Your grandchild is the beneficiary's niece and that is mentioned at https://fairmark.com/kids-and-college/coverdell-accounts/changing-beneficiary/
"For this purpose, the beneficiary’s family is broadly defined. All of the following are included:
- The beneficiary’s child, grandchild or stepchild.
- A brother, sister, stepbrother or stepsister of the beneficiary.
- A son or daughter of the beneficiary’s brother or sister (in other words, a niece or nephew of the beneficiary).
- The father, mother, grandfather, grandmother, stepfather or stepmother of the beneficiary. (Remember, though, the new beneficiary generally has to be under 30 years of age — a very young grandparent!)
- A brother or sister of the beneficiary’s father or mother (in other words, an aunt or uncle of the beneficiary).
- The beneficiary’s spouse, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.
- The beneficiary’s first cousin."
