Q: One of our board members gave the church a gift of $10,000 with no strings attached (his words). The church provided him with a contribution receipt. We had hoped to put that money toward a building project. Recently, the donor asked if he could have the money back for three months for an investment. Are we legally obligated to return his gift?
Understanding Charitable Contributions
Most church leaders eventually face a request from a member to refund a charitable contribution. These requests often arise due to financial hardship or unexpected personal needs. While the situation may evoke empathy, it also presents complex legal and ethical considerations.
Legal Perspective on Charitable Contributions
A charitable contribution is a gift of money or property to a charitable organization. Under the law, this is considered an irrevocable transfer of the donor’s entire interest in the donated funds or property. Since the donor relinquishes all ownership rights upon donation, it generally is not legally possible to recover the donated property.
Undesignated Contributions
In many cases, contributions are undesignated, meaning the donor does not specify how the funds should be used. For example, weekly contributions to a church’s general fund fall under this category. Undesignated contributions are unconditional gifts, and as such, the church has no legal obligation to return them. Returning these funds could also create legal and operational complications.
Key Considerations for Churches
Churches should carefully consider their response to refund requests, keeping the following in mind:
- Irrevocable Nature: Contributions are legally defined as irrevocable gifts. Once donated, the funds belong to the church.
- No Legal Obligation: Churches are not legally required to return undesignated contributions, even in emergencies.
- Seek Legal Counsel: If a church is considering returning a contribution, it is crucial to consult with legal counsel to understand potential risks and implications.
Potential Risks of Refunds
Returning contributions can lead to several issues, including:
- Mismanagement claims by other donors.
- Loss of trust in the church’s financial stewardship.
- Increased administrative complexity and legal exposure.
Best Practices for Handling Refund Requests
Churches should establish clear policies for charitable contributions to guide their responses to refund requests. These policies should include:
- Transparency: Communicate the irrevocable nature of contributions to donors during the giving process.
- Documentation: Maintain detailed records of all contributions and their intended purposes.
- Legal Guidance: Consult legal counsel before making decisions on refunds, especially for large sums.
FAQs on Refundable Charitable Contributions
- Q: Can a donor legally reclaim a charitable contribution?
A: No, donations are typically irrevocable under the law once transferred to the charity. - Q: Should churches refund contributions under financial hardship?
A: While it may be tempting, it is best to consult legal counsel before making exceptions. - Q: Can donors specify a purpose for their contributions?
A: Yes, designated contributions are allowed but must align with the church’s mission and comply with legal guidelines. - Q: How can churches avoid future refund requests?
A: Communicate policies clearly and provide education about the irrevocable nature of charitable contributions.
For more guidance, refer to chapter 8 of Richard Hammar’s Church & Clergy Tax Guide.
