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."

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