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Perhaps someone else has already raised this point, but if the grandparents are paying something near the total tuition of this school that’s far above the $10,000 per person, per year, allowable gift under US tax law. It’s been a while since I dealt with gifting, and the criteria may have changed, but is this payment of tuition not a gift? If it is, then who is claiming the amount above $10,000 per person as income...the kids? Certainly, in reality, such a donation of tuition is actually a gift to the patents, not the children, because the parents are the people responsible for making the decision to put their kids in this school. Are the parents claiming this donation of tuition on their taxable income? Can someone clarify the tax implications of this sort of gift? certainly my information could be out of date.

If the grandparents are paying it, they can jointly gift $22,000 to each kid ($11,000 each for GM and GF). If they give more, they must pay gift tax or utilize a portion of their unified credit.