A Primer on Local Church Assets

By David W. Scott –

As I have tried to explain in a series of articles found on UM & Global (umglobal.org), The United Methodist Church as a whole is not a legal entity capable of owning property or financial assets. Local church property (real or personal, tangible or intangible) is owned by local legal entities and held in trust for the denomination as a whole.

This trust clause applies to the property of all parts of The United Methodist Church, but local churches are in a unique position with regard to the trust clause for several reasons: ¶2503 of the Book of Discipline explicitly names the annual conference, which generally is a legal person capable of owning property, as having authority over local church property. Several other places in the Discipline also give the annual conference explicit powers regarding the sale or transfer of local church property or its release from the trust clause. ¶2509.2 gives annual conferences the authority to bring lawsuits to enforce the trust clause. All of these provisions add up to clear enforcement of the trust clause on local churches by annual conferences.

Thus, the trust clause as applied to local church property has generally stood the test in secular courts. While in some instances departing congregations have negotiated with their annual conferences to take assets, when the trust clause has ended up in court, annual conferences have almost always won ownership of the property of departing congregations. Incidentally, that’s true not just for the UM Church, but also for the Episcopal Church and other bodies that also have a trust clause in their church law.

As cut and dried as the trust clause may appear, there are facets to keep in mind when thinking through the sorts of conflicts and potential lawsuits that might arise over ownership of local church property.

First, while most people assume that the trust clause means that the annual conference owns local church property, that’s not technically true. The annual conference has authority over local church property, and local church property reverts to the annual conference if it ceases to be owned by a local UM congregation, but the annual conference is not the legal person who owns the church property.

Who technically owns local church property depends on whether a congregation is incorporated. Most sizable congregations are incorporated as 501(c)3 organizations, but many small congregations are not. This means that for incorporated congregations, the property is owned by the local congregation as a corporate entity. For unincorporated congregations, the property is technically owned by the trustees, who as humans are legal persons. In either case, property ownership is exercised in trust for The United Methodist Church. The owner(s) of local church property can’t do whatever they want with it; they must abide by the stipulations of the Book of Discipline.

One problem here is that most bankers, investment brokers, and real estate agents are not familiar with the intricacies of the Discipline. While it would violate the Discipline, it might be possible for local leaders to work with bankers, brokers, or real estate agents unfamiliar with the trust clause to sell or otherwise dispose of local church property without annual conference consent. Such action would violate the Book of Discipline and thus expose the local church and its leaders to lawsuits from the annual conference, but it might be harder for the annual conference to recover property that was already disposed of.

Of course, the exit provision passed by General Conference 2019 and any future exit provisions passed by General Conference 2020 reduce the chances for lawsuits between local congregations and annual conferences over control of property.

Second, it’s important to remember that local church property includes more than just buildings. The trust clause applies to all other property that a local church owns, from its hymnals to its choir robes to its sound equipment to its vans to its tableware. It also applies to all financial assets owned by a local church. Thus, the question of property ownership goes beyond whether departing congregations can continue to worship in their same building. Any or all of these items could be a point of conflict between a departing church and the annual conference.

Certainly, the church building itself (and perhaps a parsonage) would likely be the biggest point of contention, since that generally represents the largest chunk of a local church’s assets. After that, who cares who keeps the Sunday school books, right? Maybe, but maybe not.

Especially when it comes to financial property, local congregations may have significant assets beyond their building over which annual conferences may want to assert their ownership. And larger churches may have a non-negligible amount of property in the form of vehicles, equipment, books, supplies, etc. Annual conferences have an incentive to assert their right to this property, even if just to give themselves better leverage in bargaining with a departing congregation.

Again, exit provisions reduce the chances for lawsuits between local congregations and annual conferences over control of buildings, equipment, and any other property. It is therefore worthwhile to keep in mind the scope of assets that could be at stake in such lawsuits.

Third, it is worth noting the variety of local church financial decision-makers established by the Discipline. This array of decision-makers increases the chances for conflict over assets within the local church itself.

The Book of Discipline outlines property-related responsibilities for the charge conference, the board of trustees, the financial secretary, the treasurer, the finance committee as a whole, and, in cases where they exist, the permanent endowment committee and the directors of the local church foundation. Moreover, in multiple-point charges, there may be both local church trustees for the property of each congregation and a board of trustees for property owned by the charge as a whole.

The authority to make all decisions regarding property, both real and personal, is vested in the charge conference. Yet, to carry out its property and financial decisions, the charge conference relies upon the work of the board of trustees, the treasurer, the finance committee, and (if they exist) the permanent endowment committee and directors of the local church foundation. These individuals have access to and oversight of the property of a church. Thus, they might be able to direct this property to another church body (either another denomination or the annual conference) in defiance of or in absence of a charge conference decision, especially since charge conferences usually meet rarely.

Again, such action would violate the Book of Discipline and ultimately lead to lawsuits, but in an instance in which there is a lot of internal conflict within a church about that church’s continued relationship with the UM Church, there is the possibility for factions within the church to use control of church property as a means to achieve their preferred outcome.

Since this type of conflict would occur within a church, an exit plan would not necessarily mitigate it. Control of property within a highly divided congregation may actually become more contentious with the existence of an exit plan. Such a plan could make local property a prize to be fought for between local “leave” and “stay” factions, with each group seeking control of the property. Nonetheless, an exit plan that sets or allows a congregation to set a relatively high standard of agreement for exiting is likely to reduce internal conflict around that decision.

David W. Scott is Director of Mission Theology at the General Board of Global Ministries. This essay orginally appeared on UM & Global (umglobal.org) and is reprinted here by permission. The opinions and analysis expressed here are Dr. Scott’s own and do not reflect in any way the official position of Global Ministries, nor Good News. Dr. Scott is neither a lawyer nor an accountant, and thus the information in this analysis should not be interpreted as legal advice.

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