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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  • Is it ok for a church to take money ear marked for building funds in a cd to a low risk nutual fund as long as the church approves it by vote and documents.

  • Mary Fletcher says on

    Pastor has a vision to build a building and asks all members to adopt the plan. Plan is approved at church meeting. Pastors leaves for another church within a year and there is 19000 in the fund for his vision. I was told by the chairman of the deacon board once I give money to the church, it belongs to the church and no money is refunded because the building will not be built. It becomes a donation and the church can use it how they want. Does the church have the right to move money from this fund and use how they want without contacting the donors?

  • Sharon Burrow says on

    Can the church add designated money as income like tithes and offerings? My pastor said to add the designated money into the tithes and income line..?

  • Thankyou for this. Legally who owns the funds, the designated ministry or the church?

  • Question:
    RE: Directed Gift tax-deductible vs Restricted Gift not tax-deductible

    1) Will solicited church contributions made toward a particular pastor’s (eg Pastor J’s ) retire plan be tax deductible?
    Or, will those be considered ‘restricted gifts’ and therefore would not be a ‘tax deductible’ gift?

    2) If solicited gifts are made toward a ‘general’ Pastor Retirement Fund, not specifying anyone (although we only have two pastors), would those contributions be tax deductible?

  • Could you paint for me a picture of “clear guidelines for dealing with designated funds?” What might that look like? I’d like for our board to work on this and be able to come up with guidelines or revise someone’s existing guidelines to fit who we are.

  • Rick Orillion says on

    I know this was posted a year ago but I have a question. Our church has capital campaigns from time to time and also puts our a “Wish LIst” once a year. If I contribute to these can I count it as part of my 10% tithe. I struggle financially making my tithe. I’m sure the answer is no but I am very active in our Worship Service. I am the lead Elder on the Worship Team and Worship is very dear to my heart as is our Youth Program. It has been shown time and time again in our church that giving to these does not take one dime away from operational giving.

  • Linda crigler says on

    I have a question. If someone gives a designated gift as their tithe to something ( church mortgage) that is already in the budget, how would you handle that.? The mortgage has already been paid this month, and the tithe is needed to pay other bills. Should we refuse the check and of course have a discussion with the church membe.? Obvisously they are trying to make a statement, but do not understand the consequences.

  • I agree that there should be very few, if any, designated funds.

    If the church is in a building campaign (building, expanding, renovating, or paying off the old debt) then a fund for that would be fine. If the church has designated offerings during the year for missions (like the SBC does) then those offerings should go to those causes.

    Otherwise the bylaws should clearly state that the church reserves the right to use the funds for any purpose it deems necessary.

    • Frank Martinez says on

      Our Parish has two donation envelopes for each Sunday. One is for a general donation and the other specifically labeled “Building Fund”. Members of the church that donate into the “Building Fund” donate with the understanding that the money will go towards maintenance of the Church Building specifically. So every week that “Building Fund” collection gets deposited into the Bank into a Trust Fund. Then when the building needs to have some maintenance repairs done the Pastor says to us that there is no money for the repairs and that the cost for the needed repairs will have to be accomplished by donated materials and donated labor. Any one have some insight as to why money from the trust fund can’t be used to pay for the needed repairs?

  • I have a question and I am needing some guidance. We have a soundbooth “ministry team” that pretty much sustains it’s own Designated Fund for the soundbooth ministry. The members of this soundbooth team will not allow staff members to utilize this fund for a new projector and screen (this falls under their ministry) although the need is there. They spend the fund on what they feel is needed instead. Is this kind of DF control normal? My thought is this: they are a group of ministry volunteers who give money to a fund they want control of. In my estimation, this means their contribution to this fund should no longer be tax deductible since the “church” does not have control or the leadership has no ability to use the funds even though the purchase is related to the soundbooth ministry realm.

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