For the sake of discussion though, whether the distribution goes directly from the account to the school or flows through the owner who would then pay for the designated beneficiary's qualified expenses is merely a form factor.  The substance remains the same and the latter still operates within the confines of §529(c)(3), which does not provide for a different gift or estate tax treatment.

In fact, when §529 was first enacted as part of Small Business Job Protection Act of 1996, contributions to the program were treated as incomplete gift until distribution.  Similarly, such contribution were to be included in the contributor's estate.  These were subsequently amended and the current section reflects a completely different view of how the contributions and assets in such account are treated for gift and estate tax purposes.

IMHO, it would be difficult to argue that one can bifurcate on the treatment of these contributions being a complete gift while taking advantage of the tax-free treatment of the plan's earnings and distribution.

Outside the tax realm, for purposes of FAFSA, however, I can see that 529 is treated differently.  But given how the tax treatments are codified and in light of the legislative history, I am not so sure that is a tenable position.