The foundation is one of four Lloyds TSB Foundations in the UK that receive a share of 1 per cent of the annual pre-tax profits of the group. But because of predicted losses it is due to receive only £39,000 in 2010.
The foundation said it had been in negotiation with the group for nine months over a funding package to maintain its work until the group returned to profit, but said the terms of the agreement were unacceptable and would destroy its independence.
"Our legal and financial advisers have informed us that what has been offered is not in the best interests of the foundation and that trustees should not agree to this," said Mary Craig, chief executive of the Lloyds TSB Foundation for Scotland.
The agreement involves £6m in funding from 2010 to 2014 but also a permanent reduction in the share of group profits from 1 per cent to 0.5 per cent and the transfer of the authority to decide where money is spent from the foundation to the group.
"On figures that the banking group gave us, we have estimated that if we agree to this, we would be walking away from £22m over nine years," said Craig. "And that's not even touching the fact that they want to decide where to put the money."
"We are in negotiation with the group to get some stability in funding arrangements over the short, medium and long terms," said a spokeswoman for the Lloyds TSB Foundation for England and Wales.
In a statement, the Lloyds Banking Group said it was disappointed that the Scottish foundation had decided not to participate in collective discussions. "Our intention is to agree with all four foundations a mutually satisfactory accommodation that is realistic, fair and durable."
The proposals would guarantee the foundations a lasting financial settlement "with their independent status remaining very much in place", the statement said.