Your thoughts, insights and facepunches, if necessary, are welcome.
Okay! Two ideas.
1:
And, I will have to pay taxes on any money that I withdraw for them. Not going to cash out 9k(-ish) of my hard-earned green soldiers so I can give them a 7k lump sum.
Pay the taxes out of what you were going to give them. Had you invested in their names, they'd have had to pay taxes when selling and cashing out, and that money would have come from the account. So there shouldn't be any difference between investing it in their name, and them cashing it out, paying the taxes, and having the net to spend, or you cashing it out, paying the taxes, and giving them the net to plan with.
2:
I know I could just give them mileage and hotel points, but that would just be me planning their trip for them, where is the life-skill enhancement in that? Your thoughts, insights and facepunches, if necessary, are welcome.
Why does that mean you'll be planning the trip for them?
Tell them the type of hotel points you have, and the type of airline points. Let them research the travel partners that can use those. Let them research routes, and plan an itinerary. Find those hotels in different cities. Find routes between them. Etc.
Let them research places, and how to get there.
I don't know why using miles and hotel points means you need to plan it for them.
That sounds like a great solution to me, and often giving constraints like that helps it 1) Not be overwhelming with too much possibility, and 2) Foster creativity within those constraints.
It sounds like an awesome gift to me, both the trip, and the idea for them to plan it! :)