"Trust Fund"....sort of

[debbieg]

I am going around in circle on how to set up a new situatioin in PC. At the beginning of this year we decided to set up a "trust fund" for a church member whose husband suddenly passed away. (i put that in quotes because it is not a "Trust fund" in the legal sense of the term with its own tax id, etc. However, the money is to only be used to help this family whenever they need it). The church will contribute a certain amount of money every month from our general budget to go to this "trust fund". There has been an expense account set up to track this outgoing money.
Just to make sure that money earmarked for them didn't get accidentally spent by our church, I opened a separate checking account at our bank. The thinking is that the church will write a check every month for the designated amount and deposit it in the "trust fund" checking account. When this family has a need, a check will be written from the "trust fund" account to cover it.

Question....what is the best/easiest way to handle this? Do I need to set up a separate fund (ie. fund 02) and all the accompanying accounts underneath it? (I don't think that we will necessarily be tracking in detail how the money is spent from the trust fund.) Do I only need to set it up as a restricted account? If so, how am i tieing it to the separate checking account? Is there another option?
Depending on what method is used, what would my monthly transaction look like that takes the money from our account and puts it in the trust fund account?

Thanks for any ideas.

Debbie

[debbieg]

follow up thought.... it just occurred to me that if we don't want to consider that "trust fund" as a part of our assets and don't want it part of our financial reports, then I don't need to have PC know about it at all. In other words, I would treat it as any other expense that I have to pay and just update the expense account in our budget. I'll have to discuss this with the pastor to see how they view this money.
Debbie

[JohnDMeyers]

If you are planning on cutting them a check every month regardless of "need", then you probably don't need to do too much. Simply cut them the check.

The idea of having a buffer account, to me, means that you anticipate holding money in reserve, perhaps more than the amount than the check, and giving them a regular amount, less than the amount held in reserve. If this is the case, you can set it up as you described.

For the latter, I would set it up as a restricted amount, simply because it is the easiest way to track it, and also, if anyone gave specifically to this cause, it is easy to incorporate that into a restriction.

Set up all the usual restriction accounts:
01-3120-000
01-4120-000 closes to 01-3120-000
01-4820-000 closes to 01-3120-000

Also, set up your checking account:
01-1080-000 new checking

To transfer $100 unrestricted funds on a monthly basis (it's very simple):
DB 01-4100-000 unrestricted income $100
CR 01-4120-000 restricted income $100

At the same time, cut the check from the normal checking account to new checking:
CR 01-1110-000 normal checking $100
DB 01-1080-000 new checking $100

To spend $75:
CR 01-1080-000 new checking $75
DB 01-5880-000 expense $75 (closes to 01-3110-000, unrestricted)
DB 01-4820-000 specific release $75 (closes to 01-3120-000, restricted)
CR 01-4999-000 general release $75 (closes to 01-3110-000, unrestricted)

That should do it.

[debbieg]

Thanks for that input, John. I believe it will be more like your second scenario. The church will put a certain amount of money in the account each month. If and when the family needs help, then money will be taken from that account to help them. I think the accounts you laid out would work for doing it that way.

The part that is still a little cloudy is who the money belongs to in the end. For example, suppose the family moves away and our church is not providing support any longer. Is the balance of the money in the account going to be paid to them or absorbed back into the church's general fund? If it comes back to the church, then I think the restricted account would be best. But suppose they say that the remaining balance of money belongs to that family. Then it seems like we just have a "pass thru" liability account because we are just temporarily holding the money. I tried to have these issues addressed up front but nobody seemed to think it was important. Of course, they are not the ones having to deal with the accounting system.

thanks,
Debbie

[JohnDMeyers]

I would say that if money comes in as "unrestricted" and you purposely restrict it, then you can purposely unrestricted it.

If a donor makes a specific designation to this family, you should honor their request.

That is my opinion, only, by the way.

[debbieg]

I totally agree with you if the money comes from a church member that has designated it to the family. But I don't think there will be much of that. The church has made a committment and actually budgeted a certain amount of money to go to this fund every month.

[tborgal]

Have you looked into the legal and tax implications of this? If so I would really be interested in what was found.

[debbieg]

Have you looked into the legal and tax implications of this? If so I would really be interested in what was found.

Tom,

I did briefly when the pastor and deacons told me about the proposal. I knew enough to know that you can't just say you have a "trust fund". I think they used this term for lack of a better one. I believe a real trust fund is a legal entity and requires a tax id. At this point, this is just being handled more like a benevolent fund. i was concerned that there could be tax implications for the widow that receives this money. Everyone thinks I focus too much on the details but I ddn't want to implement something wrong or that would jeopardize the church member. However, i get stuck with having to figure out how to implement this.

So, for the time being, I have a separate checking account. We decided that we will not track that money in PC because once we put it in that fund, it is no longer ours. I will maintain the checking account records but it will not be part of our financial picture.

If anyone else has had to do something similar, I would also be interested in the legal and tax implications.

Debbie

[NeilZ]

Debbie,

I'm wondering that if this is going to be a source of income or support, that this could be taxable to the widow. There is a tax implication on someone. As a gift, its not reportable, but if a weekly check is sent, then the recipient could be liable for taxes.

Whoever is telling you that you focus too much on the details is not being a good steward, not only of the churches money, but also of the widow's. I would talk to someone in the church who is a CPA or tax attorney to get some advice.

[tborgal]

Debbie,

In some research for our own Benevolence Fund I ran across this article. Not sure who this person is but what he has to say is very interesting in reference to repeat payments and high amounts per year.

http://www.wkpz.com/files/DDF/Benevolen ... %20Way.pdf

I agree with what Neil says about focusing on the details. Some good legal advice would be wise protection for both the church and the recipient.

[Jeff]

Frank Sommerville is a well known and respected attorney specializing in non-profits especially churches. He contributes regularly to church publications and workshops. He participates on the ChurchAdmin Yahoo Group

[debbieg]

Neil, Tom, Jeff.....I thank all of you for your input. Wish I had posted this much earlier.

That was an excellent article that you provided. The tax implications were one of my main concerns. The pastor seemed to think that there was no issue because these would be considered "benevolent" payments. I told him that the IRS is not dumb and if anyone were to look at it, they could see it was a regular payment.
Sometimes I just get tired of trying to make my point and feel like I'm beating my head against the wall.
I have also sent articles to the head deacon before about procedures and documentation that they should use for our normal benevolence help. I will pass this article on also in the hopes that it can open some eyes. As Treasurer and Finance Chariman, I sure don't want to be caught with the "sanctions"!
thanks,
Debbie