The grant is being created in partnership with the Ziegfeld Club and will award the recipient $5,000.
"Elizabeth had a force of growth about her that was inspiring to everyone around her," Lane, who was close to Ms. Swados, told The Times. "I wanted to honor that and nurture that in individuals or groups that would never otherwise be acknowledged."
Ms. Swados, whose experimental and socially searching pieces of musical theatre garnered acclaim during the 1970's and '80s, died Jan. 5 from complications following surgery for esophageal cancer. She was 64.
The grant winner will reportedly be chosen by a panel that includes Fun Home composer Jeanine Tesori, who recently announced a revival of Swados' Runaways as part of her final season overseeing Encores! Off Center. The grant is scheduled to begin this year and will continue for at least four years.