CTL: If I remember correctly you have had family “celebrations” this past year (bris of a grandson) so a family get together may not necessarily trigger bad memories in the minds of the younger grandchildren. I am not a psychologist so I am not talking with any specialized training.
I can understand Mrs. CTL’s feelings as my father’s petirah was two weeks before chanukah and I was far from being in a celebratory mood.
Since your wife has already expressed certain feelings, maybe it would be a good idea to move the seudos to one of your children, but have them ask your wife to come help with preparations. My .02
Either way your family should have a nechomah from the petirah of Mrs. CTL’s mother and may she be a “MELITZAH YESHARAH” for your entire mishpacha.