We have the tribute module. When setting up a person for a tribute, we use the formal addressee/salutation. In the tribute type, we choose 'in honor of' or 'in memory of'. In the description we ususally add the tribute name: Mr. Theodore 'Ted' Smith
We use the 'formal name' because that is his name, but also would like to use the 'Ted' part because that is the way everyone refers to the person. When doing letters for donors, it is nice for them to see the way the tribute really reads.
Please consider having this field be a field that can be exported into DONOR letters. I always need to do a lot of editing to get the correct information into the donor letters.