Key Takeaways:
Philip Peterson filed a federal lawsuit against WaterStone after the nonprofit managing his family's $21 million DAF cut off communication and stopped honoring grant recommendations in early 2024.
Americans donated nearly $90 billion to donor-advised funds in 2024, pushing total DAF assets to $326 billion, with no legal requirement to distribute any of it to working charities.
Peterson's attorney warned the case could affect billions in DAF assets if courts rule that designated successors have no enforceable advisory privileges.
Philip Peterson, a 63-year-old Kansas resident, filed a federal lawsuit in Colorado against WaterStone, the nonprofit managing his family's $21 million donor-advised fund, alleging the organization cut off communication and stopped honoring his grant recommendations in early 2024. Peterson's father, real estate investor Gordon Peterson, created the fund in 2005 to support evangelical Christian causes. He died with WaterStone's help appointing his wife and son as co-advisors. After his mother died in 2021, Philip became the sole successor-advisor.
The core of the dispute is a question most donors never think to ask: once money goes into a DAF, who actually controls it? The legal answer is the sponsoring organization. Not the donor. Not their children. The "advisory" in donor-advised fund is not a legal guarantee. It is a suggestion.
Peterson told CNBC that when he informed WaterStone he wanted to transfer the fund to another sponsor in March 2024, a WaterStone executive told him never to contact the organization again and ended the call. He requested a $1 million grant in 2024 and does not know if it was ever issued. WaterStone permitted a $400,000 distribution in 2025. Peterson has not received account information since the fund was worth $21 million at the end of 2023.
The numbers behind the dispute tell a bigger story. Americans donated nearly $90 billion to DAFs in 2024, per the DAF Research Collaborative. Total DAF assets reached $326 billion. Unlike private foundations, DAFs face no legal requirement to distribute any minimum amount per year. The Institute for Policy Studies estimates that DAFs and private foundations captured 38% of all individual giving in 2024 and could absorb half by 2028, with combined assets topping $2 trillion as soon as 2026.
Peterson's attorney, Andrew Nussbaum, put the stakes plainly. "If WaterStone is right, you're talking about billions of dollars being beyond any kind of legal reach of the original donor-advisors or their successors to have any oversight related to the funds," he told CNBC.
The pattern here is hard to ignore. The system gives donors an immediate tax deduction for money they no longer control, with no timeline for that money to reach a working charity. That's $326 billion sitting in intermediary accounts while food banks report record demand.
People Also Ask
Q: Can a DAF sponsor refuse a donor's grant recommendation? A: Yes. Legally, DAF sponsors retain final authority over distributions. Donors make recommendations, not binding instructions. The Peterson v. WaterStone lawsuit is testing whether this extends to cutting off successor-advisors entirely.
Q: How much money is held in donor-advised funds? A: DAFs held $326 billion in combined assets at the end of 2024, according to the DAF Research Collaborative. Americans donated nearly $90 billion to DAFs that year.
Q: Are donor-advised funds required to distribute money to charities? A: No. Unlike private foundations, which must distribute at least 5% of assets annually, DAFs have no legal minimum payout requirement. Funds can remain invested indefinitely.
Q: What happens to a DAF when the original donor dies? A: Donors can designate successor-advisors, but the legal enforceability of successor advisory privileges is untested. The Peterson lawsuit is the first major case to address this question.
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