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If you can trust the grandparents (not everyone can), then I would give them the money to put into a 529 plan that they own with your child as a beneficiary.
Grandparent owned 529 will not count as an asset on FAFSA- but a distribution from them will count as untaxed income, so best to use the funds from a grandparent-owned 529 later in their college career so that by the time the "income" would show up, they aren't doing FAFSA anymore.

If you want to stick with Coverdell - or at least continue to put money in it - your child can contribute to their account with money you've given them. - Assuming they don't have over $95k in adj gross income :)
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