A dispute surrounding a $21 million donor-advised fund has brought to light potential conflicts of interest associated with these increasingly popular philanthropic vehicles. The case, initiated by Philip Peterson, a 63-year-old Kansas resident, accuses the nonprofit WaterStone of blocking his access to information and failing to honor his recommendations for charitable grants since early 2024. This lawsuit, filed in a Colorado federal court, specifically questions the management practices of the Christian nonprofit, which has controlled the fund since its establishment by Peterson’s late father in 2005.
Peterson claims that WaterStone has ignored his requests and that he has been left in the dark about the fund’s status, which he believes had approximately $21 million in assets at the end of 2023. The root of the conflict appears to be a disagreement over the level of control WaterStone would maintain over the fund. In early 2024, Peterson alleges that WaterStone’s CEO, Ken Harrison, stated the organization planned to preserve the fund’s principal indefinitely, permitting grants only from investment income. Peterson argues that this approach contradicts the fund’s history of making annual grants between $2.3 million and $2.5 million.
Moreover, following his declaration of intent to shift the fund to another sponsor, Peterson claims Harrison abruptly ended their conversation and instructed him never to contact WaterStone again. The suit aims to reassert Peterson’s advisory rights and transfer the fund to a different organization in order to rejuvenate its charitable activities.
WaterStone responded to the allegations cautiously, asserting in a statement that it has consistently acted in accordance with the wishes of the original donor. Legal representatives for the organization highlighted that Peterson is not the original donor and, therefore, does not hold the same rights regarding the fund.
The lawsuit underscores ongoing debates surrounding donor-advised funds (DAFs), which have emerged as significant players in the philanthropic landscape, with Americans contributing nearly $90 billion to these accounts in 2024 alone. Unlike private foundations, DAFs do not have mandatory distribution timelines, a point of contention among critics who argue that they can serve as vehicles for wealth hoarding.
Legal experts have observed that Peterson’s situation serves as a cautionary tale about the complexities inherent in DAFs. Philip Peterson expressed his determination to maintain his father’s legacy and uphold his commitment to direct the fund to charities aligned with his father’s philanthropic values. He recounted his father’s strong belief in the fund’s purpose, suggesting that he would not have established a DAF if he had known such a dispute could arise.
The challenges faced in this case highlight a broader issue: the dichotomy between the perceived control donors believe they have over their funds and the legal realities governing DAFs. Many scholars and practitioners in the field argue that while donors may feel empowered, they often relinquish a significant degree of control when they contribute to these funds, leading to potential conflicts when requests are not honored.
This lawsuit is not occurring in isolation; there have been previous legal challenges related to donor-advised funds, including a notable case in 2018 involving Fidelity Charitable. Legal experts suggest that Peterson’s case, focusing specifically on advisory rights rather than control over investments, addresses a unique aspect of the ongoing conversation about who truly holds authority over charitable funds once they have been placed in a DAF.
Despite the inherent challenges and uncertainties facing his case, Peterson remains committed to pursuing the legal route. He hopes to establish clearer definitions of rights associated with donor-advised funds, not just for himself but for the broader community of donor-advisors, who trust these organizations with their philanthropic intentions.
