Eventually, schools are going to start looking at grandparents' assets. It will become the norm to pay for school from their wills, after universities lobby to have an estate tax break if used for education.
When my wife's grandparents passed, they put the entire inheritance into a trust fund for the grandkids' education. One of the reasons they did it that way was to keep the tax liabilities to a minimum. (I don't know the specific relevant laws, but I know they did it for a reason.)
