Grandparent Gifting $60K for College Education "Leverage Option?"

[Brian K Akamine]

Does anyone have Legal/Tax advice? 

I'm crunching some numbers and would like to propose to my mother-in-law who has already allocated in her estate plans to gift our two daughters $30K each (x2=$60K) for their college education.  We have 6-8 years until they graduate college as a timeline.  

I'd like to propose to her if she would advance the $60K to use to pay off the first mortgage on a rental property which would then create an immediate monthly net cash-flow of $500 or $6000 annually.  This would be invested into a 529 Tax-Free College Savings Plan.  This strategy leverages a predetermined gift of $60K and makes it "work" immediately by creating cash-flow which in turn is invested in a tax-free college plan.  Thus, equity in the property is available by means of a Home Equity Line of Credit to have available to offset costs along the way or on an as needed basis.  

With this said, does anyone know how we'd have to approach the initial $60K to be used to pay-off the mortgage?  Would this be treated like a private lender?  However, it's not a loan but rather an intended gift for college but just channeled in a different way and advanced before they graduate college.   

Can you offer advice?

Thanks,

Brian

INITIAL INVESTMENT ($30k for each daughter)	$60,000.00	AVG ANNUAL INTEREST
ANNUAL CASH FLOW AVG	$6,000.00	10.0%
NUMBER OF YEARS INTO 529 ACCOUNT WHEN YOUNGEST GRADUATES COLLEGE (2021)	8
PROPERTY MARKET VALUE	$134,089.00
EQUITY AVAILABLE 75% LTV	$100,566.75	ACCUMULATIVE INTEREST RATE OF RETURN
NET INCOME PROFIT	$48,000.00	80%
TOTAL ACCUMULATIVE NET INCOME	$108,000.00