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Generally speaking the a trust fund with your granddaughter as the beneficiary would be the most efficient from a U.S. federal income tax perspective.
Basically you would want to keep the account out of your name (and her parents name) so that you are not taxed on the income the account generates. Since you granddaughter most likely won't be working for a while and won't earn enough income to meet the filing requirements for her own personal tax return there would be no tax due on the income earned. That is assuming her total investment income does not exceed $1,900.
If her total investment income exceeds $1,900 then there is a good chance the income would be taxed at her parents marginal tax rates. This is known as the kiddie tax. See link here for more information on the kiddie tax - http://www.irs.gov/taxtopics/tc553.html
In practice this is generally the best method of saving for children and grand children from an income tax perspective. (i.e. the trust account with the child as the beneficiary who has access to the funds at a certain age)
I hope this answers your questions. If not please let me know where I can assist further.
Got it!! Thanks