Joe,
You are incorrect.
If you read IRC 529 and Pub 970, everything is stated in terms of distributions to the designated beneficiary. Please see Pub 970, Chapter 8, page 49, Under Are Distributions Taxable. Paragraph 2 reads as follows:
"The designated beneficiary generally does not have to include in income...." This specifically states who is eligible to receive a distribution, again, this is exactly how the trust rules work if you are familiar with them. This is considered a completed gift at the date of contribution and that has tax implications, which you would understand if you are familiar with the trust rules. The publication does not say the designated beneficary and/or anyone else, period. There is a reason for that. They state who can receive a distribution, not who can't receive a distribution.
There are also specific rules for transferring the account to another beneficiary, as well, which again has implications related to who can receive a distribution, ie, the new beneficiary.
The examples of distributions given in the Publication are all stated in terms of benefits going to the beneficiary.
Can you give any sort of citation in authoritative literature to support your position??