A recent lawsuit seeking to clarify the extent of an advisor鈥檚 privileges with respect to a donor-advised fund (DAF) has been filed in the U.S. District Court for the District of Colorado. In Peterson v. WaterStone, a DAF advisor is challenging the actions of Christian Community Foundation, Inc. d/b/a WaterStone, a well-known DAF sponsor, to suspend his advisory privileges over a $21 million fund. The suit raises fundamental questions about the legal enforceability of advisory rights over a DAF that donors and their successor advisors often take for granted.
Gordon Peterson established The Peterson Family Stewardship Fund at WaterStone in 2005 to support evangelical Christian charitable purposes. For nearly two decades, WaterStone reportedly honored the donor鈥檚 grant recommendations to the donor鈥檚 satisfaction. Following the deaths of the original donor and his wife, their son, Philip, became the sole successor advisor. In 2024, however, the relationship broke down. Philip alleges that WaterStone revoked his online access, suspended his advisory privileges, refused to process grant recommendations in a timely manner (including a $1 million recommendation to a previous grantee), and directed him to cease all contact with the organization.
The complaint asserts claims for breach of contract, negligent misrepresentation, and violation of the Colorado Consumer Protection Act, among other causes of action. In response, WaterStone has argued in a motion to dismiss that it is not contractually obligated to honor the advisor鈥檚 recommendations because the sponsorship agreement between the donor and WaterStone provides that WaterStone has ultimate control and discretion over the fund and does not obligate WaterStone to provide accountings, statements, or other disclosures requested by the advisor.
Why It Matters
The crux of this lawsuit is that the sponsorship agreement provides that WaterStone has ultimate control and discretion over the fund and that the donor has irrevocably relinquished all interests and rights in his contributions to the fund. This is typical of DAF agreements. Donors should be aware that their advisory privileges are not binding on the sponsoring organization and that, if an amicable relationship sours, a donor or future advisor may not have satisfactory recourse when the sponsoring organization declines to follow grant recommendations.
Sponsoring organizations may draw several lessons from this lawsuit as well; Peterson is not the first 鈥 and likely will not be the last 鈥 lawsuit by a disappointed successor advisor to a DAF. Sponsors should closely review, from a legal perspective, the documents governing their DAFs. Sponsoring organizations should also aim to be precise in communications and language concerning issues such as whether and when a DAF may transfer assets to another organization (the complaint alleges that a WaterStone employee said the fund could be transferred to another organization) and should be aware that any communications with donors or advisors could find their way into a future legal complaint. Sponsoring organizations should therefore work to preserve constructive communications and relationships with advisors while also recognizing that, even with the best intentions, some advisors may not be mollified and each organization must proactively protect itself.
