I think you are wrong...it’s a GIFT...the parents are directing it to college funds it sounds like, but they could have given them the money to buy clothes...it doesn’t matter. And, as someone else pointed out, yes, it can help in reducing INHERITANCE TAXES....something the Obomba’s talk about having a need for, and here they are AVOIDING them! Tax AVOIDANCE is legal....Tax cheating is not.
Of course it’s a gift, specifically a 529 (c)(2)(b) Tuition Trust gift. IOW, tuition being placed in a trust as a gift.
http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._529._Qualified_tuition_programs