The other options would be to undo the transfer and then work with her to sell it, so she could take the $500k tax free (if married, or if she's widowed and her husband died not more than 2 years ago, and they met the ownership and use tests immediately prior to his death...sorry this is getting morbid).

Do we a) spend the money and put in two rooms and a master bath plus widows etc or b) just make the upstairs a master bedroom with an ensuite?

She is widowed, seemingly lives a very moderate lifestyle and yet has accumulated over $1M in property based assets and equity.

(The house has 24 widows) Both are a little older but totally operable condition. 

In the situation surrounding this particular house, however, there's no widow in despair.

We are working with a widow and currently gathering data.

You probably won't believe this, but yes, this is a true story...Back in my realtor days I was given a lead to a widow who lived about 45 mins away in a private community in horse country. 

Many of these houses would likely sale fail and get foreclosed if they were put on MLS.This most recent deal has been interesting and difficult.Owner is widowed 50 year old and wants to stay in home he raised his family in.  

I hear there is an elderly widow who still owns a house.

They're in no rush so it takes consistent mail outs until they decide to call.May want to try including older widows.