Churches can establish endowments through bequests, grants, and donations, appoint staff to manage them, or hire investment managers. Withdrawals are from investment earnings, and funds can be restricted for specific purposes. Management issues can arise, such as investing in a socially responsible way and appropriate uses of funds. Churches may receive special tax treatment but must comply with regulations.
A church foundation funds a ministry through income-generating assets held in perpetuity. Churches build the main component of an endowment through bequests, grants, and donations. They can appoint staff to manage it or they can hire an experienced investment manager. Congregations can expect accountability in the form of regular reports on the status of the endowment and how it is being used, to ensure that funds are managed responsibly.
In a traditional church endowment, everything that comes into the director cannot be touched, allowing the size of the fund to grow over time. Any withdrawal is from investment earnings and therefore does not deplete the capital or assets available for investment activity. The fund may be restricted for specific purposes, particularly in the case of a large bequest that can be given to finance activities such as church repairs. In other cases, church officials may decide how to use the money, and may have a mission statement and set of principles to use in making decisions.
Various management issues can arise with a unique church endowment for this type of organization. The first may be pressure to invest in a socially responsible way. Churches may not want to invest in sectors of the economy that they see as harmful, such as weapons manufacturers or companies known to pollute. Concerns about the longevity of the church can also be an issue, as people may debate how the endowment should be handled if the church breaks up.
Appropriate uses of the funds may also be a matter of debate. A church’s money can pay staff, replace instruments and clothing, and fund activities such as building repairs and purchasing supplies. Some churches use their money to participate in community activities and may offer scholarships, food assistance, and other benefits to members of the congregation or the community at large. Uses of the church endowment may depend on the size of the fund, as churches want to ensure they have income available when needed for emergencies.
Under tax laws, churches may receive special treatment due to their religious and non-profit missions. To avoid running afoul of regulations, the church may work with an accountant and attorney to establish a church endowment and manage it properly. For example, churches may be prohibited from making political contributions and therefore must be sure to document expenses to show that proceeds from a donation were not used to finance the campaign.
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