A $21 Million Lawsuit Tests Who Controls a Donor-Advised Fund

A donor-advised fund is marketed as the donor's fund, and the law describes it differently. That distance is familiar to tax lawyers and rarely mentioned to donors, and it is now the subject of a public lawsuit. Philip Peterson is the sole successor-advisor to a twenty-one million dollar fund his father created in 2005 for evangelical Christian causes. Since early 2024 the fund's sponsor, a Colorado Springs organization called WaterStone, has declined to act on his grant recommendations, including a requested one million dollar grant, and has limited his access to information about the account. Peterson is suing, and the Chronicle of Philanthropy has moved the story out of the personal-finance pages and into a question about donor trust.

What the case makes visible is a structure that has been in place for twenty years. Under the rules the Internal Revenue Service applies to donor-advised funds, the donor recommends grants and the sponsor holds the legal authority to approve or decline them. In ordinary years the recommendation and the approval look like a single act, because sponsors almost always honor the recommendation. The Peterson dispute separates the two, and it shows that the word advisory in donor-advised is carrying more weight than most donors realize.

Nonprofit and foundation professionals should read this as a reason to examine the gap between how a donor-advised fund is described to donors and how it functions in law, because a supporter who believes the fund is theirs and later learns the sponsor can decline a grant will attach that disappointment to the cause the grant was meant to serve.

Digital and crypto-native giving leaders should read this as a design prompt, because on-chain giving platforms that let a donor see and verify where authority sits can offer something the traditional fund does not show, provided they do not quietly reproduce the same sponsor discretion behind a new interface.

Donors and family-office advisors should read this as a due-diligence item, because the choice of sponsor now carries a governance question that belongs in the conversation before the fund is opened, including what the sponsor's policy says about declining or delaying a recommended grant.

Corporate giving and CSR leaders should read this as a reason to confirm what happens to a company's charitable dollars once they enter a sponsored fund, because a public commitment routed through a vehicle the company does not ultimately control is a commitment the company cannot fully guarantee.

NGOs and international organizations should read this as a reminder that a recommended grant is not a settled grant, because a cross-border program that plans around advised gifts is planning around money the sponsor retains the authority to hold, and the exposure is greatest where the work is politically contested.

The question for any organization or advisor is whether the people relying on a donor-advised fund understand who holds the final authority over the grant, before a disputed decision teaches them.

"A donor-advised fund carries the donor's name and the sponsor's authority, and the distance between the two stays invisible until the day a sponsor says no."EILEEN HERNANDEZ, THE STRATEGIC STEWARD

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This is what the Strategic Steward framework calls the Authority Gap, the distance between donor intent and institutional control, and the Peterson case is the moment that gap moved from a footnote into the public record.