If you are asking if your situation will allow your wife to avoid paying an early distribution penalty on the money that she withdrew from her IRA to help her sister, sadly, the answer is no.
The health expenses would qualify if only they were for your wife (and you), and only the amount in excess of 7.5% of your AGI would be exempted anyway.
The "death" referred to in the chart in the IRS's Exceptions to Tax on Early Distributions would be the death of the IRA owner, which is your wife, not your late sister-in-law.
[Edited 4/2/2020 2:54 pm CDT - updated for 2019]
