I don't really care what's fair or acceptable to the adults. I care about what's fair to the kids, and all I see here is a couple of (probably fairly young) kids being punished because the family does not approve of new SiL or the marriage. Seriously, the LW is advising her daughter to donate the money rather than give into "this bitch" and their uncle. WTF is even up with that? Has the family been treating these kids like Westerosian bastards this whole time? (Yeah, been reading GoT fanfic, and I am flashing on Catelyn Stark and Jon Snow so hard.) There's not one solitary word about those children, what they're like, what their future plans might be, let alone even the smallest measure of affection. The only thing keeping LW in check is how it's hurting their parents, but it's the brother and new SiL who are pitting the grandchildren against each other?

Legally, assuming that the wording of the bequest was specific, no one has a claim on the money but the two granddaughters (although I'd be interested in how a court would rule on that). But when the daughter, both generously and fairly, wants to share the money and her parent is advising against it out of what seems like pure spite, I kind of want to take the younger kids out for ice cream once a week to assure them that they do not deserve this treatment.