This is a tricky one. We found it very hard indeed, as my family is mainly elderly, but we eventually settled on asking DH's brother and his wife to look after DD if we both died. They live in Australia. My 82-year old mother, who loves her very much, but who is too frail to look after her, would lose regular contact with her and they also have rather different values from us, but we decided that this was much less important than our being able to feel confident that she would be loved and properly cared for.
We have not specified who the children should go to but have put 2 people - my sister and dh's sister - as guardians to decide at the time where they should go. This is because if it's sooner rather than later then they would go to my sister probably as she has no kids yet, or to a set of parents as they are still young enough to cope. A bit further down the line then the situation may have changed parents might not be able to cope, my sister might have a young family etc.
We have specifed that they have to be kept together, and are quite confident that between the 2 of them they will make the right decision. And it means that we don't have to keep changing it as situations change.
How many children do you have? It would be traumatic enough losing you, and they'd probably need/cling to each other if you died, so if at all possible, I wouldn't split them up.
I chose a cousin who I'm close to, and my oldest/dearest friend. Both are mums, so they know what is needed in being a parent/surrogate. Both also have values and beliefs similar to mine, so I have some idea of how dd would be brought up. I think my sisters (childless) and oldest ( also childless) friend were initially unhappy with my decision (as both kindly volunteered), but I didn't think they could be thrown in at the deep end...so to speak.
I was asked to be a designated custodian by close friends. After much thought, I told them they should probably go with someone else as their son probably would suffer having to move hundreds of miles away from home/friends. It was a tough thing to verbalise, because I would do almost anything for those friends, and of course was afraid of offending them. But, they conceded that I was probably right when they'd given it more thought.
It was never any question, DD would go and live w/my sister and her family in the US. We don't want her brought up there, but my sister is really the only choice - stable home, she's a teacher, has two lovely dd's, and gorgeous home, etc. DH's siblings are not suitable - brother single and lives at home at 28, sister is a drug user.
This is a real toughie IMO. We chose dh's brother as guardian to make the best decision in the circumstances (brainy legal chappie,2 kids same age as ours but quite different values and lifestyle, divorced, now remarried with baby. Don't think his new wife would want to take in my two). Most likely outcome is my (married with kids) sis in Australia would come to the rescue. Wouldn't like to see them separated but I have a feeling that as they get older this is a likely possibility. Ds 17 and dd 12 are of an age where their views would have to be considered. The whole question has always worried me dreadfully but I trust my BIL to decide what's best.