Quick Summary

Here’s a summary of a recent discussion about donor-advised funds (DAFs) and what can happen when the relationship between a donor and the sponsoring charity breaks down.

A recently filed federal lawsuit involving a donor-advised fund worth more than $21 million is raising an important planning question:
How much say does a donor really have after contributing to a donor-advised fund?

What Is a Donor-Advised Fund?

A donor-advised fund is a charitable giving account sponsored by a public charity. You make a charitable contribution, receive a tax deduction, and then recommend grants to charities over time.

But there’s an important legal detail:
Once the contribution is made, the sponsoring organization owns and controls the assets.

Donors can make recommendations — but they cannot require distributions.

Most of the time, this arrangement works well because sponsoring organizations typically honor donor recommendations that follow their policies.

Why This Issue Is Getting Attention

A recently filed federal lawsuit, Peterson v. Christian Community Foundation (WaterStone), brings attention to what can happen when a donor and sponsoring organization disagree.

The case has not been decided yet.
There is no court ruling at this time.

But the dispute raises an important question:
Even though donor recommendations are non-binding, does a sponsoring organization still have a duty to receive and consider those recommendations in good faith?

This issue has rarely been tested because donor-advised fund relationships usually function without conflict.

Simple Lesson

Donor-advised funds depend on a balance between legal control and donor participation.

The sponsoring organization must maintain:

  • ownership of the charitable assets

  • final decision-making authority

At the same time, the donor typically maintains:

  • an advisory role

  • the ability to recommend grants

  • a voice in the charitable process

Most of the time, that balance works beautifully — because expectations are aligned.

A Planning Insight

Some practitioners are now suggesting that donor-advised fund agreements could include clearer language about how donor recommendations will be received and considered, without giving donors control over the assets.

Others have discussed pre-arranged transfer structures between sponsoring organizations that could provide an institutional “exit” if a relationship deteriorates — as long as donor control is not retained.

These ideas don’t change the fundamental rules of donor-advised funds.
They simply reinforce something planners already know:

Clarity at the beginning prevents problems later.

Estate Planning Tie-In

Donor-advised funds are often part of a long-term charitable legacy plan. That makes it especially important to think about:

  • successor advisors

  • governance of the fund

  • how recommendations will be handled over time

  • how the fund fits into your overall estate plan

Charitable planning is not just about tax deductions.
It’s about making sure your values are carried forward the way you intend.

And that usually starts with clear expectations from the beginning.

Action Step

If you have a donor-advised fund — or are thinking about creating one — it may be worth reviewing:

  • who will serve as successor advisor (make sure you have one and know how successors work, otherwise the ultimate “advisor” may be the fund)

  • how recommendations are submitted

  • what expectations exist with the sponsoring organization

  • how the fund fits into your estate plan

The lesson here is that good charitable planning isn’t just about giving — it’s about making sure your voice continues to be heard after the gift is made.

We’re always here as a resource for Michigan families. Call (517) 548-7400 or contact us here: https://www.michiganestateplans.com/contact-us