I think so. It's really never happened in any account I have dealt with, so it's not something I have considered. I don't know if it work different than what you're saying here, just that I can't think of a single person who has been in that position with me.
As you note the money is taxable to the beneficiary as well, so the taxes are basically a non-factor because the beneficiary has tuition and other education deductions to put against it.
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