I tried to reassure Mom by saying she must have had a vivid dream, so it feels real to her. She is also imagining that her brother's wife took things from her sister's home. I wonder what is happening in Mom's brain that is causing her to believe these stories.
When she sees the Neurologist, does he rely on only her responses or do you inform him of things she doing, such as incorrectly remembering someone's death and making false accusations against them. Does she have any other oddities that you have observed? Any, weight loss, lack of hygiene, loss of interest in activities, writing notes to herself, searching for the right word that is hard for her to find, agitation, etc?
Some people who have dementia also have depression. I'd discuss the med he's prescribed her and see if it's benefiting her. My mom takes Lexapro and it really has helped her mental state. (She doesn't have dementia.)
At that point we made an appointment for mom to see another Neurologist with a different Group. After her appointment the other day, she is not scheduled until a year from now. With this new group she was evaluated by a Dr. once, and since has be seeing a specialist in gerontology.
Delusions or incorrect memories are quite common with these conditions. But, it's wise to report any change in mental status to her doctor. She could have a UTI or something else that is causing it.
If it is the dementia, I'd just try to assure and comfort her. Trying to explain how long since her sister died really isn't likely to work. The brain often does allow new information like that, so, I'd try to agree with beliefs, comfort her and then distract with a new topic. Such as, yes, we miss her and love her, but, she was such a wonderful person. Can you help me sort some Christmas cards to send to friends and family? Just something to get her mind on other happier subjects.