What happens to NSF funding when someone passes away? A young professor at my old university recently passed away. They were still in the process of setting up their lab, taking on graduate students, etc. 

What will happen to their NSF funding now? There is no obvious candidate in the department to take it over.
It probably depends a bit on how accommodating the program officer is.  The money is allocated to the university and they can put a different PI on the project.  It seems likely to me that if students are depending on the funding, they should find a way to make it work but you never know with this stuff.  The onus would be on the university to come up with an acceptable alternate plan.