Or does this end up falling into the gift category and more taxes need to be paid by our parents?
If the grandchildren are not mentioned in the will or trust as beneficiaries but only a request was made by the grandparents, then it definitely falls within the gift category.
The gift would be from the parents to their children and then would need to file a gift tax return if the gift exceeded the annual exclusion amount which is currently $18,000 per person per donee.
