What is a Designated Gift?
Donors may wish to have an active say in how their donation is used. They do so by attaching a condition to their gifts. These are referred to as designated gifts. Examples would include directions to use the donation for the building, a scholarship fund, missions or a certain ministry project.
The church may accept gifts with conditions but only if the conditions:
Churches should exercise caution in accepting gifts with conditions. When accepting gifts with conditions attached the funds become what are known as special purpose trust funds (designated gifts), which means they are held in trust for the named purpose or project and are legally obligated to use the funds as designated.
The church cannot legally decide to change the condition nor can it go back to the donor and ask to waive the condition. The donor gave up all rights to the property and the funds are owned by the church. The only way to have the conditions changed would be to apply for court approval.
Designated Giving Policy
It is recommended that the church have a “Designated Giving Policy” and make the congregation aware of this policy as it applies to funds given for specific projects. This policy would state that funds are being accepted on the condition that they will be used for the specified purpose of the project, unless the designated purpose/project has been completed, or for some reason cannot be completed. In these cases, the council may decide that the funds are to be used for another charitable activity of the church.
This policy should be clearly stated on printed tithe envelopes as follows:
“When any given need has been met, or where projects cannot be reasonably carried out the donor agrees that designated gifts may be used where needed most.
The church cannot accept designated gifts that require the church to be used as a conduit of funds to individuals, an organization or corporation. As a charity, the church must be able to prove that it has the direction and control of its resources. Sufficient control is generally missing in situations where the donor directs that the donation be channeled through a particular person or organization.
There are some exceptions to this rule:
Segregating Designated Funds
If the church begins to accumulate a large amount of designated funds (building funds or missions projects) it is suggested that a separate bank account be opened specifically for these funds. This will ensure that designated money is not inadvertently used in the daily operating requirements of the church. Balances in this bank account should be supported by the accounting of these designated funds.
Accounting for Designated Funds
The church must account separately for funds that are designated for different purposes between the programs of the church. When designated gifts are accepted by the church the following steps must be taken to properly record and track the funds: