My brother-in-law has 2 children with his ex-wife, who was recently diagnosed with cancer. In the event she passes away, would placement automatically be given to him or can she legally sign it over to her parents?

If he has any type of legal custody (physical helps too) the court will generally award the father custody. The mother can indicate in her will or living will who she wants to get the kids but it's up to a judge not her.

That's what I had figured, but you never know with the judges these days...