Category: Bequests and Legacies

DONATION SOLICITATION FRAUD

Generally, donation to a charity does not give the donor any legally protected interest in the operations, management or spending of the charity.  However, that does not give the charity free reign to issue any inducement to donate that is false or corrupt.  Donors must be able to show the amounts given and the economic loss from the gift.  Merely being offended or disappointed in the failure to perfectly appreciate or follow donative intent will not state a claim.

In Carrier v Zacharias International Ministries, Opinion and Order (ND GA, 2022), the federal trial court, in part, overruled a motion to dismiss.  The case will proceed but no outcome can be predicted at this stage.  The Plaintiffs alleged they donated money because they believed the representations that Ravi Zacharias and his company, RZIM, were worthy of trust.  However, Plaintiffs alleged Zacharias was a serial sexual predator.  Zacharias allegedly invested in two “health spas” at which “nearly two dozen therapists” reported inappropriate sexual behavior by Zacharias.  Zacharias allegedly used donated money to pay for silence and compliance.  Complaints in writing were made three years before Zacharias died but RZIM allegedly did not investigate the complaints.  Zacharias allegedly travelled to speaking engagements accompanied by a spa “therapist” using donated funds.  Plaintiffs alleged they would not have donated money if they had been made aware of the facts.  Plaintiffs filed a Class Action.  The Court held it was barred by the Ecclesiastical Abstention Doctrine from hearing claims that Zacharias or RZIM were engaged in immoral conduct in violation of their spiritual messages.  But, the Court held it would hear claims “predicated on misuse-of-funds allegations” because no ecclesiastical inquiry was required and Neutral Principles of Law applied.  In addition to “misuse-of-funds” claims, the Court held it would hear claims that Defendants “wrongfully failed to disclose their misuse of donor funds” even though they had “exclusive knowledge” of the alleged misconduct.

While it is nearly impossible for claims by angry donors to obtain a judicial remedy by objecting to management decisions by a charity, using donated funds for personal expenses like settling sexual misconduct claims and funding sexual misconduct might be viable with adequate detailed proof.  In the reported case, the Defendant non-profit entity investigated and self-reported the allegations, although allegedly only after many detailed claims were submitted, so the detailed proof might have been made public.

FRAUDULENT FUND-RAISING CLAIMS

Churches and parachurch organization often struggle with representations regarding the funding needs of the moment followed by spending which might not exactly match the representations after the crisis has passed.  Also, using funds for “ministry” might mean one thing to a member and something different to the leader of a church or parachurch organization in the best of times much less in a crisis.  The level of disclosure regarding the use of donated funds might lack clarity because the purchase of a box of paper clips, much less salaries and benefits, might be viewed as a cost of “ministry” by some but not others.

In Dux v Bugarin, Slip. Op. (Mich. App. 2021), the trial court dismissed the lawsuit by a group of parishioners disgruntled because the denomination determined that a forty-year-old allegation of sexual misconduct by the church pastor was “credible,” removed the pastor, and published the allegation.  The allegation of sexual misconduct was investigated by law enforcement at the request of the church.  The Plaintiffs claimed the publication of the sexual misconduct claim was a tort of outrage.  The court held the Ecclesiastical Abstention Doctrine precluded the court from reviewing the denomination’s methodology in investigating and evaluation of the claim.  The court likewise held that the publication that the denomination found the allegation “credible” was also an ecclesiastical matter because the weight to give to the allegation, as well as the evaluation of the conduct in question, was as ecclesiastical as the choice of method to communicate with members.  The allegation that representations by the denomination’s parachurch organization that it would not use donations to pay settlements in sexual misconduct cases were false could not be evaluated by the court.  Some funds, and not necessarily those donated by the Plaintiffs, were used to pay for treatment of the alleged victim and to pay for the investigation.  The court held that only the church and its parachurch arm could determine whether the expenditures were “ministry” or some other similar use of funds.

Fraudulent donation claims will be effective against embezzlers and thieves.  However, such claims will not likely be useful to redirect the flow of funds from one seemingly legitimate use to another.  Only incredibly precise representations of the contemplated use of donated funds will make an inquiry possible but even then there will always be some reasonable discretion to use the funds otherwise.

PROTECTING PAST GENERATIONS OF BELIEVERS

Generally, the local church in a hierarchical denomination owns its own property but holds it in trust for the denomination.  This is often also true in denominations that are not hierarchical but in their governing documents require the local church to own its property but hold it in trust for the denomination.  The rationale for such trust provisions is that generations of members of the local church, that also thought they were members of the denomination, gave offerings based on that premise.  The attempt by a future generation of local church members or leaders to divorce from the denomination does not, so the rationale goes, keep faith with the generations that came before.

In Presbyterian Church of the Palisades v Hwang, Slip Op. (NJ App. 2021), the local church lost membership and financial stability to the point it was about to lose its property to foreclosure.  The local church managed to salvage the situation by selling the property to a third-party non-church entity.  The funds paid by the third-party non-church entity were placed in escrow.  The litigation proceeded over who was entitled to the purchase funds placed in escrow.  The local church corporation claimed to be the owner but so did the denomination.  The mortgage default by the local church triggered the trust clause in the denominational governing document.  As a result, the local church was no longer owner of the property.  The denomination assumed the role as owner under the trust provision.  The “owner” would be entitled to the escrowed purchase funds.  The trial court determined under the trust provision the denomination was the “owner.”  The appellate court affirmed the trial court and ordered the escrowed funds released to the denomination.

If the denomination is hierarchical, most courts will under the “deference doctrine” defer to the decisions of the denomination regarding disposition of local church property.  The denominational governing documents generally compel the result.  If the denomination is not hierarchical, the “neutral principles of law doctrine” will generally compel the enforcement of the denominational governing documents.  If the denominational governing documents require that the local church owns its property in trust for the denomination, Neutral Principles of Law will generally dictate that the denomination is the owner.  There are few exceptions, the most recognized being when the deed filed of record expressly excluded the ownership of the denomination and the denomination approved the deed.

ESTATE BEQUESTS TO CHURCHES

Generally, a bequest to a church or denomination in a will does not create controversy. The will is usually clear, the estate administrator follows clear instructions in the will, and other beneficiaries act reasonably. However, sometimes life events outpace both the elderly person and the will left behind to identify the recipients of their final gifts.

In Estate of Stumm, Slip Op. (NJ App. 2019), the will was written in the last decade but before the testator died the local church dissolved which was the object of a bequest. The denomination made a claim to the bequest as successor of the local church. The administrator of the Estate, however, sought court interpretation of the will. The administrator also argued the testator’s intent was that the successor of the local church would be the local church that took over the dissolved churches’ ministry, members and mission. Further, the administrator and other witnesses testified the testator held the denomination in disdain and would never have intended for the denomination to be the successor. The trial court held that because the local church named in the will dissolved before the testator died, neither the dissolved local church nor the successor denomination could inherit the bequest. The appellate court affirmed and held the dissolved local church ceased to exist before the bequest became a vested right or property. Therefore, the denomination had nothing to which to succeed. Also, another local church took over the ministry, members and mission of the dissolved church. Indeed, that church ministered to the testator as an elderly shut in and then officiated at her funeral.

Bequests placed in wills for churches should also name a successor. Assuming the church named in the bequest will exist at the time of death is no longer a safe assumption, if it ever was. People sometimes outlive them. Many denominations operate trust funds committed to local church needs and such a trust or foundation may be a natural successor to select if the denomination is not the preferred successor.