Planning For Royalty or Other Income Outside the Church For Pastors

Planning For Royalty or Other Income Outside the Church For Pastors


Royalty income, honorariums for speaking or teaching or other earned income are generally classified as ordinary income and are taxed at the highest tax rate.  Outside income, like royalties, can fluctuate based on circumstances.  Many times, when the income is received and the amount of income received in a year, is generally not under the control of the taxpayer making it difficult to shelter income from tax during high income years.   This produces a problem similar to the one that Joseph faced in Egypt based on Pharaoh’s dream, how can a pastor store up in a tax exempt barn during the times of plenty, resources that can be available to him and his family during the times that might not be so plentiful?


  1. Organize your affairs so that you will pay less in taxes now and in the future.
  2. Manage assets in your estate so that your assets and intellectual property are protected so that your assets can provide the greatest benefit possible to you, your family and the charities that you love.
  3. Structure your estate so that during your life and at your death your estate is managed properly, your family is provided for appropriately and things are handled efficiently with the least amount of taxes and government intervention.
  4. Organize your financial affairs so that you can be more charitable now and in the future, in the most tax advantaged way, to benefit and/or be involved with the causes and organizations that you feel are making a difference in the world today.
  5. Allow you and your family members to be more actively involved with the charities and charitable activities that are important to you, either full-time, part-time or spare time.


Ownership is not one right, it is really a bundle of rights but the three most important rights are:
Title – if I own something I can title it in my name
Control – if I own something I can control it
Benefit – if I own something I can benefit from it
Control is the most important right because if you have Control, then you can choose who will Benefit and when
Title is the least important right because both taxes and liability generally follow Title

Legal entities such as corporations, trusts, limited liability companies and partnerships allow us to split up the three primary rights of ownership and have them held by different people or different entities.
Corporation – Title in name of corporation, Control to Directors, Benefit to Shareholders
Trust – Title in name of Trust, Control to Trustee, Benefit to Trust Beneficiaries
LLC – Title in name of LLC, Control to Managers, Benefit to Members


  1. Use a Charitable Trust friendly LLC as your entity to hold income producing asset
  2. Utilize the Ultimate Charitable Trust to provide benefits and tax savings
  3. Choose Joy To The World Foundation as your charitable partner for maximum flexibility


A charitable trust friendly LLC is used as the owner of income producing assets to give the greatest amount of flexibility for control and benefit. The LLC operating agreement can be written so that it allows tax benefits to go to members that are not the charitable trust and keeps unrelated business income away from the charitable trust, when there are other taxable members, which can cause it to lose its charitable tax exemption. For a pastor who wants to stay in ministry, the charitable trust is a win-win proposition. Since funds can be released to charity as well as paid out as income, the pastor has two ways to receive income. For this reason, many pastors choose to have a larger percentage of the LLC owned by the charitable trust or many start owning a larger percentage in the beginning and then make gifts of membership interest at a later date to the charitable trust to allow the asset base to grow for retirement or future use. This allows the pastor to receive a greater proportion of the initial income for personal use and then defer a greater percentage of future income in the tax-free environment of the charitable trust. The individual can always make gifts of membership interest to the charitable trust, but the charitable trust cannot make gifts of membership interest to the individual. If the charitable trust owns 50% of the membership interest, then 50% of the income received by the LLC will be exempt from tax because the charitable trust is a tax exempt entity. This allows the pastor to invest 50% of what is received by the LLC in a tax- free environment for future benefit. The manager or managing member of the LLC determines when assets are distributed to members from the LLC, so the pastor as manager, can maintain control over how much and when income is received by members.


The charitable remainder unitrust is a fairly common entity used for charitable planning, but it is also a highly regulated form by the IRS. This is a good thing, because there are few grey areas and so you want to use an experienced trustee that know what can and cannot be done with the trusts so that you are not making new law with a creative use for the trust. The ultimate charitable trust can pay income to the pastor and spouse, children or grandchildren. This is known as “spraying” and allows the income to be taxed to whoever receives it. This makes it a great instrument to pay for children’s college expenses. In order for this ability to be available, the trustee of the trust must be someone other than the pastor or his immediate family. If the family is working with Joy To The World Foundation, the foundation is an experienced trustee that is very responsive the grantor’s desires. The grantor can also release money from the trust to charity early producing a current tax deduction for the grantor. The managing member of the LLC determines when and how much income will be available to the trustee to distribute. The trust can last for lifetimes, for a term of years or for a lifetime and/or a term of years. The goal is to create a trust with only a 10% current charitable value and a 90% income value which is the lowest charitable value the IRS will allow. If needs change or if the pastor would like to convert the ordinary income that is paid out to beneficiaries to capital gain income, this trust can be rolled into a new trust with a new term, additional beneficiaries and which will produce capital gain income instead of ordinary income. There is a specific tier system in the IRS code that requires any ordinary income to be paid out before capital gain income so this can be very beneficial. Assets held in the trust are outside of the pastor’s estate and are not subject to creditors providing a level of asset protection for the family.


Choosing Joy To The World Foundation as the charitable beneficiary of the charitable remainder trust and partner in this transaction provides the pastor with the greatest possible benefits. Because the affiliation with the foundation is not based on an employment arrangement, the pastor and his family maintain control over their project in the foundation regardless of which church or charity they are working with at the time. This also creates the element of privacy with respect to the pastor’s outside income. Joy To The World Foundation also operates the Associates Ministers Program which allows pastors to get the ministers housing allowance, have a tax sheltered annuity and receive additional income for charitable service. Joy To The World Foundation is a public charity that operates charitable program in the US and around the world so it is also the perfect platform for ministry after or outside of the church. Since Joy To The World Foundation’s charitable purpose is to help project managers accomplish their charitable objectives, the pastor maintains a high level of control over how the funds are used in his or her project. Family members can also create charitable projects and be paid by the foundation for the charitable services that they provide to the project. Through the Associate Minister’s Retirement Program, pastors can also receive tax-free income in retirement based on their minister’s housing allowance, even if they are no longer working for a church. The pastor can name family members as successor project managers for the project in the foundation so that family members can continue to utilize the foundation project after the pastor’s death.


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