Name her after my desceased MIL?

Two and a half years ago we lost my mother in law to lung cancer. It has been difficult on all of us, immediate and extended family as well as friends and community.

Since then we got married and are now starting our own family. This week we found out we are having a girl. We just had dinner with our immediate families and made the announcement. Immediately the reaction from my husband's grandmother was, "So you're going to name her after Valerie right? You have to!"

Not that we are announcing the name we picked but, no, we are not planning to use Valerie as a first or a middle name. We understand and respect the use of family names, but decided our daughter should be able to be her own person without living in this shadow and legacy of someone she never knew.

I cannot think of a tactful way to tell grandma, "Sorry but we don't want to use your daughter's name, as much as we repsect why you and many others feel we should."

Has anyone else dealt with this or something similar? Any recommendations?