How Are Endowed Scholarships Created and Maintained?

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Endowed Scholarships
KS and MO Attorney Kyle E Krull

Written by Kyle Krull

Attorney & Counsellor at Law Kyle Krull is president of the Law Offices of Kyle E. Krull, P.A., an Estate Planning Law Firm located in Overland Park, KS. Estate Planning Attorney Kyle Krull has provided continuing education instruction to attorneys, accountants, and financial professionals at local, state, and national programs.

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POSTED ON: February 13, 2024

Endowed scholarships can benefit your estate and hard-working students. Scholarships are beneficial in paying for higher education. Unlike student loans, these do not need to be paid back. Whether they are awarded for academic achievement, athletic prowess, or a specific heritage or area of interest, scholarship awards reduce the financial burden of pursuing a degree. […]

Endowed scholarships can benefit your estate and hard-working students.

Scholarships are beneficial in paying for higher education.

Unlike student loans, these do not need to be paid back.

Whether they are awarded for academic achievement, athletic prowess, or a specific heritage or area of interest, scholarship awards reduce the financial burden of pursuing a degree.

If you have received or know someone who has received a scholarship, it was made possible by someone choosing to invest in the future of those they did not know and may never meet.

Endowed scholarships create opportunities for future generations.

Endowed scholarships help future generations of students receive a college degree.

Endowed Scholarships can be Beneficial Estate Planning Strategies.

Endowed scholarships fall under the umbrella of charitable giving.

These are more complex than a simple one-time gift.

Instead, endowed scholarships require the establishment of a fund to provide scholarships to students.

In many instances, these funds grant students financial resources in perpetuity.

Endowments are essentially long-term investments in future students and can be a desirable avenue for legacy planning in alignment with personal values.

Scholarship endowments can be established while a donor is alive or from an estate after death.

 The National Association of Charitable Gift Planners thoroughly overviews how endowed scholarships work with estate planning and charitable giving.

The benefits of estate planning include memorializing or honoring a loved one while providing tax benefits for the estate.

What is the Endowment Process?

A stable source for the scholarship money must be established by creating an endowment fund.

What is an endowment fund?

It is generally a significant financial sum to be invested.

The investments earn income to fund the scholarship.

While the principal of the scholarship remains in the fund, the scholarship can be awarded annually from fund income.

To successfully create an endowment and achieve estate planning goals, the donor must work with an estate planning attorney and financial or philanthropic advisors.

A fundamental step is determining the amount of money to endow.

This sum should align with the donor's scholarship objectives and financial capabilities.

The scholarship terms and fund administration require clear definitions and documentation.

The Council on Foundations provides a comprehensive guide on endowment funds.

What are the Benefits of Establishing an Endowed Scholarship?

The benefits of this type of charitable giving are numerous.

These fall into two general categories – the benefits for donors and recipients.

Donor Benefits

Donors have the opportunity to impact the futures of others for generations positively.

While financially supporting others, donors also benefit from potential income tax deductions and making strategic estate planning gifts to reduce their taxable estates.

The donor can target these scholarships for financial need, specific fields of study, and other criteria to support areas of passion.

Recipient Benefits

Scholarship recipients receive reliable tuition support.

For many, these gifts are what make pursuing higher education possible.

What are the Steps for Establishing an Endowed Scholarship?

To start, donors must clarify their philanthropic goals and then consult with an estate planning attorney or philanthropic advisor.

What things should donors consider as they outline their goals?

Key considerations include the type of students they would like to support, the size of the endowment, and the impact they wish to have.

Because financial and legal planning are essential to creating a scholarship fund, specifics must be outlined and legally documented.

Donors should draft scholarship terms for the management of funds and for aligning the scholarship with their comprehensive estate plans.

Working with the selected institution or charitable organization is necessary to set up the fund and to define the administration of the scholarship.

How Does One Determine the Criteria for Scholarship Recipients?

Setting criteria for endowed scholarship recipients allows donors to align their giving with their values and desired impact.

Common criteria factors include financial need, academic merit, and specific areas of study.

Donors can include other factors as well.

Although the donor can create scholarships according to their preferences, they should also make sure the criteria selected align with the institution's policies and regulations.

The administration of the scholarship should also be feasible for the institution.

How Can Endowed Scholarships be Named?

The name of an endowed scholarship allows for the memorialization of a loved one or the establishment of a legacy for the donor.

Names are often used to honor friends, family, and personal causes.

When using the name of a loved one, you connect the legacy of this individual with educational support and philanthropy for generations.

Named scholarships establish a connection and commitment to charitable giving in education and positively impact the institution and its students.

How are Endowments Managed and Grown?

If an endowment is not managed well, it can reduce or risk its impact.

Proper management requires thoughtful and wise investment strategies to grow the principal amount and generate income to cover the scholarship amounts.

This is not a single transaction.

Like an estate plan, the investment strategy requires reviews and adjustments for market conditions and objectives for the scholarship.

The donor and institutions can seek additional contributions to the scholarship funds through family members and others who share the same vision for supporting students.

Additional donations can help grow the fund and its impact.

What are the Estate Planning and Tax Implications?

Endowment scholarships can be used to address tax concerns in estate planning.

Donors can receive income tax deductions for contributions made to the scholarship funds.

These gifts also remove assets from the donor's taxable estate.

Consequently, endowments can be a strategic estate planning tool for reducing estate taxes.

Donors should work with tax professionals and an experienced estate planning attorney to ensure their gift aligns with the comprehensive estate plan while maximizing tax efficiency.

What is the Lasting Impact of Endowed Scholarships

Although you may have thought of scholarships solely as financial aid, perhaps this article has broadened the scope of your understanding of endowments.

Endowed scholarships reflect the donor's values and demonstrate their commitment to supporting future students.

A legacy of charitable giving can be established for decades to come while supporting students and satisfying estate planning goals.

While endowed scholarships require planning for criteria and management, the benefits are numerous.

Are you inspired to create an endowed scholarship as part of your estate plan?

Maybe you have questions about incorporating other types of charitable giving into your estate plan.

Request a consultation to discuss your goals and wishes for creating an effective estate plan and lasting legacy for your loved ones.

This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between the Law Offices of Kyle E. Krull, P.A., and the reader.

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