5 Ways designated giving can get your church in trouble

Designated giving can be an incredible blessing for your church. It allows, for example, church members to give to such areas of passion as missions or facilities. But far too many churches are handling designated giving in ways that can get them in trouble. That trouble can range from morale problems among members and staff to losing your non-profit status with the Internal Revenue Service.

I’ve had many conversations with church leaders about this issue. Designated giving questions are common at Church Answers. Over the years I have seen five ways designated giving can get churches in trouble.

1. Accepting a designated gift that personally benefits the donor. Here are two real examples from the past few years. In one church, the members would “donate” to the mission fund and then get their mission trip paid by that same amount. That is a big no-no from the IRS, and should be an ethical problem for the church. In another example, the pastor asked me if a member could donate scholarship funds that would in turn be used to pay the member’s daughter’s tuition. No!

2. Accepting a designated gift for a preferred ministry of the church by a member who was not happy with the church’s budget. Indeed, I know personally of a situation where the worship leader encouraged some members to designate all of their gifts to his ministry, a ministry he felt was underfunded. While this practice is not necessarily illegal, the church is under no obligation to accept this workaround giving.

3. Accepting a designated gift for any good cause. Churches should not be a tax-deductible conduit for any and every cause. If someone wants to donate money, for example, to fund underprivileged children in the community, point that person to find another charitable agency whose purpose aligns with the giver’s desires. There are many good causes, but the church is not a funnel to distribute funds outside of its purpose and mission.

4. Accepting a designated gift for the building program with specific conditions for how the funds will be used. It is great that the church has a building fund. But church members should not have the prerogative to say how their funds will be used in the building. One church member, whose gift to the building fund was ultimately rejected, had demanded that her funds be used specifically for a certain type of stained-glassed windows.

5. Accepting a designated gift that is a form of blackmail. “If you don’t use these funds for this purpose, then I am withholding all of my funds for the church.” If someone makes such a demand, let them walk. You may worry about your budget for the short term, but you will have fewer problems in the future. The church should never yield to someone who tries to hold the church financially hostage.

I recommend to all church leaders to establish funds where they are willing to accept designated giving. Any gifts that fall outside of those funds should be politely declined. Not all church members who give designated funds do so with nefarious intent. They will likely accept your explanation that the church’s financial structure is established to accept only designated gifts in pre-approved funds.

 If they respond negatively, you likely had a problem on your hands anyway.

 Stay out of trouble in designated giving. It’s not worth the money you might lose.

Originally published in Church Answers.