Church Funds

Can church funds earmarked by a donor for a specific purpose ever be used by

Can church funds earmarked by a donor for a specific purpose ever be used by the church for other purposes?

A recent New Jersey state court decision addresses this important issue. In 1911, a Quaker church established a fund for the care and maintenance of its graveyard, and began soliciting contributions for the fund. By 1988, the fund had increased to nearly $200,000, and had annual income far in excess of expenses. In 1985, the church discussed the possibility of using the excess income for purposes other than graveyard maintenance, and ultimately expressed a desire to use excess income from the fund for general church purposes (including upkeep and maintenance of church properties). A church trustee who administered the fund took an unbending position that the fund could not be used for any purpose other than graveyard maintenance.

The church and trustee thereupon sought an opinion ("declaratory judgment") from a local court as to the use of the fund for other purposes. The trial court ruled that the excess income could be used for general church purposes other than graveyard maintenance, and the trustee appealed the case to a state appeals court on the ground that the trial court's decision "conflicts with the express intent of the donors." The appeals court agreed with the trial court on the basis of the "cy pres" doctrine. Under the cy pres doctrine, if the specific purpose of a charitable trust is frustrated or becomes impossible, then a court can apply the trust fund to a charitable purpose similar to the original purpose if the donor "manifested an intent to devote the trust to a charitable purpose more general than the frustrated purpose." The cy pres doctrine was created "for the preservation of a charitable trust when accomplishment of the particular purpose of the trust becomes impossible, impractical, or illegal."

The court concluded that "if income from a charitable trust exceeds that which is necessary to achieve the donor's charitable objective, cy pres may be applied to the surplus income 'since there is an impossibility of using the income to advance any of the charitable purposes of the [donor]." Therefore, to the extent that the graveyard fund in question "exceeds maintenance and preservation costs, application of cy pres is appropriate since there is an impossibility of using the excess income to advance the particular purpose expressed by the donors." The only remaining question was whether or not the donors manifested an intention to devote excess income to a charitable purpose more general than graveyard maintenance.

The court concluded that the donors to the graveyard fund in fact manifested such an intent: "Since the donations were made for the perpetual maintenance of a graveyard, it is logical to assume conclude that the donors expected excess income would be used … 'to strengthen the very institution to which [they] entrusted their money' to permit it to survive in perpetuity in order to carry out the donors' intent. A contrary result, that the income be held in the trust and accumulate in perpetuity for maintenance of the graveyard, is both illogical and contrary to the probable intent of the donors. The only sensible conclusion to be reached is that the donors did not intend that the trusts would grow while the [church] itself may cease to exist because of lack of funds. We are also convinced that use of the funds for general meeting purposes is sufficiently similar to the particular purpose of the [donors] to apply the cy pres doctrine."

Finally, the court emphasized that only trust income in excess of graveyard expenses could be applied for general church purposes, and that the church's bylaws required an annual audit of the fund by certified public accountants. Sharpless v. Medford Monthly Meeting of the Religious Society of Friends, 548 A.2d 1157 (N.J. Super. 1988).

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