If you had a hardship or other situation that kept you from getting health insurance in 2017, you can apply for a penalty exemption at www.healthcare.gov.  (The death of a family member is a qualifying hardship.)

In the Health Care interview, after you enter the months that your niece and nephew did have health insurance, TurboTax asks the question "Did anyone have a situation that waives the tax penalty for being uninsured?"

Scroll to the bottom and choose "Had a hardship."  If approved, you'll qualify to get back all or some of your penalty. 

And no, you do not need to include your niece and nephew's Social Security income on your return. 

My condolences on the loss of your brother or sister.

[ edited 2.19.18 | 3:58 pm]