Key point 4-03. A gift to a church or minister may be challenged on the ground that the recipient unduly influenced the donor into making the gift. There are several factors the courts will consider in deciding whether or not undue influence occurred, including the age and mental health of the donor, and the presence of independent legal advice. Undue influence generally must be proven by “clear and convincing” evidence.
Key point 7-21. Embezzlement refers to the wrongful conversion of funds that are lawfully in one’s possession. Embezzlement is a common occurrence in churches because of weak internal controls.
A North Carolina court ruled that sufficient evidence supported a pastor’s conviction of embezzlement because the evidence showed that he was acting as the victim’s fiduciary when he gained access to her bank accounts and wrongfully converted $123,367 to his personal use.
Widowed victim “turned everything over” to the defendant
A pastor (the “defendant”) first met a woman (“victim 1”) and her husband (“victim 2”) in 1985. They became very close, eventually considering themselves family. Defendant called the victims “Mom” and “Dad,” and the victims referred to the defendant as their “son.”
On March 28, 2015, victim 2, also a pastor, unexpectedly died. The defendant delivered the eulogy at victim 2’s funeral.
Victim 1 struggled to return to her daily life. She testified that her husband’s death “almost took her out,” and she felt like she “couldn’t make it without him.” Her family was concerned about her because she was so “grief-stricken” and “distraught.”
After the funeral, victim 1 visited the defendant and his wife for a week in their home in North Carolina, against her family’s advice. Over the next few months, she periodically stayed with the defendant and his wife.
The defendant told victim 1 that “he was there to help” her.
Victim 1 thought the defendant was “a man of God” who “loved her” and was “going to take care of her.” She had little experience managing the household finances, as that had been her husband’s responsibility throughout their marriage.
Because she trusted the defendant and thought of him as family, victim 1 “just turned everything over” to the defendant after victim 2’s death, including the keys to her home and post office box.
On April 16, 2015, less than a month after her husband’s death, victim 1 added the defendant as joint holder on her credit union savings and money-market accounts.
She also redeemed over $146,000 in savings bonds and deposited that money into the joint money market account.
That same day, she also added the defendant as a joint holder on her bank accounts. In addition, at some point, the defendant linked his personal credit union accounts to victim 1’s accounts, with the effect that any overdrafts on the defendant’s personal account would be paid from the joint accounts funded with victim 1’s money.
On June 12, 2015, the defendant drove victim 1 to an attorney’s office and encouraged her to execute a power of attorney naming him as her attorney-in-fact. She also executed a will, naming the defendant to serve as her executor and leaving the majority of her estate to him.
On Sept. 4, 2015, funds were withdrawn from the joint bank accounts and used to fund two bank accounts at Wells Fargo Bank. Victim 1 and the defendant were named as joint holders of the new Wells Fargo accounts.
Victim 1 later testified that the signatures on the applications for the two Wells Fargo accounts did not look like her handwriting, that she did not give the defendant permission to open the Wells Fargo accounts, and that she “didn’t know what was going on” with the Wells Fargo accounts because the defendant “took over.”
Concerned that the defendant was committing financial crimes against victim 1, her brother contacted the local sheriff’s office, which transferred the case to the state’s bureau of investigation (SBI). On April 22, 2019, a grand jury returned indictments charging the defendant with four counts of exploitation of an older adult and one count of embezzlement of $100,000 or more.
On January 28, 2020, this case was called for trial.
At trial, the SBI agent testified that the defendant obtained $123,367 from the accounts that he held with victim 1.
The agent explained that, because the defendant linked his personal credit union checking account to victim 1’s jointly held accounts, the credit union transferred $21,350 from the joint money market account to the defendant’s personal checking account to cover his overdrafts between August 11, 2015, and May 11, 2016.
He also testified that the defendant used $102,017 of victim 1’s money from the jointly held credit union, Wells Fargo, and bank accounts for his benefit, including:
- $15,000 for a down payment on a Ford truck titled to the defendant
- $6,000 in contributions to his individual retirement account (IRA)
- $4,850 for repairs to his Mercedes
- $8,000 in payments on his credit card account
- $25,250 in cash withdrawals
The defendant testified that the money in the joint accounts belonged to victim 1, stating, “it was her money—her accounts, her money. I was there to help her. It wasn’t about me.”
He maintained that he had “no idea” that the credit union was transferring money from the accounts that he held with victim 1 to cover overdrafts from his personal checking account, because he had not reviewed the credit union statements and instead “just stuck them in a drawer.”
Victim 1 testified that, although she “just turned everything over” to the defendant after her husband’s death, she never authorized the defendant to link his personal credit union checking account to any joint account to cover his overdrafts, and never gave the defendant permission to withdraw money from the joint accounts for his personal use.
She also stated that she never gave the defendant permission to use her money to purchase a new truck or to fix his Mercedes.
On January 31, 2020, the jury found the defendant guilty of all charges.
The trial court sentenced the defendant to 6 to 17 months in prison for 3 of the 4 counts of exploitation of an older adult and an additional 13 to 25 months for the 4th count, with the sentences to run consecutively.
The court also sentenced the defendant to 73 to 100 months for the embezzlement conviction, to run concurrently with the defendant’s other sentences.
In addition, the court ordered the defendant to pay $123,367 in restitution to victim 1.
The defendant appealed.
Appeals court affirms conviction and sentence
The appeals court affirmed the defendant’s conviction and sentence.
It noted that “to constitute embezzlement, the property in question initially must be acquired lawfully, pursuant to a trust relationship, and then wrongfully converted.” The court noted that a trust relationship indisputably existed between victim 1 and the defendant:
[A] fiduciary relationship may arise under a variety of circumstances; it exists in all cases where there has been a special confidence reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing confidence. … Here, [the defendant] concedes that he acted as victim 1’sfiduciary after she executed the power of attorney naming the defendant as her attorney-in-fact.
Nevertheless, the evidence sufficiently established that a fiduciary relationship existed between the defendant and victim 1 prior to that point, when he came into possession of the funds in victim 1’s bank accounts.
The parties’ relationship was certainly one of special confidence and trust.
The defendant argued that he could not be guilty of embezzlement since there was insufficient evidence that he wrongfully converted victim1’s money to his own use.
In support of his position, the defendant noted that, as a joint holder of the accounts, he was a co-owner of the funds and could not be prosecuted for unlawful withdrawal and use of the funds.
The court disagreed:
The depositor is … deemed to be the owner of the funds. … In the instant case, it is undisputed that [victim 1], alone, funded the joint accounts. Indeed, the defendant testified that all of the money in the accounts was her money. Thus, [victim 1], as the depositor, was still deemed to be the owner of the funds. … Moreover, there was ample evidence that [victim 1] did not intend to make a gift to the defendant of $123,367, the total amount of funds that the defendant was eventually convicted of embezzling from her.
She testified that she did not give the defendant permission to use the funds for his personal expenses, nor did she gift him the money. We conclude that there was sufficient evidence that the funds taken were the property of [victim 1], and that she did not have the requisite donative intent to grant the defendant the money to withdraw and use for his personal benefit.
Thus, the defendant was not entitled to convert the money to his use without her permission.
What this means for churches
This case illustrates an important point.
Pastors are often asked to serve as a fiduciary for financially unsophisticated members because of their perceived trustworthiness. Pastors who take advantage of this relationship for their private benefit are exposing themselves to potential liability for breach of trust and embezzlement.
Another issue not addressed by the court in this case is the legal doctrine of undue influence. If the recipient of a gift unduly influences the donor into making the gift, the donor may have the gift canceled.
This rule applies both to direct gifts made during one’s lifetime and to gifts contained in documents (such as wills) which take effect at the donor’s death. Undue influence is more than persuasion or suggestion. It connotes total dominion and control over the mind of another.
Undue influence generally must be inferred from the circumstances surrounding a gift, since it seldom can be proven directly. Circumstances commonly considered in determining whether a donor was unduly influenced in the making of a gift include:
- Whether the person or organization benefited by the gift was active in securing it.
- The donor’s age, physical condition, and mental health.
- Whether a confidential relationship existed between the donor and the recipient of the gift.
- Whether the donor had independent advice.
In summary, pastors who take advantage of a fiduciary relationship to convert funds to their private benefit face both criminal liability for embezzlement and civil liability for undue influence.
State v. Steele, 868 S.E.2d 876 (N.C. App. 2022)