I have a question about a grandfather using EE savings bonds (from late 90's on) to fund a 529 plan for his grandchildren (both enrolled in graduate schools that are eligible educational institutions.
We followed an article called "Saving the 'Bond' Between Grandparents and Grandkids" (published 2004, updated 2015) which suggested a strategy from Joe Hurley - cash the bonds, use the cash to set up 529 plan for grandfather, then transfer the grandfather 529 funds to 529 plans for the two grandchildren. In the article, Mr. says that using the cash to fund a 529 plan for the grandfather is all you need to comply with form 8815. "A contribution to a 529 plan that names the contributor, his/her spouse, or a dependent as the beneficiary is treated as a qualified higher education expense for purposes of the bond interest exclusion." He does concede that gift tax may apply, but it would not in our case (the grandfather contributed a little over $10,000 per grandchild.
The question is, how do we fill out the form 8815, when it provides "Name of person (you, your spouse, or your dependent [the grandchildren are not dependents in this instance]) who was enrolled at or attended an eligible educational institution." Then separately, it asks for each person, the "Name and address of eligible educational institution." I understand that Mr. Hurley has suggested that naming the grandfather as beneficiary of the 529 plan seems to work (including in several message board threads on this web site). Do we also name the grandchildren, who are the ones who are enrolled in an eligible institution? And what do we fill in for the names of the eligible institutions?
Our tax accountant has suggested he can't do this because he considers changing the beneficiaries from grandfather to grandchild would be a "step transaction," which would not stand up to an IRS challenges of "substance over form" and "step transactions."
I think our tax accountant is wrong. But do you have any advice on filling out the form or responding to his concern about a "step transaction"?