Where to Keep Your Building Fund Money

By Raul Rivera

Many churches today are beginning to recognize the advantages of having their own building and facilities earlier in their existence. Although it may be years before a church is actually able to begin the building process or to make such a large purchase, it is not uncommon for a church to begin receiving donations in advance to go towards its building fund. Because this is not uncommon, the question that must be addressed is, “How should a church protect the assets that it owns?”

As a consequence of living in the most litigious society in the history of the world, there is a proliferation of frivolous lawsuits in this country. Unfortunately, the church is no longer immune from such lawsuits. Do an internet search and you will quickly see that this is not an exaggeration. Since this is one of the attributes of the society in which we live, protecting that which the church owns is an important matter that all churches and pastors must consider.

At our conferences, we often tell those in attendance, “This will be one of the best days in your ministry’s existence.” By the end of the day there are pastors and church leaders who leave the conference attesting to that very statement. In a similar fashion, I believe that if you take a few minutes to read this post and implement the strategies that I am going to lay out, this will be one of those blog posts that you will never regret having read.

I want to encourage you, whether your church is just starting or has been around for a while, to follow along through this post as I share with you how you can utilize a holdings corporation to protect that which the Lord has given you, such as a building fund. Lastly, I want to inform you how you may even be able to save money in the end. I promise, you will not regret it!

Now before we delve into the “how to’s”, let us first look at a court case to help illustrate the importance of churches protecting what they have.

Court case

In the case of Judith D. Dadd v. Mount Hope Church, the plaintiff, Judith D. Dadd, had attended a leadership rally at Mount Hope Church in July of 2002. During the rally, the plaintiff responded to an altar call and was “slain in the spirit.” When the plaintiff fell backward, she struck her head and sustained a head injury.

As a result, the plaintiff took the church to court and was awarded an amount of $317,255.68 for her negligence claim, her claim of false light, her claim of libel, and for her claim of slander.

Now, it is not uncommon for churches to have altar calls and for some of the respondents to be “slain in the spirit”. Like Mount Hope Church, many churches have ushers in place to catch those who fall during their time at the altar. However, as in this case, we see that accidents can occur.

Although we can only speculate about the “what if”, we can confidently assume that had Mount Hope Church had a holdings corporation to protect its assets, the plaintiff would have been awarded a much lesser sum since the church itself would not have been the legal owner of its assets, leaving little to pursue in litigation. Rather, as we can see, because Mount Hope Church did not have a holdings corporation protecting its assets, the plaintiff was awarded a hefty sum.

My question to you is, “What strategy does your church have in place to protect its assets from frivolous lawsuits?” Next, let us look at four steps for your church to consider taking in order to protect the finances for its building fund.

1) Set up a holdings corporation

In today’s world of ministry, having a strategy to protect the assets of the church is of absolute importance. Each month, hundreds, if not thousands, of churches are finding themselves facing potential litigation. While this trend continues to worsen, taking preventative measures is no longer a luxury, but a necessity.

Fortunately, Congress enacted Internal Revenue Code section 501(c)(2), which exempts from federal income tax “corporations organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expense, to an organization which itself is exempt under this section.”

This provision of the Tax Code is a great benefit to the church in that it allows the church to establish a separate corporation for the sole purpose of holding its assets. The church acts as the parent organization or sole member of the holdings corporation. In turn, the holdings corporation allows the church to use those assets.

This simply means that if the church is sued, all of the church’s assets are protected, because the church does not own them anymore; the holdings corporation owns them.

2) Transfer all building fund donations to the holdings corporation

Once your holdings corporation has been properly established, you need to transfer all of the building fund donations, and any other assets that the church may have, to the holdings corporation. In general, the transferring of assets between the church and the holdings corporation is done in a series of board meetings by each organization.

Below are some general actions that both the church and holdings corporation need to take when it comes to transferring assets.

Actions of the church:

1. The church needs to create a list of the assets that will be transferred. The church needs to list the value of any item that is not cash.
2. The church needs to present that list to the board of directors during a board of directors’ meeting.
3. The board of directors needs to then approve the transfer of those assets to the holdings corporation.

The holdings corporation, in turn, does the following:

1. The holdings corporation writes the church a letter acknowledging receipt of the assets. This letter is filed with the corporate documents.
2. The holdings corporation creates a use agreement for any tangible assets such as buildings, sound equipment, furniture, etc.

3) Purchase the building in the name of the holdings corporation

When the time comes for your church to purchase a building, you want to make sure that the building is purchased in the name of the holdings corporation. This is one reason why we recommend that your church establish a holdings corporation as soon as possible, no matter how many assets your church may or may not currently have. The more “business history” the holdings corporation has, the easier it is for the holdings corporation to purchase the building or to have the mortgage in its name.

Once the building is in the name of the holdings corporation, the asset use agreement (mentioned above) comes into play. The asset use agreement allows the church to use all assets held by the holdings corporation free of charge, but requires the church to have adequate insurance coverage. Though personal property will most likely be covered by your liability insurance, you want to speak with your insurance provider about the best coverage for your particular situation.

4) Get property tax exemption

Property tax exemption is a benefit that can potentially save a church or ministry thousands of dollars each year and is, unfortunately, unbeknownst to many. Although exemption from property tax is a benefit that is widely offered throughout the United States, it is an exemption that is offered at the state level. Most nonprofit organizations may utilize the property tax exemption benefit as long as the property is strictly used for the nonprofit itself.

It is important that you check with your state to see if property tax exemption is available and what requirements must be met in order to qualify for the exemption. If you need assistance with this matter, please feel free to give our office a call, toll free, at 877-494-4655.

Conclusion

I believe it is safe to say that most, if not all, churches and church planters desire and dream of impacting their community. The dream and vision found within a pastor’s heart does not stem from selfish desires or self-seeking pursuits, but rather, this passion to see lives changed for all of eternity, through the church, comes from the very heart of God.

Oftentimes, in order to help facilitate the dreams, visions, and goals of having a positive impact within the community, churches find that they need their own facilities. Because your dreams, visions, and goals are usually a reflection of the Father’s heart that He has shared with you, it is important to input the provisions to protect not only what He has already blessed you with, but also the blessings that are to come. Therefore, I want to challenge you to do 1 of 2 things:

1. Join us at one of our upcoming conferences near you. At our conference, we will spend ample time teaching you about the benefits of a holdings corporation.
2. If you are unable to join us at an upcoming conference then give our office a call at 877-494-4655. Our dedicated and knowledgeable staff will be more than happy to serve you and your church.

Do not wait until it is too late to protect that which God has given you. Step out in faith and prepare the storehouses to see how God blesses you and your church.

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