It would probably be easier to transfer the account owner from the grandparent to the new account owner without distributing the assets. Each plan does this a little differently, and not all plans allow it, so you'll need to check with your provider.
You can view account owner transfer policies here: http://www.savingforcollege.com/compare_529_plans/index.php?plan_question_ids%5B%5D=78&mode=Compare&page=compare_plan_questions&plan_type_id=1
If your plan does not allow account owner changes, come on back!
VP, Research & Development
This information does not constitute tax advice and is provided for informational purposes only. Please consult your tax advisor, financial advisor, local taxing authority, and/or plan provider or sponsor for more information.