Thanks Ladies.

My dad is pretty good about whatever I choose to do with money he sends the girls, but MIL, well she is very insistent it goes to the bank account and we are NOT to touch it. This also applies to money sent by her parents.
It makes it hard when they might get say $100 from both side of the family, then we say they can spend $20 and we bank the rest, who's gift are they kids spending??

To clarify, I once talked about a hypothetical situation with MIL about childrens' money and what other families do. She took it that I pocket the kids money and use it to pay the mortgage. She has been paranoid ever since then. I am tempted to tell her to start a bank account for the girls herself and leave us out of it. There will be a point where we will need to take the kids money and put it in our mortgage, otherwise they will be taxed on the interest. I am not looking forward to that day and having to explain that one to her
So in that situation if you and the children are never to touch it then actually yes I think she should manage it - I suppose that is what my IL's are doing. I know I would find it very difficult to not be able to make decisions about how best to use the money to the children's benefit but then also have to deal with making sure it isn't taxed etc.

Oh and yes the same gift frequently comes from more than one person - they don't meet they will never know, quite a few people have given zoo memberships to the children.