Peterson told Inside Wealth that the rift with WaterStone started with a disagreement over how much to distribute.

In early 2024, Peterson alleges, WaterStone CEO Ken Harrison told him that the organization was going to keep the fund’s principal in perpetuity and only make grants from investment income. Peterson said he did not agree to the proposal as this would not allow the fund to make its customary annual grants of between $2.3 million and $2.5 million.

He further alleges that in March 2024, after he told Harrison over Zoom that he wanted to move the DAF to another sponsor, Harrison told him never to contact WaterStone again and abruptly ended the call.

Now Peterson is suing to assert his advisory privileges and regain access to the DAF, which was started by his late father, Gordon Peterson, a real estate investor and devout Christian, to support evangelical Christian causes. Peterson ultimately seeks the court to compel WaterStone to transfer the DAF to another organization so he can bring the fund’s giving back up to speed.

He said he requested WaterStone make a $1 million grant in 2024 but does not know if that grant – or if any grants – were issued that year. In 2025, WaterStone notified Peterson it would permit a $400,000 distribution from the fund, he said.

“I made a promise to my father. I promised him that if I was the remaining person on the account that I would direct the funds as I knew that he would 100% approve,” he said. “I want to be a man of my word.”

WaterStone declined to comment on specifics of Peterson’s allegations. The deadline for WaterStone to answer the complaint in court or move to dismiss it is mid-March.

“WaterStone has consistently carried out the articulated wishes of the donor since the donor advised fund in question was established,” WaterStone’s legal counsel said in a written statement, referring to Peterson’s father. “The plaintiff in this case is not the donor.”

Andrew Nussbaum, Peterson’s lawyer, said that WaterStone helped Gordon Peterson appoint his wife, Ruth, and son Philip as co-advisors to the DAF before he died. Ruth Peterson died in 2021, leaving Philip Peterson as the sole successor-advisor. Prior to 2024, WaterStone granted Philip Peterson’s grant requests, Nussbaum said.

Nussbaum said the lawsuit could set a chilling precedent if the court upholds WaterStone’s argument that designated successors do not have advisory privileges.

“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,” Nussbaum said.

Moreover, Peterson said he believes WaterStone has not honored his father’s wishes. He alleges that WaterStone has delayed or denied his grant recommendations even though they met the mission statement written by his father, which included a list of approved charities.

“I can tell you this: My dad would never have created a donor-advised fund if he knew that this was going to be the outcome. He felt very passionately about this,” he said.

Law professor and DAF critic Roger Colinvaux said in his view, donors who want control of DAF assets are trying to have their cake and eat it too. 

“Whether you like DAFs or not, the DAF sponsor is an independent charity. It’s an independent entity, and its duties are not to the donor,” said Colinvaux, professor at the Columbus School of Law at the Catholic University of America. “If the plaintiff wanted the sort of control that the plaintiff seems to want, as evidenced in the complaint, there’s a structure for that, and that’s a private foundation.” 

Dana Brakman Reiser, professor at Brooklyn Law School, cautioned that Peterson’s story is a rare scenario. She said the biggest DAF sponsors like Fidelity Charitable and Schwab Charitable (now DAFgiving360) are affiliated with financial institutions and generally inclined to keep donors happy.

“It’s in their interest as long as honoring the donor’s request is not going to get the sponsor in trouble,” she said. Brakman Reiser added that the IRS prohibits using DAF assets to buy gala tickets or pay college tuition.

Still, the interests of sponsors and donor-advisors are rarely perfectly aligned.

Sponsors typically collect fees for managing DAF assets, creating an inherent financial incentive to disburse fewer assets, according to Chuck Collins, the director of the Program on Inequality and the Common Good at the Institute for Policy Studies, a progressive think tank. While community foundations pioneered the DAF model, they are now competing with larger commercially-affiliated sponsors for donors’ dollars, he added.

“More and more, they are having to compete with the commercial DAFs like Fidelity that have very low overhead and don’t take much in the way of fees. And so what’s the business model for a community foundation where, you know, 80% of the donations coming in are from people wanting to create DAFs?” he said. “In reality, their business model now depends on people parking their assets for longer periods of time.”

While Peterson’s case is unusual, it’s not the first legal challenge surrounding DAFs.

In 2018, a hedge fund couple sued Fidelity Charitable, contending the sponsor broke an agreement to liquidate their donated shares gradually and instead sold off 1.93 million shares, a position originally worth $100 million, in a matter of hours. Fidelity Charitable argued that it had followed the law and the case was ruled in their favor.

In another noteworthy debacle, in 2009, a Virginia-based charity called the National Heritage Foundation wiped out 9,000 DAFs worth $25 million combined to pay out creditors after it filed for bankruptcy. 

Giving directly to charity doesn’t necessarily guarantee the assets will be used to the donor’s intent. But adding an intermediary into the equation adds another layer of complexity. 

The handful of lawsuits filed by donor-advisors over how DAF assets are spent or invested have thus far been largely unsuccessful in court.

In short, according to Colinvaux, courts have upheld that donors have ceded any control in order to qualify for the tax break. If donors had the right to control assets — as opposed to the privilege to advise — they would not be able to claim a deduction, he said.

Nussbaum said Peterson’s case is different as it focuses on his rights to advise grants rather than control over how the assets are investments. 

Peterson said he tried to resolve the dispute with Waterstone for about two years before going to court. While he knows his suit faces considerable odds, he said he felt he had no choice.

“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,” he said. “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.”

Correction: This story has been updated to correct the IRS limitations on use of DAF assets.