{"id":4402231478150,"date":"2026-04-01T07:00:00","date_gmt":"2026-04-01T11:00:00","guid":{"rendered":"https:\/\/www.philanthropy.com\/?p=4402231478150"},"modified":"2026-04-01T10:26:59","modified_gmt":"2026-04-01T14:26:59","slug":"shattered-trust-21-million-daf-lawsuit-threatens-donor","status":"publish","type":"post","link":"https:\/\/www.philanthropy.com\/news\/shattered-trust-21-million-daf-lawsuit-threatens-donor\/","title":{"rendered":"Shattered Trust: $21 Million DAF Lawsuit Threatens Donor Confidence"},"content":{"rendered":"\n<p>Donor-advised funds have soared in popularity in recent years, but a new lawsuit that shines light on what donors legally give up when they create a DAF could undermine trust in the accounts, say those watching the case.<\/p>\n\n\n\n<p>\u201cThis is a fascinating case because it points out the tension between the real-world practice and the actual legal structures used,\u201d says Russell James, a long-time fundraiser and attorney who now leads the charitable financial planning graduate program at Texas Tech University.&nbsp;<\/p>\n\n\n\n<p>DAFs are accounts held by sponsoring organizations in which donors deposit money that must be used for charitable purposes. Donors receive an immediate tax break and can decide later where to send the money.&nbsp;&nbsp;<\/p>\n\n\n\n<p>Once money is deposited in a DAF, the organization sponsoring the account becomes the legal owner of the funds. Donors can advise the sponsor how to disburse the money, and sponsors nearly always follow donor recommendations.&nbsp;<\/p>\n\n\n\n<p>\u201cIn practice, a DAF would almost never go against the reasonable advice of a funder because to do so would essentially shut down future gifting to the DAF were it to become known,\u201d says James.<\/p>\n\n\n    <div class=\"post-inline-ads manual-ad-block_d87f0d0ccf256b786539b475b619977e\">\n        <!-- 728x90 Ad 0 -->\n        <div id=\"div-gpt-ad-728x90-0\">\n            <script>\n                googletag.cmd.push(function() { googletag.display('div-gpt-ad-728x90-0'); });\n            <\/script>\n        <\/div>\n    <\/div>\n\n    \n\n\n<h2 class=\"wp-block-heading\" id=\"h-the-circumstances-of-the-case\">The Circumstances of the Case<\/h2>\n\n\n\n<p>Philip Peterson sued the Christian Community Foundation, which sponsors DAFs under the name WaterStone. He is identified in the lawsuit as the \u201csuccessor adviser\u201d to a DAF started by his father. Philip Peterson became an adviser in 2017 and continued making gifts from the DAF until 2023. The suit alleges that after Peterson had a disagreement with a WaterStone executive, the sponsoring organization failed to make a $1 million grant to a Christian charity as Peterson requested. Peterson also alleges that his access to the accounts was removed, and he now has no idea how much is in the account and can no longer grant money to charities from the account his father opened.<\/p>\n\n\n<div class=\"article-sidebar alignright\">\n    <div class=\"sidebar-item\">\n        <div class=\"sidebar-header\">\n            <p class=\"sidebar-header-title\">What to Know<\/p>\n        <\/div>\n                <div class=\"sidebar-text-content\">\n            <p>Here are a few things experts note about this case.<\/p>\n<ul class=\"wp-block-list\">\n<li>This is not typical behavior for a donor-advised fund. Russell James even described what\u2019s alleged in the lawsuit as \u201ccrazy behavior.\u201d So it\u2019s unlikely this is a DAF industry trend.<\/li>\n<li>Donors considering contributing to a DAF should make sure they understand the terms of the accounts. \u201cMake sure you understand every word in that agreement,\u201d says Philip Purcell. If you aren\u2019t sure, ask a lawyer or philanthropic adviser to review it.<\/li>\n<li>Alexander Reid recommends donors work with a fund sponsor they trust. And if they\u2019re making a particularly large gift to a DAF, conduct due diligence on that DAF sponsor like they would with any charity. Look at their 990s to see if they\u2019re financially solvent. Read about their investment policies. \u201cDAFs come in all shapes and sizes and you want to find the one that&#8217;s right for you,\u201d he says.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n        <\/div>\n    <\/div>\n<\/div>\n\n\n<p>\u201cI promised my father that if I was the remaining person on the fund, that I would direct this money to organizations that I knew that he felt strongly about and he wanted to support,\u201d Peterson told the <em>Chronicle<\/em>. But Peterson hasn\u2019t been able to keep that promise.&nbsp;<\/p>\n\n\n\n<p>He informed the charity to expect a $1 million gift in 2024. Since that time, he says, \u201cThey would check in with me because there were certain programs that money was going to be used for. That really put them in a huge bind.\u201d&nbsp;<\/p>\n\n\n\n<p>WaterStone\u2019s chief giving strategist, Rick von Gnechten, told the <em>Chronicle<\/em> by email before its court filing that \u201cWaterStone has consistently carried out the articulated wishes of the donor since the donor-advised fund in question was established. The plaintiff in this case is not the donor. Because of the pending litigation, WaterStone declines to comment further on this matter. Any additional positions taken on this matter will be made through WaterStone\u2019s filing in response to Mr. Peterson\u2019s Complaint.\u201d<br><br>WaterStone\u2019s filing in court&nbsp;requested to dismiss the case. In its request, the DAF sponsor argues that Peterson has no standing to sue because he is not the legal owner of the funds. WaterStone\u2019s filing states that the terms of the DAF do not \u201ccall for WaterStone to honor grant recommendations, provide accountings, follow particular guidelines, have particular controls, or engage in particular communications. To the contrary, the terms provide only that the donor\u2019s \u2018gift is irrevocable\u2019 and that \u2018ownership and custody \u2026 will be fully relinquished to the Christian Community Foundation.\u2019\u201d<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-s-legal-versus-what-s-ethical\">\u2018What\u2019s Legal\u2019 Versus \u2018What\u2019s Ethical\u2019<\/h2>\n\n\n\n<p>The legal structures of a DAF do not really give individual donors rights to control their accounts, says Philip Purcell, who teaches courses on nonprofit law and fundraising at the Lilly Family School of Philanthropy.<\/p>\n\n\n\n<p>Instead of control, donors get advisory privileges. \u201cIt&#8217;s not legal control, it is advisory,\u201d Purcell says. \u201cA lot of people don&#8217;t realize that when the statute says advisory, it really means that. It&#8217;s not legal control. The legal control rests with the owner, the charity that is the sponsoring organization.\u201d<\/p>\n\n\n\n<p>The allegations that WaterStone stopped communicating with and ignored Peterson\u2019s advisory privilege, James notes, could be problematic. \u201cAlthough the adviser can&#8217;t legally control the funds, they do have a right to advise as to its usage,\u201d he says.&nbsp;<\/p>\n\n\n\n<p>While the legal terms of DAFs clearly state that donor advice doesn\u2019t have to be followed, there wouldn\u2019t be <a href=\"https:\/\/www.philanthropy.com\/news\/daf-assets-soar-30-to-326-billion\/\">$326 billion held in DAFs<\/a> if sponsors were ignoring advisers, Purcell says.<\/p>\n\n\n\n<p>\u201cIf the sponsoring organizations of donor advised funds were not trying to work collaboratively with their donors, donor advisers, and successor advisers, you would not see donor advised funds being as popular as they are,\u201d he says,<\/p>\n\n\n\n<p>Typically, when DAFs don\u2019t follow donor recommendations, it\u2019s for reasons related to the law or the sponsor\u2019s mission, says Purcell. Legally, DAF funds must be given to certain types of nonprofits, so if an adviser recommends money be given to a political campaign, that request should be denied. Similarly, DAF law prohibits donors from benefiting from DAF funds, so they can\u2019t be used to pay for gala tickets. Some DAF sponsors are religious nonprofits that might deny a recommendation to a charity they believe is at odds with their religious mission.<\/p>\n\n\n    <div class=\"post-inline-ads manual-ad-block_d87f0d0ccf256b786539b475b619977e\">\n        <!-- 728x90 Ad 1 -->\n        <div id=\"div-gpt-ad-728x90-1\">\n            <script>\n                googletag.cmd.push(function() { googletag.display('div-gpt-ad-728x90-1'); });\n            <\/script>\n        <\/div>\n    <\/div>\n\n    \n\n\n<p>Usually, when sponsors deny a grant recommendation, they tell the adviser why and allow them to direct the gift to a qualified use, or sometimes they\u2019ll transfer the entire fund to a different sponsoring organization that better aligns with the adviser\u2019s needs, says Dan Hiest, co-founder of the DAF Research Collaborative. In the lawsuit, Peterson alleges he was given neither option.<\/p>\n\n\n\n<p>For the sake of public trust, it\u2019s important that sponsoring organizations act both legally and ethically, says Hiest. \u201cFor me, it&#8217;s a matter of what&#8217;s legal and what&#8217;s ethical,\u201d he says. \u201cNonprofits need to go beyond just what the law requires and try to deal with their stakeholders in ethical ways.\u201d<\/p>\n\n\n\n<p>James adds that while DAFs legally own the funds, he\u2019s never seen that given as a reason not to interact with donors. Instead, they generally heed donor advisers&#8217; wishes. \u201cIf you stop following donor recommendations, donors will stop using your DAF for future gifting,\u201d he says. \u201cPublicizing the actions would essentially shut down future contributions to the DAF because the trust has been broken.\u201d&nbsp;<\/p>\n\n\n\n<p>While all observers the<em> Chronicle<\/em> contacted say this is a highly atypical case, there could be some ramifications. In addition to the possible weakening of trust that Heist mentioned, this case could also negatively impact small DAF sponsors.<\/p>\n\n\n\n<p>\u201cIf anything, this says don&#8217;t pick a tiny little DAF that might go rogue,\u201d James says. \u201cUse one that&#8217;s got too much at risk if it becomes known that it ignores donor advice.\u201d<\/p>\n\n\n\n<p>Mike Wang, a partner at the philanthropic advisory firm Building Impact Partners cautions that the number of DAF providers is growing quickly. \u201cThe bigger the business gets, the more funky things like this we&#8217;re going to see happen,\u201d he says. \u201cThat doesn&#8217;t mean we shouldn&#8217;t be using DAFs. But I do think that this idea that DAFs are a panacea is really off-base.\u201d<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-fuel-for-daf-critics\">Fuel for DAF Critics<\/h2>\n\n\n\n<p>Critics of the DAF structure, who have long complained that DAFs lack transparency and don\u2019t do enough to make sure money goes out to charities, may see this case as fuel to push for more regulation of DAFs.<\/p>\n\n\n\n<p>The DAF at the heart of the lawsuit had $21 million in it when the plaintiff last had access, and those following the case say he does not legally have the right to find out what happened to the money. Laws governing DAF sponsors require only the release of aggregated data about accounts, says Heist.&nbsp;<\/p>\n\n\n    <div class=\"post-inline-ads manual-ad-block_d87f0d0ccf256b786539b475b619977e\">\n        <!-- 728x90 Ad 2 -->\n        <div id=\"div-gpt-ad-728x90-2\">\n            <script>\n                googletag.cmd.push(function() { googletag.display('div-gpt-ad-728x90-2'); });\n            <\/script>\n        <\/div>\n    <\/div>\n\n    \n\n\n<p>That doesn&#8217;t mean DAF sponsors \u201ccan act in violation of the law and get away with it,\u201d adds Purcell. \u201cIt only means that their records are not as accessible.\u201d<\/p>\n\n\n\n<p>Purcell and Alexander Reid, a partner at the law firm BakerHostetler, note that under current legal structures, the attorneys general in the states where WaterStone or Peterson are located would be able to look into what has happened to assets in individual accounts at a DAF sponsor. Peterson is located in Kansas. A spokesman for the office of Phil Weiser, attorney general of Colorado, where WaterStone is located, told the <em>Chronicle<\/em> he could not comment on whether WaterStone is under investigation.<\/p>\n\n\n\n<p>If a donor\u2019s only choice under the current law is to get the attorney general to act, then requiring greater transparency would be good for DAFs, says Chuck Collins, program director at the Institute for Policy Studies, which last year <a href=\"https:\/\/ips-dc.org\/independent-report-on-dafs\/\">issued a report<\/a> recommending changes to improve DAFs.<\/p>\n\n\n\n<p>\u201cA higher level of transparency would be good for everybody: for the public and for the DAF account holders,\u201d says Collins, who recommends that sponsors be required to report on an account-by-account basis, not simply in the aggregate.<\/p>\n\n\n\n<p>Another criticism of DAFs is that money sits in them too long without going to charities. \u201cSome of the DAF sponsors \u2014 it&#8217;s really not in their interest for the money to move very fast because that&#8217;s how they&#8217;re going to earn their operating income,\u201d Collins says. He thinks DAFs should have some requirement to move money out.<\/p>\n\n\n\n<p>Andrew Nussbaum, Peterson\u2019s attorney for the lawsuit, notes that their ultimate goal is to move the money to a different DAF sponsor so Peterson can disburse it to charities that he knows need it.<\/p>\n\n\n\n<p>\u201cWe hope the court will say donor-advised fund sponsoring organizations have to honor their representations and commitments to donor-advisers like Phil and his father,\u201d he says. \u201cWe hope to settle. It&#8217;s time to move to a place where these funds can go to their intended purposes.\u201d&nbsp;<\/p>\n\n\n\n<div data-wp-interactive=\"core\/file\" class=\"wp-block-file\"><object data-wp-bind--hidden=\"!state.hasPdfPreview\" hidden class=\"wp-block-file__embed\" data=\"https:\/\/www.philanthropy.com\/wp-content\/uploads\/2026\/04\/DAF-Lawsuit-PetersonvWaterstone-1.pdf\" type=\"application\/pdf\" style=\"width:100%;height:600px\" aria-label=\"Embed of DAF-Lawsuit-PetersonvWaterstone.\"><\/object><a id=\"wp-block-file--media-bc262cfc-a3c3-4110-87ea-8226a6c082ac\" href=\"https:\/\/www.philanthropy.com\/wp-content\/uploads\/2026\/04\/DAF-Lawsuit-PetersonvWaterstone-1.pdf\">DAF-Lawsuit-PetersonvWaterstone<\/a><a href=\"https:\/\/www.philanthropy.com\/wp-content\/uploads\/2026\/04\/DAF-Lawsuit-PetersonvWaterstone-1.pdf\" class=\"wp-block-file__button wp-element-button\" download aria-describedby=\"wp-block-file--media-bc262cfc-a3c3-4110-87ea-8226a6c082ac\">Download<\/a><\/div>\n\n\n\n<div data-wp-interactive=\"core\/file\" class=\"wp-block-file\"><object data-wp-bind--hidden=\"!state.hasPdfPreview\" hidden class=\"wp-block-file__embed\" data=\"https:\/\/www.philanthropy.com\/wp-content\/uploads\/2026\/04\/WaterStoneResponse-1.pdf\" type=\"application\/pdf\" style=\"width:100%;height:600px\" aria-label=\"Embed of WaterStoneResponse.\"><\/object><a id=\"wp-block-file--media-d6ecf8d9-292d-41ae-b8a9-9a23e6ed2ccd\" href=\"https:\/\/www.philanthropy.com\/wp-content\/uploads\/2026\/04\/WaterStoneResponse-1.pdf\">WaterStoneResponse<\/a><a href=\"https:\/\/www.philanthropy.com\/wp-content\/uploads\/2026\/04\/WaterStoneResponse-1.pdf\" class=\"wp-block-file__button wp-element-button\" download aria-describedby=\"wp-block-file--media-d6ecf8d9-292d-41ae-b8a9-9a23e6ed2ccd\">Download<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"<p>In a legal battle, a DAF sponsor is accused of cutting off access to an account and refusing to make specific grants. Experts say the case is highly unusual but could impact donor trust and DAF regulations.<\/p>\n","protected":false},"author":365184,"featured_media":4402231478442,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":true,"content-type":"","cop_editorial_slug":"News_ChildressDAFLawsuit","cop_asana_id":"","editorial_asana_id":"","editorial_doc_id":"","footnotes":""},"categories":[81925],"issue":[],"profile":[],"role":[191051],"series":[],"topic":[191082],"coauthors":[189974],"class_list":{"0":"post-4402231478150","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","6":"hentry","7":"category-news","8":"role-giving","9":"topic-donor-advised-funds","11":"has-featured-image"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v26.9) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Shattered Trust: $21 Million DAF Lawsuit Threatens Donor Confidence &#8211; Chronicle of Philanthropy<\/title>\n<meta name=\"description\" content=\"In a legal battle, a DAF sponsor is accused of cutting off access to an account and refusing to make specific grants. Experts say the case is highly unusual but could impact donor trust and DAF regulations.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.philanthropy.com\/news\/shattered-trust-21-million-daf-lawsuit-threatens-donor\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Shattered Trust: $21 Million DAF Lawsuit Threatens Donor Confidence\" \/>\n<meta property=\"og:description\" content=\"In a legal battle, a DAF sponsor is accused of cutting off access to an account and refusing to make specific grants. Experts say the case is highly unusual but could impact donor trust and DAF regulations.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.philanthropy.com\/news\/shattered-trust-21-million-daf-lawsuit-threatens-donor\/\" \/>\n<meta property=\"og:site_name\" content=\"Chronicle of Philanthropy\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/ChronicleOfPhilanthropy\" \/>\n<meta property=\"article:published_time\" content=\"2026-04-01T11:00:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-04-01T14:26:59+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.philanthropy.com\/wp-content\/uploads\/2026\/03\/iStock-2241194993-scaled.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"2560\" \/>\n\t<meta property=\"og:image:height\" content=\"1837\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Rasheeda Childress\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@Philanthropy\" \/>\n<meta name=\"twitter:site\" content=\"@Philanthropy\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.philanthropy.com\/news\/shattered-trust-21-million-daf-lawsuit-threatens-donor\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.philanthropy.com\/news\/shattered-trust-21-million-daf-lawsuit-threatens-donor\/\"},\"author\":{\"name\":\"Rasheeda Childress\",\"@id\":\"https:\/\/www.philanthropy.com\/#\/schema\/person\/f5c59ac4928993431d5babb4cd0d0c86\"},\"headline\":\"Shattered Trust: $21 Million DAF Lawsuit Threatens Donor Confidence\",\"datePublished\":\"2026-04-01T11:00:00+00:00\",\"dateModified\":\"2026-04-01T14:26:59+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.philanthropy.com\/news\/shattered-trust-21-million-daf-lawsuit-threatens-donor\/\"},\"wordCount\":1647,\"image\":{\"@id\":\"https:\/\/www.philanthropy.com\/news\/shattered-trust-21-million-daf-lawsuit-threatens-donor\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.philanthropy.com\/wp-content\/uploads\/2026\/03\/iStock-2241194993-scaled.jpg\",\"articleSection\":[\"News\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.philanthropy.com\/news\/shattered-trust-21-million-daf-lawsuit-threatens-donor\/\",\"url\":\"https:\/\/www.philanthropy.com\/news\/shattered-trust-21-million-daf-lawsuit-threatens-donor\/\",\"name\":\"Shattered Trust: $21 Million DAF Lawsuit Threatens Donor Confidence &#8211; Chronicle of Philanthropy\",\"isPartOf\":{\"@id\":\"https:\/\/www.philanthropy.com\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.philanthropy.com\/news\/shattered-trust-21-million-daf-lawsuit-threatens-donor\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.philanthropy.com\/news\/shattered-trust-21-million-daf-lawsuit-threatens-donor\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.philanthropy.com\/wp-content\/uploads\/2026\/03\/iStock-2241194993-scaled.jpg\",\"datePublished\":\"2026-04-01T11:00:00+00:00\",\"dateModified\":\"2026-04-01T14:26:59+00:00\",\"author\":{\"@id\":\"https:\/\/www.philanthropy.com\/#\/schema\/person\/f5c59ac4928993431d5babb4cd0d0c86\"},\"description\":\"In a legal battle, a DAF sponsor is accused of cutting off access to an account and refusing to make specific grants. 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