This can be so difficult when someone has dementia. They may forget on a daily or even hourly basis that someone has died, and if you have to keep reminding them however gently, it can upset them terribly over and over again.
Some people think it is wrong, but personally I would say whatever will cause the least distress, especially if short term memory is already very bad and you are going to have to keep on saying it.
It is not quite the same, since my MIL had been dead for some years, but when my FIL suddenly started asking where she was, of course we explained gently that she had died a while ago. But he was so terribly upset, and so we soon learned to say, oh, she's just gone to the shops, or,she's just gone to see so and so, and he'd be quite happy. And because his short term memory was already so bad, he never remembered that we'd said the same before. As I said, some people think this is wrong and that you should always tell the truth in such matters, but I can't say I agree, not when it causes a lot of distress over and over.
I do hope you find a way that doesn't upset the poor lady too much. It can be a case of playing it by ear, and only someone close to her, like you, will be able to sense what is best.
PS, just a thought, but depending on how advanced her dementia is,could you say he's gone to see his parents? Which would not exactly be a fib! My mother went through a stage of constantly asking to see her parents (she was over 90 at the time) and she was so bad by then I know I could have said, well, not today since they've gone to see your grandma! But I just used to say I'd give them a ring later and see when they'd like us to go, and she'd be quite happy for the moment.