Something you want to pay attention:

If your kid counts on the financial aid, in the CSS-profile or Fasfa form( not sure now.), there is one question about whether some other source of money to support, you want to say no. I  chatted with one instructor on the phone about this issue.

Otherwise, no tax for your kids, and for the relative regardless whether they are US citizens or not.

(ZT)

Make Direct Payments to College for Tuition

Last but not least, you can use a pay-as-you-go strategy and still get tax-smart results. That's because you're allowed to make gifts of any amount to cover a grandchild's college tuition (not room and board or other expenses) without any negative federal tax consequences. However, you must pay the tuition money directly to the college to get this favorable treatment. Then the gift won't reduce your federal gift and estate tax exemption ($5.12 million for 2012) even though it will reduce your taxable estate (which is a good thing).

If you wish, you can make additional gifts to your grandchild, up to the annual gift tax exclusion amount of $13,000, to help with other outlays like room and board, books, and transportation. If you're married, the annual gift tax exclusion is effectively doubled to $26,000. Gifts up to the annual exclusion amount won't reduce your federal gift and tax exemption ($5.12 million for 2012) even though they will reduce your taxable estate.