Donor-advised funds under pressure – lessons from a US dispute

This article was originally published in Charity Finance magazine.

Donor‑advised funds (DAFs) continue to grow in popularity as a way for philanthropists to structure their charitable giving. In the UK, many donors choose to establish named funds within community foundations or DAFs, rather than creating standalone charitable foundations. The attraction is clear: administrative simplicity and speed.

That convenience comes with a trade‑off and a current US lawsuit has brought the question “who is really in control?” into sharp focus, with practical lessons for UK DAF providers and philanthropists.

What is a donor-advised fund?

A donor‑advised fund is a way of giving to charity through an existing ‘host’ charity. A donor makes an irrevocable donation to the charity, which then holds the money as part of its own charitable assets. The donor typically recommends how those funds should be used over time, but the host charity’s trustees retain ultimate legal control and responsibility for deciding whether and when to make grants.

In this article, I use “DAF” to refer to the host charity itself, and “fund” to describe an individual fund associated with a particular donor or family.

A US dispute that has resonated internationally

On 15 January 2026, Philip G. Peterson issued proceedings in the United States District Court for the District of Colorado against Christian Community Foundation, Inc. (operating as WaterStone). He sues as “Successor Advisor” to the Peterson Family Stewardship Fund. The complaint states that the fund had a balance of $21,071,102 as at 31 December 2023.

The complaint alleges that from March 2024 WaterStone removed Mr Peterson’s access to account information, stopped communicating with him and declined to process grant recommendations. It also alleges that 2024 was the first year since the fund’s establishment in 2005 in which no charitable donations were made from it, and that a grant request of around $1 million was ignored.

The claim has not yet been determined, but WaterStone has publicly denied wrongdoing. In press coverage, its counsel has said WaterStone has carried out the donor’s wishes and that the claimant is not the donor.

The lawsuit has attracted attention because it highlights a critical and often misunderstood feature of DAFs: donor influence is advisory only, and legal control rests with the DAF.

Why this matters for UK DAFs

For philanthropists, a fund within a DAF can feel like “your” charitable account, particularly where the fund carries a family name and the donor is closely involved in grant-making. The US litigation is a reminder that, structurally, the DAF owns the assets and must exercise trustee decision‑making over how and when funds are applied.

In the US, this allocation of control is driven by tax rules: a donor must relinquish control to secure tax benefits. While the UK tax regime differs, the underlying charity law principle is the same. Once a gift is made, it belongs to the charity and must be applied by the trustees in accordance with their legal duties.

Trustees must act within their powers, in the charity’s interests, be properly informed, manage conflicts and record decisions. In a DAF context, this means being able to demonstrate that donor recommendations are considered appropriately, rather than automatically accepted or refused. There is also a compliance dimension. Trustees are legally responsible for safeguarding charitable funds and for carrying out appropriate checks on recipients.

DAFs therefore sit at the intersection of charity law and a service relationship: donors may expect responsiveness and transparency, but trustees must retain discretion to decline or delay where necessary. For philanthropists, this represents a fundamental trade‑off: simplicity and flexibility in exchange for reduced control.

Lessons for UK philanthropists

Many UK donors face an early structural choice: whether to establish their own charitable foundation or to set up a fund with a community foundation or DAF.

A foundation allows the founder to decide on charitable purposes and appoint trustees to determine strategy and take decisions about succession and spending. But that control comes with ongoing compliance, reporting and governance obligations. In contrast, a hosted fund allows donors to focus on grant‑making while outsourcing governance and compliance. The DAF’s trustees assume legal responsibility, and the donor’s role is advisory.

The US litigation illustrates what can happen if the benefits of a DAF are chosen without fully accepting its consequences. There are several lessons for UK philanthropists considering using a DAF for their charitable giving.

A hosted fund is not a “light‑touch foundation”. Once donations are made, they are irrevocable and become assets of the DAF. So, it is important to understand the difference between influence and control. Although funds are often described as being managed “in line with donor wishes”, trustees may need to decline or delay recommendations for legitimate reasons, including due diligence or reputational concerns. As such, donors should ask how quickly recommendations are considered, how often reporting is provided, and how additional checks are handled. These factors often determine whether a DAF feels empowering or frustrating.

Secondly, succession should be treated as part of the initial design rather than an afterthought. The Peterson case arises in a successor advisor context, where expectations may diverge. Donors should understand who can act as successor advisers, what information they will receive, when recommendations may be declined, and whether (and how) a fund can be transferred to another DAF provider.

Finally, the choice of provider is critical. A DAF is not a neutral administrator but a long‑term partner. Due diligence should include governance culture, transparency and approach to managing disagreements.

Lessons for UK DAFs

Expectations should be managed carefully and consistently. Language implying donor control can create difficulties later, particularly where advisers change or relationships deteriorate. Succession should be treated as a governance issue and clear, consistent policies on successors, review points and the scope of advisory roles can reduce the risk of disputes.

DAFs should also establish a fair, documented process for declining recommendations. Trustees should be able to evidence their reasoning, the factors considered and the steps taken. Clear communication is often as important as the decision itself.

Transparency is equally important. The Peterson complaint repeatedly highlights a perceived lack of information. DAFs should agree upfront what reporting donors and successors will receive and deliver it consistently.

Key practical takeaways include: regular review of fund documentation and communications, staff training on donor influence versus trustee control, documented processes for declining recommendations, and escalation procedures where relationships deteriorate.

A shared responsibility

The US lawsuit does not undermine the value or value of donor‑advised funds. Rather, it highlights the importance of alignment between legal structure, governance and expectations.

For philanthropists, the lesson is to choose the right vehicle, not just the most convenient one. For UK DAFs, it is to ensure that philanthropy is supported by clarity. Where those align, hosted funds can be an effective and enduring part of the philanthropic ecosystem. Where they do not, even well‑intentioned arrangements can lead to conflict.