Be Cautious with Designated and Restricted Gifts
I developed this article after hearing from several local church leaders who reported that they had members designating their tithes and offerings for specific ministry areas within the local church. The implication was that people found “giving to the budget” too boring, and they would rather see their giving go where it would have a “greater impact”: to the food pantry, the backpack program, the music ministry, or the youth ministry, for example.
I have said in many webinars and workshops that rising generations in the church are less motivated to give out of obligation or duty and are more motivated by stories of how their giving makes an impact. Those impactful ministries don’t happen without support for the budget that keeps the church operating. Restricted gifts can be blessings for local churches, but not at the expense of regular support to the church’s operating/ministry budget.
As I researched the topic, I found that people use the terms “restricted” and “designated” in various ways. In places, writers flipped the terms completely.
Janet Jamieson, CPA and recently retired CFO of Discipleship Ministries, in her excellent book Ministry and Money (co-written with her clergy spouse Phil Jamieson), makes it clear what the terms mean in relation to funds the church manages:
Occasionally, the church board will choose to designate, or set aside, funds for a specific purpose. The example offered is surplus operating funds, which could be designated by the board for building needs. Unlike restricted funds, which can only be changed by the donor, designated funds are part of unrestricted contributions and can be undesignated at any time by the church board.
The term “restricted” seems to be the best for a gift a donor wants to direct to a specific purpose. One basic assumption is that when a donation is turned over to a church and is reported as a tax-deductible gift, the donor loses control over how the church uses the gift. The exception is when the donation is offered as a restricted gift, and the church accepts that restriction. For that reason, it is important that churches have a policy on accepting gifts and how donors can restrict those gifts.
A bequest gift from someone’s estate to the church would rarely be seen as a reason for concern, but restrictions in that bequest could be problematic. However, I will leave that topic for a future article.
I’ve listed below areas where caution should be exercised when someone wants to convert their regular “tithes and offerings” to a restricted gift.
10 Cautions When Donors Seek to Restrict Their Gifts
1. Restricting gifts can undermine the unified budget.
When donors bypass the general budget, the whole-church approach to stewardship suffers. It becomes harder to plan or fund essential areas that aren’t "popular" but are vital to the church’s health.
2. Restricting gifts could create ministry inequities.
When giving flows only to visible ministries, such as music or missions, less-visible but essential areas, such as pastoral care, utilities, or administration, may be neglected. Over time, this imbalance can cause friction or burnout.
3. Restricting gifts could shift power dynamics in the church.
When someone gives a significant gift with strings attached, they may expect special influence in decision-making. Even subtle shifts in power can disrupt the church’s spiritual and organizational health.
4. Restricting gifts limits flexibility in times of crisis.
Restricted funds are locked in, even in the event of emergencies. A congregation might find itself with ample funds for choir robes but without a means to repair a leaking roof or replace a failing HVAC system.
5. Restricting gifts could violate IRS rules.
Gifts that benefit individuals or that are too narrowly defined may not be tax-deductible. Churches must tread carefully to avoid risking their tax-exempt status.
6. Restricting gifts encourages a consumer approach to giving.
When giving is driven by personal preference rather than communal purpose, stewardship becomes transactional. The church shifts from being a shared mission to a marketplace of competing causes.
7. Restricting gifts can lead to donor disappointment.
If the designated project is delayed, altered, or canceled, the donor may feel betrayed. Miscommunication around designated gifts often leads to hurt feelings and long-term distrust.
8. Restricting gifts may pull the church off-mission.
Well-intentioned gifts sometimes fund projects that don’t align with the church’s mission or strategic priorities. Accepting such gifts can quietly but significantly shift a church’s direction.
9. Saying “yes” to restricted gifts makes it harder to say “no” the next time.
Once a church says “yes” to one designated gift, other donors may expect the same freedom. It can be difficult to draw a line later without appearing unfair or inconsistent.
10. Restricting gifts can distort the church’s financial picture.
When a portion of income is restricted and unusable for everyday expenses, financial statements may appear healthier than they actually are. This can confuse leaders and mislead the congregation.
Steps to Consider Implementing
Adopt a written gift acceptance policy.
Establish clear guidelines for when and how designated or restricted gifts will be considered or accepted. This document helps protect both the church and the donor. You can find a “Sample Gift Acceptance Policy” here.
Educate the congregation about the unified ministry budget.
Demonstrate how all giving contributes to a shared mission. Use stories to connect budget items (like electricity or staff salaries) to the impact they make. Using a narrative budget to promote ministry giving emphasizes that all giving is mission giving.
Tell better budget stories.
Instead of saying, “Give to the budget,” say, “Your giving powers our worship every Sunday, equips our youth mentors, and keeps the doors open to our community partners.”
Honor passion, but avoid fragmentation.
When someone expresses strong support for a specific area, thank them, but invite them to see how that area thrives as part of the whole. Let passion inspire participation, not division.
Work with your finance and trustee teams on oversight.
Create a clear process for evaluating designated gift proposals. Avoid one-off decisions made in the heat of gratitude or urgency. If you need to say “no” to a restricted gift, it will be easier if you can point to a church policy for the decision rather than to church leaders.
Resist the temptation to borrow from restricted funds.
There are both ethical and legal consequences to accessing restricted funds for purposes that don’t match the description. There are possibilities of legal action from original donors or their families, or loss of tax-exempt status from the IRS. Misappropriation of restricted funds can be viewed as theft. Cash flow over the course of the church year can be challenging for church financial leaders; however, using restricted funds as a source of loans is not an option. Use of these funds beyond the restriction can be done only if the church receives the donor’s permission (in writing) to lift the restriction.
Closing Words
Churches must walk a careful path, being grateful for generosity but committed to stewardship that honors both the donor and the mission. Encouraging generosity without creating silos is a leadership challenge, but it’s one worth meeting with clarity, compassion, and consistency. Designated giving can bring energy and focus, but it must be framed within a larger vision of shared purpose and spiritual growth. That’s the kind of giving that will sustain the church, not just for today, but for generations to come.
This resource was created by Discipleship Ministries staff with the support of AI tools.
Contact Us for Help
Contact Discipleship Ministries staff for additional guidance.