One family’s $21M charity fund dispute shows how tax-advantaged giving can go wrong. What donors should know

One family’s $21M charity fund dispute shows how tax-advantaged giving can go wrong. What donors should know
Jessica Wong
6 min read
A $21 million charity fund intended to honor a father’s legacy has sparked a courtroom battle that’s exposing one of the fastest-growing trends in philanthropy.
According to a recent CNBC report, Philip Peterson says he promised his late father he’d carry on the family’s giving. But now he claims he’s been locked out by WaterStone, the nonprofit overseeing it (1).
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After stepping in as successor advisor to the family’s donor-advised fund, Peterson alleges WaterStone cut off communication and stopped approving the donations he recommended.
The fund, which launched in 2005 and is valued at roughly $21 million, regularly gave away between $2.3 million and $2.5 million annually to charitable causes. But Peterson says that flow of money stopped in 2024 after a dispute over how much should be paid out.
According to a federal lawsuit, Peterson claims he’s unable to access basic account details or even confirm whether any donations have gone out at all.
On the other hand, WaterStone is pushing back, stressing that Peterson isn’t the donor himself.
Why DAFs are attractive for donors
As this dispute shows, donor-advised funds can be powerful tools for giving, but they come with tradeoffs many donors may not fully understand.
“People put an enormous amount of trust in these companies, and we’re hopefully going to find out what these companies can and can’t do,” Peterson said to CNBC, “It may have a big effect on the industry, and I don’t want to be that guy. All I want to do is to be able to continue my father’s legacy” (2).
Many donors may not fully understand that once you put money into a donor-advised fund, it’s not yours anymore.
DAFs are often pitched as sleek, flexible “charitable wallets” where you can give now, get the tax break, and decide later where the money goes. But behind the marketing is some important fine print: the sponsoring organization has the final say, not you.
Investment News emphasizes the gap between perception and reality points to a fundamental trade-off baked into DAFs: generous tax perks in exchange for surrendering control, and it’s an opportunity for advisors to make sure their clients understand the tradeoff (2).
According to the annual DAF report, Americans poured nearly $90 billion into these funds in 2024 alone, pushing total assets to a staggering $326 billion (3). But donors should note that, as shared in Donorperfect, the new 2026 rules under the OBBB are changing the tax landscape: charitable gifts exceeding 0.5% of adjusted gross income will now be deductible, and top-bracket benefits are capped at 35% instead of the previous 37% (4).
Critics say the system has a major loophole where, unlike private foundations, there’s no deadline to actually give the money away. According to a Forbes article, funds can sit indefinitely. And many sponsors charge fees based on how much money stays in the fund, meaning the longer assets linger, the more they earn (5).
According to CNBC, in a 2018 case, a hedge fund couple took on Fidelity Charitable, accusing the sponsor of breaking an agreement to slowly unwind their donated stock. They alleged the organization dumped 1.93 million shares, worth about $100 million, in a matter of hours. Fidelity Charitable claims it followed the law, and the court ultimately sided with the sponsor (1).
In another case in 2009, the Virginia-based National Heritage Foundation collapsed into bankruptcy, taking 9,000 donor-advised funds and roughly $25 million with it. The assets were wiped out to pay creditors, leaving donors with little recourse and raising concerns about what can happen when these funds go wrong (1).
Despite the controversy, DAFs haven’t slowed down, because for many donors, the upside is still hard to ignore.
According to the National Philanthropic Trust, they offer an immediate tax break, the ability to spread out donations over time and a simpler setup than running a private foundation. On top of that, funds can stay invested and potentially grow before being granted to charities (6).
For wealthy donors that mix of convenience, flexibility and tax efficiency can be convincing enough to outweigh the risks.
What to watch out for before opening a DAF
If you’re considering a donor-advised fund, the Peterson case highlights how important it is to understand what you’re signing up for. Here’s what some experts suggest:
Know the limits of control. You’re making recommendations, not decisions. The IRS specifies that once assets are contributed to a DAF the sponsoring organization has legal control over them and the donors have advisory privileges.
Choose a reputable sponsor. Larger, well-known organizations often have stronger track records of honoring donors' intentions.
Get everything in writing. Having clear documentation around advisory roles and succession plans can help avoid disputes.
Review succession plans carefully. As the Peterson case shows, what happens after the original donor dies can get complicated so it’s critical to plan for your legacy to enable family members to be able to continue the support as you see fit, according to Fidelity Charitable (7).
Donor-advised funds are often promoted as a win-win with tax savings today and charitable impact tomorrow, but to get the tax break, you have to give up control. For most donors, that trade works smoothly. But when it doesn’t, it may be harder to protect a legacy that’s left behind.