Below is a letter to a client that addresses this question, which we hear from time to time. Perhaps it mirrors your plans as well…

Dear Martha,

You have asked a question that other clients have also asked. Perhaps it is to honor (or create a memorial for) a parent, child or other person who influenced you. Or perhaps the scholarship will celebrate a milestone, such as reaching age 60, attaining the 30-year mark in a career, or selling a business. In your case, your gift to “yourself” of funding a scholarship at your law school alma mater is a true act of humanity and citizenship. As you have said, creating a scholarship is “paying it forward.”

So what is involved? You have asked what the “right” amount is. Think of it this way: An enduring scholarship is one that pays out no more than 5 percent of its value each year, allowing any excess investment return to reinvest, growing principal over time. So, if you would like to fund an annual scholarship of $10,000, you should fund at least $200,000.

How should you fund it? Schools will be flexible if we commit to a donor’s letter stating the period over which you intend to fund the scholarship. This is usually more about tax considerations. Annual charitable contribution deductions cannot exceed 50 percent of your adjusted gross income in any one year, 30 percent, if we use the tax-advantaged approach of donating appreciated securities. (We can, however, carry over excess unused charitable contributions for five years.) You may also be concerned with removing that sum from your portfolio or cash flow in just one year.

Another approach is to combine an outright gift to the scholarship fund with a gift to a charitable annuity. This will allow you to begin the fund at some level, enjoy annuity income for your life and know that, at your passing, the remainder will go into your scholarship fund.

Yet another approach is to determine what you would like to see happen in your lifetime, i.e., start an annual scholarship of $10,000, but also leave, in your will, a bequest that increases the fund and scholarships.
How should you structure it? This is an interesting question. You have built a terrific legal career. You have found that your legal skills have been invaluable in your business. So one idea would be to fund a student pursuing a business-oriented track. Or, you could set standards to help certain others (e.g., with a high GPA but also economic need)—or combine the standards. Think about who influenced you the most, or about the people you feel should be recruited and supported.

How will you be involved? Schools will allow you to be part of the scholarship selection process. A successful way we have seen this done is when the standards for selection are clearly articulated to the dean. He or she will then ask you to consider choosing the recipient from a pool of students being recruited.

This allows the school to be competitive in building its classes, while also favoring the type of student whom you foresee wanting to benefit. We have seen this work wonderfully as a partnership, between school and donor, that is richly rewarding to all involved.

Martha, I am proud of the success you have achieved. You deserve it! And now you will celebrate it with a selfless act. Your scholarship will help build our society, with motivated students who will make a difference— epitomizing a great opportunity for future students that will impact our children and grandchildren. We stand ready to help you negotiate this financial and personal process!

Best, Grant