How to Create a Memorial Scholarship Fund After Someone Dies

The Three Ways to Set Up a Memorial Scholarship

Creating a scholarship in someone's name is one of the most lasting ways to honor a life. But the mechanics are more involved than most families expect. There are real tax rules, IRS compliance requirements, and structural decisions that determine whether the scholarship works smoothly or becomes an administrative burden.

Here are the three paths, ranked from simplest to most complex.

Option 1: Partner with a School

Contact the financial aid office at the deceased's alma mater, a local high school, or a trade school. Most established schools accept endowed scholarship funds with a minimum gift of $10,000 to $25,000 for an annual award, or $100,000+ for a perpetual endowment that generates enough interest to fund awards indefinitely.

How it works: You make a gift to the school. The school manages the selection process, handles all disbursements, and issues tax receipts to future donors. Your family helps define the eligibility criteria — field of study, financial need, geographic area — but the school's financial aid office runs the program.

Tax treatment: Qualifying gifts may be deductible for eligible donors because the school already has 501(c)(3) status. No separate IRS application needed.

Family control: Low. You set the criteria once, but the school picks the recipients. Most schools allow the family to serve on a review committee, but the final selection is the school's.

Best for: Families who want a hands-off, permanent memorial that runs itself. This is the simplest path and the one that creates the least administrative overhead.

Option 2: Work with a Community Foundation or Online Platform

Community foundations (every major metro area has one) and online scholarship platforms like Bold.org and Scholly offer a middle ground. They provide the legal infrastructure — 501(c)(3) status, banking, compliance — while giving the family more involvement in recipient selection.

Minimum capital: Much lower than a school endowment. Bold.org allows scholarships starting at $500. Community foundations typically set minimums between $5,000 and $25,000 for a named fund.

How it works: You establish a named fund within the foundation. The family helps set criteria and reviews applications through a dashboard or committee meeting. The foundation handles disbursements, tax receipts, and IRS compliance.

Tax treatment: Qualifying gifts may be deductible for eligible donors because contributions go through the foundation's 501(c)(3) status.

Family control: Moderate. You can participate in the review process and help set selection criteria, but the foundation retains ultimate authority over disbursements. This is actually a legal requirement — see IRS compliance below.

Best for: Families who want to stay involved in choosing recipients without the overhead of running their own foundation.

Option 3: Establish a Private Foundation

This is the heavyweight approach. You create a standalone 501(c)(3) private foundation with its own board of directors, annual IRS filings (Form 990-PF), and independent financial management.

Minimum capital: Typically several million dollars for a sustainable initial endowment. The annual operating costs — legal counsel, accounting, filing fees, investment management — eat into a small foundation's corpus quickly.

Family control: Maximum. The family-appointed board controls criteria, selection, and disbursement.

Tax treatment: Qualifying gifts may be deductible, but cash-gift deduction limits are generally lower for a typical nonoperating private foundation than for a public charity (30% of AGI vs. 60%). For 2026, itemized charitable deductions are also subject to a 0.5%-of-AGI floor.

Best for: Wealthy families establishing a major legacy. Not practical for most memorial scholarship situations.

IRS Compliance: The Rules That Trip People Up

Regardless of which path you choose, the IRS has strict rules about scholarship selection:

The "charitable class" requirement. Scholarship criteria must benefit a sufficiently broad group of people. You cannot restrict the scholarship to a single named individual, a specific family, or a handful of pre-selected candidates. "Seniors at Lincoln High School majoring in engineering" is a valid charitable class. "My neighbor's daughter who's applying to college next year" is not.

Anti-self-dealing. If you use a Donor-Advised Fund (DAF) to fund the scholarship, family members can serve on the advisory screening committee but cannot hold a majority vote or make the final selection decision. Violating this rule triggers IRS penalties and can revoke the tax deduction retroactively.

Record-keeping. The administering organization must maintain records of how recipients were selected, what criteria were applied, and that the process was open and non-discriminatory. This paperwork is one reason most families work with a school or foundation rather than going it alone.

Practical Steps to Get Started

1. Decide how much money you can commit. A one-time $10,000 gift produces a single $500 annual award at a 5% return. For a meaningful ongoing scholarship, $25,000 to $50,000 is a realistic starting point
2. Choose your structure based on how much control you want vs. how much administration you're willing to handle
3. Write the criteria. Include: field of study or career interest, geographic eligibility, financial need threshold, GPA minimum (if any), and any connection to the deceased's values or interests
4. Contact the administering organization (school, foundation, or platform) with your criteria and funding amount
5. Announce the scholarship in the obituary, at the memorial service, or through a dedicated webpage — invite ongoing contributions from friends and extended family

The Flowers, Donations & Memorial Contributions Guide includes a Scholarship Setup Worksheet that walks through each of these decisions and a committee decision template for families who want to stay involved in the selection process.