Praise be to Allaah.
If the mother inherited from her deceased daughter, then
the mother dies, her share of her daughter’s estate does not go back to
the children of this daughter and they do not inherit from her; rather it
is inherited by her (the mother’s) legitimate heirs who inherit from her
by means of their allocated share (fard) or by being residuary heirs (‘asaabah).
As for her daughter’s children, they do not inherit from her because they
are dhawu’l-arhaam (distant relatives through the female), and
dhawu’l-arhaam do not inherit except in the case when there are no heirs
with allocated shares or residuary heirs.
Ibn Qudaamah (may Allah have mercy on him) said: If the
deceased leaves behind residuary heirs or heirs who are entitled to an
allocated share, they take all the wealth and there is nothing for
dhawu’l-arhaam. This is the view of most of those who say that
dhawu’l-arhaam may inherit. End quote. al-Mughni, 6/209
The questioner says “they are the most entitled of people to
their mother’s wealth.” But it should be noted that the wealth is not
regarded as belonging to their mother any more, because when a person dies
his wealth or property is transferred to his heirs and Allah, may He be
exalted, has given each person his right.
He also says “because they are orphans from their mother's
side”. This is also subject to further discussion, because the yateem
or orphan (in shar‘i terminology) is the one whose father has died and is
below the age of puberty. Ibn al-Sikkeet said: The orphan is the one whose
father has died; the one who has lost his mother is not called an orphan.
See: al-Mawsoo‘ah al-Fiqhiyyah, 45/254
And Allah knows best.