Sorry to hear about your dilema. I thought they were living with you in your guest house(?). That sounded like an exceptionally good situation for all.
The fact that your FIL is becoming weaker and unable to help with the transfers does make this very difficult, as even you and your DH will probably have a difficult time trying to care for him unless you have substantial outside help.
This is a horrible thing to be dealing with, and dementia makes it so much worse. I wish the best for you and everyone else involved. Getting old is no fun. 🙁