Q&A: Designating Donations for a Church Member in Need

Q: Recently, one of our member's families lost their 15-year-old son. They contacted the church and asked if donations for the family could be handled through the church. We agreed and processed all donations received as cash exchange. At the end of each month we sent the family a check for the same amount of the donations received. The family is using the funds to help with funeral cost and to establish a scholarship in their son's name. Was this the best way to handle this request? Are there any legal problems in doing it this way? What problems would this present for the family or church?

A: Part of the mission of the believers is stated in Galatians 6:2: "Bear one another's burdens." This means that when a fellow believer is in need, the other believers should lighten their load. In financial terms, the fellow believers should give funds to needy believers to relieve their financial burden.

The Bible does not give us any guidance on how this support of fellow believers is to be accomplished. Any believer may give up $14,000 to a fellow believer without any gift tax consequences. This direct gift is generally not taxable to the recipient and not tax deductible to the donor.

If the donors directed the church to pay the funds to the family who lost the son, none of the amounts are tax deductible. Further, since the church paid the family more than the need (the cost of the funeral), the church violated its requirement to operate exclusively for tax exempt purposes and the requirement that it not serve the private interests of the donors and recipient family. This payment may jeopardize the church's federal and property tax exemptions.

Sometimes believers want to give the funds to the church and direct the church to give it to the needy family because they want a tax deduction. This arrangement should be discouraged because (1) the church is serving the private interest of the donor, and (2) the donor is generally not in a position to determine whether the designated recipient qualifies for benevolent assistance. This arrangement is not tax deductible to the donor because the donor did not surrender control of the use of the funds to the church (a requirement to be tax deductible).

The better way is for the church to create a benevolence fund administered by the church (generally, by a committee of the church). To create a benevolence fund, the church's governing body should adopt a written policy governing the administration of the fund. The policy must define the "charitable class" that will be eligible to benefit from the fund. The charitable class must be broad enough so that it is indefinite in size. Further, it cannot be so small that the church can list the potential beneficiaries by name. Charitable beneficiaries must fit within written criteria establishing the class. For example, the ill, the poor and the distressed are all types of charitable classes that typically benefit from the church's benevolence fund. The policy must also define the types of needs that the benevolence fund may pay. For example, the benevolence fund may restrict the types of needs to food, shelter, clothing, transportation and medical expenses. The policy should define the mandatory documentation that the church must receive before it can pay the expense. For example, the church may require a written application from the potential recipients and require the bills to be attached. The documentation should include proof that the recipient lacks the resources to meet the requested need.

Once the benevolence fund is created and a policy is adopted then the church may consider requests from the members of the defined charitable class. The church may request members donate funds to its benevolence fund because it has received requests from class members for assistance, including the family who lost the son (assuming they fit within the defined charitable class). The family then applies to the fund for reimbursement for the funeral expenses and includes the invoice from the funeral home. They demonstrate also that they lack the resources to pay for the funeral (copies of their bank statements for the last several months). The benevolence committee could then consider the request. If approved, the benevolence fund would pay the family the documented funeral expenses.

To read more about how to establish an effective benevolence program in your church, see the February 2013 issue of Church Finance Today, available monthly in print and to subscribers of ChurchLawAndTax.com.

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This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations."


Displaying 1–2 of 2 comments

Rev. Richard L. Richie

March 04, 2014  5:18pm

First, I would start with prayer. I believe the Holy Spirit will guide you and give you discernment as to whether you should or should not help someone who presents for a need. Second, as much as possible, I think one should try to "pre-qualify" whether the benevolence requester is legitimately needy–especially if it is a sizeable amount of money that is being requested. To this end, you should make telephone calls to the organization for which the money is being requested. For example, if you are about to pay someone's light bill, it is perfectly appropriate for you to request a copy of the bill from the benevolence seeker, call the electric company identifying who you are, what you are trying to do (help the individual), and then see how best to do that. Most utilitlies that I have dealt with are more than happy to assist you with this matter. They want to get their money any way possible and will help you to help them and their customer. I would also suggest calling any social or governmental support agencies in your area and maybe even larger churches in your nearby town or city to ensure that this individual is not merely going from place to place to gather as much money from you and others as possible. Too often, individuals learn how to play off the sympathies of churches and take advantage. I don't think it is bad to do a little fact finding and checking. After all, you are God's Steward of His money and you want to be able to give a positive account for how it has been invested. (Matthew 25:14-30) Thirdly, I would never give money directly to someone if I can help it. Instead, I would go to pay the bill for the individual at the location to which the bill is owed (e.g. apartment rent, utility, pharmacy, etc.). I know this may be inconvenient but at least you know that the money got to where it was supposed to go. Sometimes money given to an individual never finds its way to the payee but rather finds its way to buying such things as alcohol, cigarettes, etc. You could also develop an ongoing relationship with a specific gas station and/or grocery store to which you can send benevolence seekers since you may not always be able to travel the 9 miles to town. When someone passes your way who is in need, you could simply call ahead to the the gas station or grocery telling them the name of the individual coming by and what the limit of the purchase should be. That business could then send you a monthly bill to pay for any benevolence charges for that month. Some businesses will even take your credit card over the phone to pay for or be held for a bill if you want to go that route instead. Fourth, when giving your church and community an accounting of the money, I think it would behoove you to document and have as much documentation, including receipts, as possible should there ever be anyone questioning your spending of this money. As you said, this may not always be possible. However, you could just write your own receipt on a piece of paper, highlighting as much information about the transaction as possible. I would then report at least quarterly to the church community the following: Starting Balance, Each individual Benevolence Expenditure & Amount, and your Ending Balance. For privacy, I would not list names of individuals but perhaps you could provide them with a generic name like "Client 1" or "Family 1." Privately, you would keep detailed information about each of these individuals and that information could be made available to anyone within your church or community with a genuine "need to know," if requested. I would also suggest keeping an annual log of each person helped so that you can keep an ongoing record of who has sought and received assistance. Sometimes keeping these records will help you, your successor (should you ever leave), and others to see who are "frequent users" or abusers of the benevolence fund. These individuals may need to be limited in the future or provid

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Mark Adams

February 11, 2014  4:44pm

I am a pastor of a small church in a very rural town with a population of only about 160 persons. Our church is the only church in town. I am in charge of the church's benevolence fund and I am stipulated to give an accounting of where the finances are donated. Normally the funds go to providing gasoline/food to those who are traveling through our area who are in need or the person and their situation is known by the church leaders. The largest amount given out at one time in the last 3 years has been $200. This fund is basically treated like a petty cash fund. In a small town to ask to see someone's bank statement could go over like a lead balloon and hurt the testimony of the church. In the last 12 months the total amount given out of the benevolence fund I am in charge of was $340. In this type of situation do you need to get receipts, be shown proof of need etc.? Even getting a receipt for gasoline could be difficult since the nearest gas station is about 9 miles away.

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