I agree that if you have a lot of reservations, and so does your DH, then don't do it.
To soften the blow, let her know how very much you appreciate her offer, but that at this time, it makes more sense for your family to stick with one caregiver for the whole family, and for the kids to stay together. Also, specifically make sure to ask for her help where you feel that you can safely do so---she clearly wants to help, and if you can offer her that chance, it will make her happy :). And don't forget to include her in activities with the kids--could be something like, going to Grandma's to bake cookies, or do a fun craft, or run through the sprinkler, etc., or have the family go together for an outing, like a picnic or invite her to come and watch the girls play sports, etc.