A Primer on UMC Assets: Trust vs. Ownership

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

As recounted in my previous two posts, the assets of The United Methodist Church are governed by the two principles of ownership by legal entities (usually non-profit corporations) and trust for the denomination. These two principles apply to all forms of property owned by any official entity within The United Methodist Church – including annual conferences, jurisdictions, boards and agencies, and others – not just to buildings owned by local churches.

Having laid out this basic framework, it is worth exploring in some greater detail the relationship between trust and ownership. Both give certain parties rights relative to property, but the nature of those rights and who holds them differs in the two scenarios.

Before I go further, however, it is important to note a couple of very important caveats. First, as indicated above, I am a theologian, not a lawyer. The following is an attempt to give a general explanation for laypeople of broad principles that structure the polity of the church. It is not specific legal advice that will be accurate in all cases.

Second, the specifics of property law vary from place to place. There are differences in property law between the different countries in which The United Methodist Church exists. But there are also differences across state property laws in different states in the United States. Since a lot of property law exists at the state rather than the federal level, that means there can be significant variation across annual conferences or other bodies of the church. Very little can be said with any specificity that will apply to all United Methodist bodies in all places.

Those caveats out of the way, here’s some of what can be said generally about ownership and trust.

Both ownership and trust come out of a Western legal tradition of understanding property wherein ownership is largely construed in terms of the rights to use that property and control over the use of that property. Put simply, an owner is a legal entity that has the ultimate right to control how and by whom a piece of property is used. The owner can use it themselves, or they can allow others to use it, but the decisions regarding that use lie with the owner. In general, an owner can do whatever they want with their property, within the limitations of the law.

Trust is an arrangement between three parties that puts some restrictions on the rights and use of property not found under the most basic form of ownership. In a trust, one party (technically, the grantor, trustor, or settlor) conveys ownership of a property to a second party (the trustee) with the stipulation that the property must be used for the benefit of a third party (the beneficiary).

Prior to setting up a trust, the trustor owns the property outright. But they give up that ownership in transferring that property to the trustee. There are certain cases in which a grantor might be able to receive that property back (“revocable trusts”), but in general, they relinquish all claims of ownership to the property (“irrevocable trusts”).

The trustee assumes ownership of the property, but they are not free to do anything they way with it, as under basic ownership. Their rights to the property are limited by the stipulation that they use that property for the good of the beneficiary. They are legally prohibited from doing anything with the property that would harm the interests of the beneficiary. Yet as owner of the property, the trustee does get to make decisions about how to use that property for the good of the beneficiary.

The beneficiary does not own the property – the trustee does, but the beneficiary does receive the benefits of the use of that property. The beneficiary cannot make any and all decisions about the use of the property – again, that power is reserved for the trustee, but those decisions are supposed to be in the beneficiary’s best interest. The beneficiary may have some power to assert what they see as in their best interest, but that power is limited. They don’t own the property, so there are things they can’t legally force the trustee to do with the property.

To give an example from family property, let’s assume there is a wealthy parent with a chunk of money. As owner of that money, they can use it any way they want – spend it, invest it, give it away, even gamble with it. As long as they’re not doing anything illegal with it (buying drugs, offering bribes, etc.), it’s theirs to use.

Now assume that parent acts as a trustor to put this money in a trust administered by their lawyers, who would serve as the trustees, for the sake of their children’s education, the children thus being beneficiaries.

The parent relinquishes ownership of the money put into this trust, but they establish some rules for how that money should be used when they transfer it to the trust. Doing this with the money might bring a tax benefit to them, but they can no longer spend or use that money for themselves.

The lawyers, as trustees of the money, are responsible for making sure the money is being well-stewarded and used for the purposes set up. They cannot spend that money however they want, even though they are the executors of the trust, which legally owns the money.

The children benefit from that money, but they don’t own the money. They benefit from the money is thus limited by the rules set up by the parent. They cannot use the money to buy a car, for instance, since the parent stipulated that the money be used for their education.

How does this basic framework apply to the UMC? In this instance, individual donors are the trustors, giving over money to various UMC legal persons, who function as the trustees, for the benefit of the denomination as a whole, the beneficiary.

Not all donors may realize that’s what they’re doing when they give to the offering plate, but that’s essentially what’s going on. Except in rare circumstances, upon giving property to a church entity, the donor loses ownership of and rights over that property. Just as you can’t get your money back after a donation to the Red Cross, you generally can’t get back the money you give to the church.

The UMC legal entity (local church, annual conference, board or agency, etc.) as the trustee is the legal owner of the property. But they are required to use that property for the benefit of the whole of the United Methodist connection, within the restrictions and stipulations set up by donors for particular pieces of property. They cannot simply use their property in any way that they want. This is why, for instance, there are rules and restrictions regarding selling, mortgaging, or renovating local church buildings – those buildings must contribute to the good of the connection as a whole.

The UMC as a whole is the beneficiary of the trust, which means that all property owned by UMC entities is supposed to benefit the connection as a whole. But since the UMC is the beneficiary and not the owner, that means that there are things that General Conference (as decision-making body for the whole connection) might not be able to ask or require that various church entities do with their property, since the UMC as a whole does not own it and thus does not have full rights to decision how to use that property.

Again, there are many very complicated and technical issues at stake here, and it is impossible to comment on the application of these basic principles to all of them. Future posts will try to look at how these general issues play out in more specific cases and especially how this system can break down.

A Primer on UMC Assets: Who Owns Them?

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

There has been a lot of discussion about the “assets” of The United Methodist Church related to the possibility of a division within the church. What will happen to those assets has become a topic of debate, with varying proposals part of the different plans.

Yet before United Methodists make plans to divide their assets, it is important to come to a clearer understanding of just what those assets are and how they may (or may not) be disposed of in the future. Thus, this is the first post in an on-going series about UMC assets.

First, it’s important to explain two critical legal frameworks that impact all United Methodist assets: the concept of legal personhood and the trust clause.

Under most countries’ property laws, assets can only be owned by “legal persons,” a lawyerly term meaning both actual humans and government-recognized entities such as corporations. The United Methodist Church is not a human, with the exception of individuals who own property in trust for unincorporated local churches (more on that in a future post), and it does not have legal claim over the assets owned by any of the humans associated with it. Thus, when we’re talking about United Methodist assets, we’re mostly talking about the assets of government-recognized non-human legal entities, which in the US usually take the form of 501(c)(3) non-profit corporations.

But there is a very important point to be made about assets and legal entities within the UMC. The United Methodist Church as a whole is not a legal entity itself, as ¶141 of the Book of Discipline makes clear:

“These terms [“The United Methodist Church,” “the general Church,” “the entire Church,” and “the Church”] refer to the overall denomination and connectional relation and identity of its many local churches, the various conferences and their respective councils, boards and agencies, and other Church units, which collectively constitute the religious system known as United Methodism. Under the Constitution and disciplinary procedures set forth in this Book of Discipline, “the United Methodist Church” as a denominational whole is not an entity, nor does it possess legal capacities and attributes. It does not and cannot hold title to property, nor does it have any officer, agent, employee, office, or location. Conferences, councils, boards, agencies, local churches, and other units bearing the name “United Methodist” are, for the most part, legal entities capable of suing, and being sued, and possessed of legal capacities.” (emphasis added)

Thus, The United Methodist Church as a whole does not directly own any assets, since the church as a whole is not a legal entity capable of owning assets.

Thus, when people are talking about the fate of UMC assets, what they’re really talking about is the assets owned by local churches (and associated entities), annual conferences (and associated entities), jurisdictional and central conferences (and associated entities), and boards, agencies, and other general church legal entities. There is not some pool of money out there separate from the assets of these specific groups.

While the UMC as a whole does not own assets, all of the assets of each of these groups are held in trust for the UMC as a whole. This is the famous “trust clause” of the UMC, which reads, in part:

“All properties of United Methodist local churches and other United Methodist agencies and institutions are held, in trust, for the benefit of the entire denomination, and ownership and usage of church property is subject to the Discipline. … In consonance with the legal definition and self-understanding of The United Methodist Church (see ¶ 141), and with particular reference to its lack of capacity to hold title to property, The United Methodist Church is organized as a connectional structure, and titles to all real and personal, tangible and intangible property held at jurisdictional, annual, or district conference levels, or by a local church or charge, or by an agency or institution of the Church, shall be held in trust for The United Methodist Church and subject to the provisions of its Discipline. Titles are not held by The United Methodist Church (see ¶ 807.1) or by the General Conference of The United Methodist Church, but instead by the incorporated conferences, agencies, or organizations of the denomination, or in the case of unincorporated bodies of the denomination, by boards of trustees established for the purpose of holding and administering real and personal, tangible and intangible property.” (Book of Discipline ¶ 2501; emphasis added)

In other words, the UMC as a whole doesn’t own anything, but ownership by specific UMC-related legal persons is subject to the provisions of The Book of Discipline. This applies to most famously to local churches, but also to districts, annual conferences, jurisdictions, and boards and agencies.

There are different amounts of property at each of these levels, though. US local churches, districts, and annual conferences collectively owned $63.5 billion of property in 2018, an average of $1.2 billion per annual conference, over 90% of which is at the local church level. All five jurisdictions together held less than $4 million in property, though corporate entities related to the jurisdictions held additional assets. The apportioned funds, Africa University, and the apportionment-supported general boards and agencies collectively had $621 million in net assets in 2018, or about half the property in an average annual conference. The vast majority of UMC assets, then, are in the form of local church property.

The trust clause may or may not apply to other UMC-related entities like colleges and hospitals. ¶2552 refers to “[t]rustees of schools, colleges, universities, hospitals, homes, orphanages, institutes, and other institutions owned or controlled by any annual, jurisdictional, or central conference or any agency of The United Methodist Church,” yet it continues, “It is recognized that there are numerous educational, health-care, and charitable organizations that traditionally have been affiliated with The United Methodist Church and its predecessor denominations, which are neither owned nor controlled by any unit of the denomination.” It depends upon the specifics of each entity’s articles of incorporation, as a future post will elaborate.

While The United Methodist Church is not a legal entity capable of owning assets, General Conference can make rules that impact the assets owned by units of The United Methodist Church that are legal entities. General Conference can do so by inserting such rules into the Book of Discipline, which functions as a legal document for local church, conference, and agency government.

One well-known example of General Conference exercising such power is the restriction on agencies investing in companies that engage in businesses contrary to the Social Principles. ¶717 reads, in part: “United Methodist institutions shall endeavor to avoid investments in companies engaged in core business activities that are not aligned with the Social Principles through their direct or indirect involvement with the production of anti‐personnel weapons and armaments (both nuclear and conventional weapons), alcoholic beverages or tobacco; or that are involved in privately operated correctional facilities, gambling, pornography or other forms of exploitative adult entertainment.” There are a variety of other examples of such rules.

Thus, it is possible that General Conference 2020 (or any other General Conference) could, by normal legislation, insert provisions into the Discipline that would allow or even require legal entities that are part of the system of The United Methodist Church to transfer assets to other legal entities not part of the UMC, such as successor denominations or departing congregations, thereby effecting a division of assets. It is also possible that doing so might conflict with the fiduciary responsibility of such legal entities to use their assets for the purposes stipulated in their charters. Part of the question hinges on whether this process would involve the transfer of the trust (more likely allowable, since the legal entity would continue as is) or the transfer of parts of the entity's assets (less likely allowable, since it could violate the charter).

Of course, agencies, annual conferences, and congregations routinely make grants to support the ministry of non-United Methodist legal entities (partner denominations, non-UMC nonprofits, etc.), and such units of the church could certainly make grants to support the ministry of departing portions of the denomination, if they so chose and if those grants fit within the designated missional purposes of those agencies and annual conferences. However, such grants would be at the discretion of the (still-UMC-affiliated) agency, annual conference, or congregation. It would not be required unless stipulated by General Conference by amendment to the Book of Discipline.

Barring action by General Conference, UMC assets will continue to be held in trust for the UMC as a whole, regardless of who may or may not be part of the denomination at any future point. As ¶2501.2 says, “Property can be released from the trust, transferred free of trust or subordinated to the interests of creditors and other third parties only to the extent authority is given by the Discipline.”

Editor's note: The third-to-last paragraph of this article has been updated from its original version in response to reader feedback.