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Question: How Can We Set Up a Scholarship Fund?

A friend’s nephew recently passed (suddenly and tragically) and she wants to set up a scholarship fund (so far about $80k raised).

She is looking for an attorney referral to help her with the process.  I am not sure an attorney is really needed but also don’t know anything about the process.

Response:

There are a number of ways to set up a scholarship fund depending on your friend’s situation and goals. Here are a few questions she might ask herself:

1. How involved does she want to be? Does she want to be the one to choose the scholarship winners or would she rather that someone else take on that role?
2. Will the scholarship be connected to a specific school, for instance for graduates of a particular high school or students at the nephew’s college or graduate school?
3. Will the scholarship support a particular field of study or for a purpose, such as field research or to support travel to conferences in the nephew’s profession?
4. Or is it aimed at a particular group of students, those from the nephew’s hometown, members of an ethnic group, or veterans, for instance?

Depending on the answers, the scholarship might be structured differently. The fund is too small to justify the cost and administrative burden of creating a charity or charitable trust. However, your friend could create a non-charitable trust administered by a small group of trustees. Such a trust would have to file an annual income tax return and further donations to it would not qualify for the charitable tax deduction.

However, given the relatively small amount of the fund, my thinking is your friend would be best off collaborating with an existing institution, such as a school or community organization, that can administer the fund and award the scholarships. Together, they can answer many of the above questions about who will award the scholarships, the amount to be given out each year, and the criteria for winning the award. Associating with an existing institution also provides for the ongoing continuation of the scholarship after your friend can no longer administer it herself.

If your friend follows this approach, she probably will not need an attorney at all, though it may help to have a consult with an estate planning attorney to talk through the options.

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