A Primer on UMC Assets: Church-Related Institutions

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 indicated in a previous post on the ownership of church assets, there is a lack of clarity in how the trust clause applies to one particular set of assets: those of church-related institutions. United Methodists and their predecessors have been persistent founders of a variety of non-profit institutions and organizations: colleges, universities, seminaries, hospitals, nursing homes, social service agencies, camps, retreat centers, and more.

Many such institutions founded by United Methodists and their predecessors have since become independent of The United Methodist Church. They may still recognize their Methodist or EUB heritage, but there are no longer any formal ties between them and the denomination.

Yet many such institutions do still maintain some sort of formal connection to the denomination. The trust clause in ¶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,” indicating that such institutions may be bound by the trust clause.

These connections raise a host of related questions: How does one know if an institution is bound by the trust clause? Are such institutions also bound by the Book of Discipline? If there is some sort of split within the denomination, does that effect the assets of these institutions? What happens if these institutions try to cut their ties to the denomination as a result of the church’s turmoil? And of course, how could conflicts over control of these institutions lead to lawsuits?

Conflict over control of church-related institutions has already generated one high-profile lawsuit: the South Central Jurisdiction of the UMC is suing Southern Methodist University over SMU’s unilateral decision to sever (most of) its ties to the jurisdiction. This case has served to increase the questions and anxieties around the relationship of the denomination to its church-related institutions: Will SMU be a pattern for other cases?

Several factors influence the answer to this question.

As previously noted in this series, assets can only be owned by legal persons, including corporations. All or nearly all church-related institutions are established as their own legal corporation, most of them 501(c)3 corporations, i.e., non-profits. This status as legal corporations gives these institutions the legal standing that they need to own assets and do business. It also requires them to have articles of incorporation, which lay out the basic structures and rules by which each institution will function.

These articles of incorporation may also establish some sort of relationship with The United Methodist Church. There is not, however, any formulaic version of that relationship. In writing articles of incorporation, each institution draws upon its own unique history, purpose, church context, and time of writing in laying forth what (if any) formal relationship it has with The United Methodist Church (or predecessor body, if the articles were written before 1968). Thus, each institution’s relationship with the UMC is in many ways unique to that institution.

In general, however, it is useful to think about the sorts of relationships church-related institutions have with the UMC as dealing with one or both of two major issues: ownership and control.

Under ownership provisions, the articles of incorporation would stipulate a body of the UMC that is itself a legal entity as the owner of the church-related institution. This could be a local church, an annual conference, a jurisdiction, or a board or agency. Part of the issue in the SMU case is that SMU’s articles of incorporation previously said that SMU was “owned … by the South Central Jurisdictional Conference.”

Ownership gives a church body some right to the assets of the church-related institution. But that right can mean various things, according to the durability of the institution and the exact wording in its articles of incorporation.

Since each institution is itself a corporation capable of holding assets, ownership can be a largely theoretical concept if the institution is likely to endure indefinitely and has the right to keep all of its assets for itself, which legal persons generally do. On a practical level, an on-going, autonomous institution would continue to manage and control all its own assets, even if the church theoretically owned them.

The articles of incorporation would have to include an unusually strong ownership clause for a church body to take assets from a still-functioning, on-going church-related institution. Such provisions may exist for church-related institutions that are directly overseen and operated by church bodies, such as camps, retreat centers, and perhaps some social service agencies or clergy retirement homes (though I’m not certain about that). Yet for colleges, schools, seminaries, hospitals, and most social service agencies that are not directly run by church bodies, such strong ownership clauses are very unlikely.

Ownership becomes more relevant if an institution closes or dissolves. Who gets the remaining assets? Who assumes the remaining debts? Shutting down might seem like a remote possibility for a large university like SMU, but it might be a more realistic possibility for a church-related camp or retreat center.

Questions of what happens when an institution closes can be answered by a survivor clause in the articles of incorporation that stipulates who assumes assets and debts. If an ownership provision is accompanied by a survivor clause specifying that a part of the church would be the legal successor to that institution, should it ever cease to exist, that gives the church a good claim to the assets of the institution. Without such a clause, it might be hard for a church body to actually benefit tangibly from its theoretical ownership of an institution.

In addition to ownership, the other main avenue of relationship for church-related institutions is control. Here again, SMU’s articles of incorporation are illustrative. They also stipulated that the school would be “controlled by the South Central Jurisdictional Conference.”

Control can come in a variety of forms related to personnel or policy. One common form is the power to appoint some portion of the institution’s trustees, who then exert big-picture control over the institution. Another possible form of control would be the power to appoint staff leadership for the institution, which might be the case for annual conference-related camps, retreat centers, and social service agencies. Yet another possible form of control is the power to approve or veto certain decisions by the institution. Alternatively, the articles of incorporation could require an institution to adhere to certain denominational policies for the institution, perhaps related to some provisions of the Social Principles. Again, the possibilities are many, and the exact arrangements vary from institution to institution.

Moreover, it is also possible for an institution to be church related without that being spelled out in its articles of incorporation. There may be historical ties, on-going funding patterns, missional collaborations, or other bonds between an institution and a body of the UMC. If those relationships are not spelled out in the articles of incorporation, however, then the church has very little leverage in asserting any claims of ownership or control over the institution. It would be easy for the institution (or the church body) to break such connections.

So, is the SMU case indicative of things to come? The answer is likely yes and no. It is possible that there will be other cases wherein ownership and control are contested and even litigated, but each case is likely to play out differently because of the unique relationship established between each church-related institution and the UMC in that institution’s articles of incorporation. SMU had relatively strong language in its articles of incorporation connecting it to the South Central Jurisdiction. Most church-related institutions will not have such a strong connection laid out in their founding documents. Indeed, three other colleges have disaffiliated without triggering lawsuits.

Moreover, while church-related institutions directly run by church bodies (such as camps) may allow those church bodies to claim the institution’s assets for their own use, assets for most church-related institutions will remain in the hands of those institutions and cannot be transferred to the church itself. Thus, the fights that do occur are more likely to be fights about control over institutions rather than fights about ownership of property, as is mostly the case for SMU.