My daughter has had to be moved from Ky to AZ because she has become suicidal due to a trauma she had a few years ago which has just hit her hard. She is in a mental health facility getting help and she will not be returning to KY. Can she legally break the lease due to her mental/medical status and because she is unemployed now and not living in the state.

Nope. The only time a medical issue can be grounds for breaking the lease is if its caused by a condition the landlord allowed (i.e. mold etc.)

On the other hand, if the landlord is sent a letter from her doctor stating that she has been institutionalized indefinitely then the landlord is left with little choice. She will still owe rental until the landlord finds a new tenant. And, if the landlord decides to sue for any unpaid rental he will likely win. He will also be able to use her security deposit towards unpaid rentals. But I can't really see a landlord wasting the time and money to pursue it. I would clean her things out before sending the letter.