Before I adopted my daughter she was a foster child and had court ordered visits with her birth mother. She was 7 when this started with me. She was always upset after each visit and it took us a couple of days to a week to get settled down again. She was cranky and distant with me. My foster daughter had been removed and returned to her mother several times since she was 2 or 3.
Because this is the first time with your neice it's hard to know how she'll react. You have voiced some possibilities. I suggest that if the visit is explained to her as a visit it will go better. My daughter's birth mother always talked about when she would come home.
I also suggest, that unless you're fairly certain she's not going to show, that you do prepare her before you take her to your mother's house. It will help your niece accept that you're all family and perhaps feel less caught in the middle if you can be present, not necessarily in the room, during the visit.
Explain the visit in simple terms in a calm everyday voice. Say something like, your mom is coming over to grandma's house to visit with you. When the visit is over, I'll come get you and we'll go home. She doesn't need to know the details, legal and otherwise
I found that it helped to do something fun after each visit. We would sometimes stop for a Happy Meal at McDonalds. Or since she was 7 we would stop at the store to run an errand. (p/u groceries or something else we'd planned to buy.) My focus would be on her and allowing her to talk. It's easier to talk about tense things while doing something else. I didn't buy her toys but a treat, such as an ice cream cone was good..
It's important to encourage her to talk about her mother both before and after. I think it's important to talk with her before the visit, in general terms, about her mother and what she remembers about her. Remind her that Mom loves her. Tell her you love her too. Be as natural as you can.
I suggest, that unless your sister is insensitive, the visit will go well and that your niece will be fine. Remember she doesn't know the seriousness of it all. This is just a visit.