to give their money back. But the bottom line is once someone gives money to a church the church can spend it on whatever is deemed most pressing by the leadership.

    A more awkward situation to navigate is when so-and-so returns from an overseas trip to Israel with a very large, very expensive, (very gaudy) tapestry and expects it to be hung in the foyer or in another prominent and visible location. This may or may not be a hypothetical example!!

      • Gayle Marshall says on

        At one of the finance seminars, your CPA Tony made it clear that designated funds that are without written rules are locked in to what they are named for, eg, the “New Organ Fund”, from decades ago, with thousands of $$ and we do not anticipate ever spending that on a new organ. He directed us to contact a lawyer to see if court allowed the release of funds that are obsolete. All our designated funds are sadly, without written rules, but we know now to write them before accepting any money into a new account.

      • Prior to my becoming pastor at our church one family donated money designated for a new organ fund. Approximately $1,000 was in that fund for many years. Everyone Iin the church related to the donor family passed away many years ago. We even tried to locate distant family members but unsuccessfully. The money just stayed in the account. Then we had an idea on how to finally use the fund on a practical need. as the finance committee approved spending the fund on another keyboard. That’s technically an organ for 21st century. Yes. I agree Dr Ranier, designated funds can be a real problem in practically using funds for kingdom investments

  • In order for the donor to receive tax credit for the non-profit donation, they must release the final decision on how the money is spent to the church leadership (could be Elder board, trustee board, or congregation depending on the governance structure). So while we make EVERY effort to comply with the donors stated desires (designation) it does not handcuff use of those funds unless donor has waived tax credit. That is my understanding and thus we tend to encourage our donors to trust leadership to use funds as they see fit covered by prayer and seeking of the Holy Spirit’s direction.

  • Sometimes though there will be an un(der)funded area that needs some direct money. Also, the unified budget process might be resulting in one or more groups getting starved of money who don’t have supporters at the budget meetings. There always seemed to be a shortage of money for some groups and plenty of money for others.

    • Richard Smith says on

      VERY TRUE! Unfortunately, there are some that initiate a fund that THEY want rather than contributing under GOD’S GUIDANCE.

  • It’s my understanding that funds given for things not approved by the Congregation are not tax deductible. That comes from our Church Treasurer, who is also a CPA in private practice for 20+ years. If that’s true, and I have every confidence it is, that should eliminate the problem. Few people are willing to give significant funds if they aren’t getting a tax deduction in return. We have a Church policy that precludes the receipt of designated funds for things the Church has not approved. Members may ask for Church approval prior to making their donation, and we honor their request by putting their recommendation on the agenda for our twice annual Business Conference. If the Church approves it, it’s fine. If not, no funds are given. We’ve only had that happen once in my 27 years and the Church did approve the request. We have lots of money given “designated to existing ministries.” That, too, creates heartburn at times. Well to do families may give generously when their children are in our children’s ministry programs. When their children move up to youth , the funds are shifted to youth ministry. Our Staff has learned to enjoy it while it lasts because it won’t last forever.

  • Jarrod Almond says on

    They are also non tax deductible as described in the examples. If a gift is given with “strings attached” that don’t fall in to something the governing body of the church has pre established or in the normal realm of a church ie. building fund the IRS says they are non tax deductible. You get some angry conversations come giving statement time.

    • Thom Rainer says on

      You are correct, Jarrod, but many many churches do not follow IRS guidelines on this issue. It can get them and the donor in trouble.

  • I totally agree!

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