I would go with option #2. I think your children are old enough to know that they had an aunt and she died, and if they ask why, say she made some choices that impacted her health.
Option #1 is kind of a not so wise way to go, if you ask me... Teenagers can be funny about things like not knowing some very basic family history. I know if I were in your children's shoes in about 10 years from now, and you suddenly dropped a bombshell about having an aunt I was never told about who died of drugs and whatnot, I would likely be very offended that I'd never been clued in that my mother had a sister and also would not be very likely to listen to any moral lesson that might be attached to her death because my mother hadn't thought her important enough to mention sooner, thus what she did or didn't do probably wasn't that important either.
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nikkiana
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