GUIDELINES FOR DONOR ADVISED SCHOLARSHIP FUNDS
Scholarship Fund Overview
At the Lutheran Community Foundation, you have three options for providing scholarship support. You may simply make a gift to the LCF Field of Interest Fund for Scholarships, with no gift minimum required. If you are interested in creating your own scholarship fund, two options are available-a Donor Advised Designated Scholarship Fund or an LCF-Administered Scholarship Fund. Due to some of the complexities and tax issues related to scholarship administration, the Foundation requests that donors please consult with Foundation staff to determine the best solution for your scholarship interests. In general,
- Scholarship grants can be awarded in your name, or in memory or honor of another. You may also choose to remain anonymous.
- You can designate scholarships for any level of education from preschool to postgraduate studies, provided that the application and selection process is through an accredited educational institution.
- Scholarship grants are made payable to the educational institution and can be used to defray educational expenses such as tuition, fees, books, supplies and equipment required for study.
About Donor Advised Designated Scholarship Funds
You can establish a permanently-endowed fund at the Foundation that provides scholarship support to a specific, accredited educational institution through a Donor Advised Designated Scholarship Fund. Under this option, you recommend the educational institution and have the option of recommending scholarship criteria. Generally accepted criteria include financial need, academic performance and area of study. Selection of recipients is made solely at the discretion of the institution. The minimum gift required to establish a Donor Advised Designated Scholarship Fund is $5,000 per educational institution, and the amount of the scholarship grant available each year is calculated according to the Foundation's Distribution Policy. Please note that for high school scholarship fund options, it is necessary to consult with Foundation staff.
Scholarship Criteria & Selection Process
Under the Pension Protection Act of 2006 (HR-4), donor advised funds through community foundations are prohibited from making grants to individuals, including grants to educational institutions for the benefit of selected scholarship recipients. In order to comply with this law, all grants through donor advised designated scholarship funds must be distributed to educational institutions for the purpose of scholarships. The scholarship selection process and application of the grant towards recipients' educational purposes (financial support for the expense of tuition, fees, books, supplies and equipment required for study) occurs at the educational institution where grants are sent. Educational institutions, as charitable organizations, must then award these scholarships in an objective and non-discriminatory basis, with no private benefit conferred.
Scholarship programs through high schools require advance discussions with and approval by the high school. In this scenario, annual grants are made payable to the high school. The high school must then hold the money until a recipient is selected and then forward the grant for the benefit of providing financial support for the scholarship recipient's educational costs. Like all grants distributed from the Foundation, scholarship grants must be distributed for charitable purposes. Since furthering education is a charitable purpose, scholarships can be defined as a charitable activity, so long as benefiting recipients are members of a "charitable class."
Charitable Class. In general, a charitable class is a group of applicants that is large enough so that an indefinite number of individuals may benefit. "All the graduating seniors at a local high school" is a common and generally acceptable class. A class that includes members of a single family, on the other hand, wouldn't qualify as a charitable class and thus is not acceptable. Religious, race-based, ethnic and gender limitations pose special questions, and must be discussed with Foundation staff.
Scholarship Purpose. Scholarship grants are awarded to provide financial support for the expense of tuition, fees, books, supplies and equipment required for study.
Applicant Criteria. The following are generally-accepted criteria to consider if you are establishing a Donor Advised Designated Scholarship Fund:
- Financial need.
- Achievement in academics (GPA, test scores, etc.), athletics, music and the arts, community service, leadership or character.
- Superior performance or work in a particular field of study.
- Enrollment or acceptance to an accredited educational institution in the United States (college or university, public or private, community college or vocational/technical school, seminary, etc.).
Selecting Scholarship Recipients. To best comply with IRS guidelines for administering scholarship grants, and to protect both the donor and the Foundation, the Foundation generally requires that all scholarship recipients be selected through an accredited, educational institution. Educational institutions are best-equipped to ensure that recipients are selected in an objective and non-discriminatory basis. Those responsible for selecting scholarship recipients must not be in the position to derive an economic benefit-directly or indirectly-from the scholarship process, and relatives of applicants also should not serve on selection committees. Relatives of donors are ineligible to receive scholarship grants from a donor-established scholarship fund, and members or relatives of the board of the Foundation and its staff are ineligible to receive scholarship grants from the Foundation.
Due to the complex administrative procedures, the Foundation discourages "renewable" scholarship awards. In addition, IRS rulings suggest serious issues regarding roles of donors and/or fund advisors in the selection process. There is considerable concern that such individuals would exert excessive donor control or undue influence in the selection process, in which case neither the scholarship grant nor the donor's gifts to establish the scholarship fund would be considered charitable. There is also concern that donors and/or fund advisors may "pre-select" individuals-meaning that contributions and scholarship grants may be earmarked to route aid to a particular person. Again, such situations are not considered charitable no matter how deserving or needy that person might be, and can also place the donor and the Foundation at risk.
Fundraising Policy. Due to IRS restrictions, the Foundation cannot accept checks given by individual supporters in response to fundraising events (i.e. golf tournaments, banquets) for charitable funds at the Foundation. Gifts from such fundraising events must be made payable to the individual organizing the event, and are not eligible for a charitable tax deduction through the Foundation.
These guidelines provide an overview of the Foundation's scholarship fund guidelines and are not intended to be all encompassing. As each scholarship fund is unique and customized to meet the donor's recommendations, you are strongly encouraged to contact Rebecca Westermeyer regarding your specific scholarship fund interests before proceeding. We wish to work with you to create a scholarship fund that is consistent with your wishes, and complies with Foundation and IRS guidelines for scholarships.
As with all charitable funds created at the Foundation, our responsibility is to serve as stewards of each gift to address the charitable interests and needs of donors and the community. With regard to scholarship funds, we will work with you to offer scholarship support for deserving students.