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And you said that you "feel like we have no other choice than to keep her at" your home, but thank God you actually do have choices.
Now they may not be choices that she or you will like, but if you and your family want to keep your sanity, then it's time to be looking into assisted living facilities that take Medicaid for your MIL to move into. And make sure that the facility also has a memory care unit attached as she will eventually be moved there as her dementia progresses.
There is nothing easy about dealing with someone with any of the dementias, and there is no cure. Your MIL will only get worse, and it's not really fair to you or your family to have to deal with her hands on care. Instead let the folks that are trained in dealing with demented folks handle her care, so you and your family can just get back to being loving family members and not stressed out, sanity losing, overwhelmed caregivers.
Who diagnosed her dementia?
Have you set her up with a new doctor in your location to check if she's got a UTI, which can greatly exacerbate dementia symptoms? Urgent care can do this as well.
Is she on Medicaid? It sounds as though she needs to be in a facility and Medicaid will pay for Long Term Care if she qualifies both medically and financially.
Getting her to a geriatric psychiatrist for an evaluation for medication to help with agitation is something else to consider.
As to the way in which she was moved with no forewarning, given that you describe her as having "pretty much her wits about her to know what's going on", I don't agree that it was well done.
I also think that you may not win in court if you attempt guardianship or to impose you will as POA upon this woman. The courts are loathe to take a citizen's rights from him or her.
As to your option of taking her into your own home I hope it works out for all, has been very carefully thought out, and that there is a good care contract with shared living expenses in it. Whether you put that money into a separate account for your MIL or not, that should be done, so she feels a part of your household. I hope also that it has been thoroughly discussed with your children. Especially for your youngest, who needs your care, I think again that this isn't such a good idea. However, only YOU can make choices for your own family and your own life.
I wish good luck to all. Don't expect there to be no tears. Is this loss for her not worth her grief, her tears and her mourning? Is it not worth it for you all?
Most people don't have money saved for long term care.
You have an obvious stubborn senior who will only get worse. Why do you believe you are responsible? The longer she stays there with you, it becomes her home and very hard to get her out. You need permission from her Doctors to find out exactly what is going on.
Don't destroy your family life by thinking you have to keep her there. You need to coordinate with her Doctors for help in getting her off the road driving, and into into a facility. Act like you really want to meet her Doctor, but need a form signed.
Good thing she wants to see her Doctors often, instead of refusing to see them like most Seniors with dementia. That's half the battle.
Giver her a clear choice of going into a facility or staying with you and work on making it happen as best as you can.
1. See her doctor and ask her doctor to have a conversation with her about her condition and how it's time to have more support, more than likely she will listen to her doctor.
2. If she has medical insurance call them, they can often times provide assistance finding a long term care facility that is right for her, or options for care at home with home health aid, or adult day care, meal deliveries, etc.
good luck
https://www.agingcare.com/discussions/an-excellent-example-of-why-home-care-doesnt-work-485569.htm?orderby=oldest
And this one:
https://www.agingcare.com/discussions/if-you-are-going-to-become-a-caregiver-480769.htm?orderby=oldest&page=1