The largest amount of funds most churches receive are called “undesignated giving” or “general fund giving.” These gifts are used toward the ministry and general operating budget of the church. There are no restrictions to fund a very specific cause.
The other category is called “designated giving.” The donor specifies exactly what he or she wants to be done with the money. To be clear, there is a place in churches for designated giving. Unfortunately, most church leaders have not considered the problems that are often associated with these gifts. I see churches dealing with designated gift problems a decade or more after the gift was given. Let’s unpack five of the key problems.
1. Most churches are not equipped to handle the pet projects of the donors. A couple recently wanted to donate a few thousand dollars to help families who foster children. The problem is that the church did not have a process or the knowledge to know how to distribute the funds. It became a divisive issue in the church. Hundreds of hours were wasted. The church leadership should have pointed the donors to the local Christian children’s home at the onset.
2. Sometimes designated giving is a form of protest against the approved budget of the church. A student pastor in a church never thought his ministry was adequately funded. He would go to key supporters and ask them to designate their gifts to the student ministry. Again, the issue was highly divisive in the church. The leadership should have declined the gifts, but they were fearful of causing conflict. The conflict happened anyway.
3. Non-cash designated giving can be a pain. I wonder how many churches have had out-of-tune and barely functioning upright pianos donated to the music ministry. I know one church that ran out of room because they had so many of these pianos. They had one in the men’s restroom. I will refrain from any one-liners. When church members clean out their unwanted goods, they need to take them to Goodwill or some similar organization. They know what to do with the donations.
4. Designated gifts can be “stuck” in the church for years. One church member donated $25,000 for a new church steeple. The church ended up building a facility without a steeple after the member died. They still have a church steeple fund 17 years later.
5. Sometimes designated giving can be illegal. I’ve known about this story in two churches, but I bet it’s happened many times. The donor gives to a scholarship fund, and (surprise, surprise) his son receives the funds for his college education a year later. The churches allowed the donors to give funds that were likely illegal tax schemes.
We recommend strongly that churches decide ahead of time what gifts they will accept outside of undesignated gifts. Mission funds and building funds are the most common examples. Some churches have decided to avoid designated giving altogether and only accept gifts for a unified budget. That’s not a bad idea.
Let me hear your thoughts on designated gifts. Have you experienced any of these five problems?
Posted on November 22, 2021
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.
More from Thom
15 Comments
I like the idea of designated giving because it helps people feel like they are giving to their interests. But, there are definitely problems…. the church I used to go to had designated giving but I later found out, through some ministry leaders, that each ministry got a budget for the year, and when the budget was meant it would go to the general fund. This was not disclosed to the congregation so you could have been thinking you are giving to a certain ministry when in reality it never goes to them.
The church I currently serve operated on a shoestring during some lean years, so all ministries (i.e., any discretionary expenses) were funded solely through designated giving. We don’t do that anymore, and will reject designated giving unless we’ve requested it or it serves a known and immediate need. For example, our insurance company recently required us to trim or remove some trees that were too close to buildings and posed a fire hazard. It cost $3,000, and one member donated $1,000 (over and above their regular giving) toward that. A few years ago, we installed air conditioning with some property funds; again, some members donated above and beyond toward that.
We established a Designated Funds Policy that we added to our by-laws a few years ago to ensure we were in compliance with IRS regulations and best practices. We established 5 on-going funds, defined their purposes, procedures on who controls the fund, how it can be closed, and how to disperse any money left in the fund.
Here is a copy for those who might want to use it for a template: https://drive.google.com/file/d/1-CN6iyWFuOJxCHQOLEWgvXLElhnhznaS/view?usp=sharing
Very helpful, Richard. Thank you for sharing.
Good word, is there a book you recommend on Stewardship.
Absolutely:
https://www.amazon.com/Money-Challenge-Days-Discovering-Design/dp/1433650304/ref=tmm_hrd_swatch_0?_encoding=UTF8&qid=1637606011&sr=1-2
As a member of our church’s board and more importantly, as our church’s treasurer, I’ve made it my job to be keenly aware of the CRA’s (Canadian Revenue Agency) position on designated giving and the handling of such funds. After all, as one former board member liked to quip, all tithes and offerings are “tainted”money: “It ’tain’t mine and it ’tain’t yours, it’s God’s.”
One of our policies is: If we don’t ask for it, don’t give it.
We currently have five designated funds that people may contribute to. Three are missional in nature, one is for building repairs and one is benevolence. If money is needed for a specific project or program outside of the already approved budget, the board will create a new fund that may be permanent or temporary in nature. This leads to the next policy:
If a fund is fully subscribed to, additional funds may, at the board’s discretion, be used in other areas.
Our little congregation sometimes gets fixated on one area to the exclusion of others despite agreeing to fund the responsibilities of all of them, especially the missional funds. We commit to our missionary partners a specific amount each year. If one fund is overfunded, I move some excess to one that is underfunded. Ideally, I would move from the General Fund, but our operations are running on a shoestring budget and I do have to keep a close eye on current expenses and future expectations.
Our last two pastors have not shied away from speaking on giving and our congregation is full of giving people and I am so grateful for their generous hearts and spirits, but we still must be faithful stewards with what we have been given while always being open to some bread and fish miracles.
Very good information, Cheryl. Thank you.
I like the policy, “If we don’t ask for it, don’t give it.”
One further note: Check this with an expert like Richard Hammar, but I believe there is a difference between “designated funds” and “donor restricted funds.” I think what Thom has written about is more properly the latter: “donor restricted funds.” And, in most cases, if the donor’s restriction cannot be honored, the funds must be returned to the donor or the restriction must be lifted (in writing) by the donor.
“Designated funds” are created by the board or other leadership structure of the church and may be redesignated by the board.
In my opinion, the regular annual budget should include income and expenses for all regular operations of the church—administration, compensation, properties, and ministries. In other words, kids, youth, worship/music, and other ministries should be part of the budget. Missions could go either way: included in the ministries portion of the budget or through designated/restricted “faith promise” giving, or (my preference) a combination of the two.
This article is timely for my church’s current struggle. We have around $75,000 in designated funds sitting in our bank account. Of that only around $20,000 is actually functional(building fund, food pantry fund, etc). The rest is designated to things we do not need or would have to raise substantially more money for to make it happen. A few years ago my church nearly went into debt because we couldn’t keep up in general giving and people became angry when we had to borrow money from designated funds just to stay afloat. We have since reworked the budget and are in good shape financially but seeing the large sum of money just sitting in the designated accounts unable to be touched for actual needs in the church is frustrating. It’s hard to do ministry with handcuffed funds.
Thanks for the real-life story from your church, Chris.
Yes, #5 is illegal – I believe the term is money laundering. I have found most of the designated gifts are a means of control over the congregation’s leadership.
From a practical perspective, the way to solve the “Steeple fund” is to have a means to get the funds released, either to a more general Capital account, or back to the donor’s family. I haven’t seen a family take back a donation after the donor’s death. It is work but I have found that most surviving family members are amenable to the re-designation of funds.
Something we have established at my Church was a policy for memorial or honorarium donations. They are held in a separate Capital account for non-operational projects. We have also established some basic designated donation spots, Capital Improvements, Outreach, and Endowment. If the funds don’t go to those restricted accounts they are general operating dollars. Likewise, when we received a memorial donation the donor asked what we needed (an organ) and they funded the organ.
Good counsel. Thanks, Les.
Another issue that arises involves “defunding” ministries to meet other operating expenses. In my own church, the children’s, youth, and young adult ministries are no longer included in the operating budget. They were removed to use the money to cover facility-related costs. We have a children and youth fund that folks give to from time to time, and we do a fair number of fundraisers for these ministries. I was always troubled by the defunding decisions because church leadership seemed to think good stewardship meant pinching the pennies until Lincoln screamed, and not aggressively teaching and preaching true biblical generosity. For my own part, I tithe to support the church’s budget, but any discretionary contributions I usually target to missions, youth, children or benevolence. Migrating to an exclusively unified budget will work effectively only if church leadership is committed to addressing both the revenue and the expenditure side of the equation. Unfortunately, too many pastors and finance leaders (treasurers, finance team leader or chair, etc.) focus almost exclusively on expenditures and don’t meaningfully address giving for fear of getting some members angry or upset. A church that, from top to bottom, is genuinely committed to a biblical approach to generosity and fully incorporates that approach in its budget and other financial decision-making will encounter few, if any, of the problems noted with designated giving. Any problems with designated giving are usually a symptom of other issues.
Your points are good, Coleman. Your words here are the essence of the issue:
“A church that, from top to bottom, is genuinely committed to a biblical approach to generosity and fully incorporates that approach in its budget and other financial decision-making will encounter few, if any, of the problems noted with designated giving. Any problems with designated giving are usually a symptom of other issues.”
Most churches, unfortunately, do not have that idea biblical approach.