One family's $21 million charitable fund nightmare reveals how tax-advantaged giving can go wrong — plus advice on how you can do philanthropy right

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).