You can INSURE up to $900,000 in CD in a couple's name (at a single institution) like this (the IRA may not apply, but I will put it in here for completeness):
HIS name IRA up to $250,000; HER name IRA up to $250,000. His name IO (Individual ownership), up to $100,000 (and HE can name his spouse as beneficiary or the grandkids (either first or subsequent beneficiaries); Her name IO (Individual ownership), up to $100,000 (and SHE can name her spouse as beneficiary or the grandkids (either first or subsequent beneficiaries). Then they EACH can then have another $100,000 held by both of them JOINTLY in HER account and another $100,000 in HIS account these also can name grandkids as beneficiaries. This adds up to $900,000 at a single institution and the taxes are paid by Grandma and Grandpa (depending on whose name the account is in). Of course if they file a joint income tax return the taxes due, if any, would be on the joint return.
I am not sure naming the grandkids as primary beneficiaries will avoid probate in each and every state and under every circumstance - they really should check with an appropriate attorney. Also, depending on the amount of money involved, probate may be mute. However, they could hold the CD's in JOINT ownership with the grandkids with right of survivorship and then the money would pass without probate -- BUT the grandkids could cash the CD's with out Grandma or Grandpa's permission.
In any event, from what you said, they may want to get some legal direction as they may be creating more problems somewhere down the line. For instance if Grandpa owns a CD and puts Grandkid #1 on as primary beneficiary, and he dies, the money WILL legally belong to the child and not the surviving spouse, which maybe not be what he wants to have happen. However, from the information you gave, THEY (Grandma and/or Grandpa) are liable for the taxes -- the 1099's are issued in the owner's name.
Vietnam Veteran, CW4 USA, Retired 1979