The eyesight may be a factor if it's failing, could make him more on edge about things he isn't sure of. Does his hearing seem ok to you, might be worth asking about, same reason as the eyesight really, even gentle dogs can be unpredictable if surprised. The dementia issue would also not help.
Speaking as a dog owner and lover and having seen canine dementia in several cases and how it can progress I would have to make the hard choice and PTS, if I get flamed for this so be it.
I'm not insensitive or saying just throw his life away but if it is dementia you will have to deal with the realities of it in a big dog who realistically at 12 is doing pretty well to have gotten this far (I know there will be one person out there with a 25 year old Great Dane or something but I'm talking about the rule not the exceptions).
Dementia can not only make them more irritable and aggressive, which I imagine are your main concerns, but can also cause confusion resulting in issues with their daily routine.
Your dog which may have been beautifully housebroken his entire life could start making a mess indoors, which with young kids running around is not ideal. They can suffer with anxiety, and disturbed sleep cycles as well due to this confusion.
This is a sad time because it's no ones fault you dog is ill, but they don't understand and it can often be kinder to let them go.
If the worst should happen and your dog accidentally turned on a child/jogger/visiting friend through sheer confusion and misplaced aggression, that choice could be taken out of your hands and be all the more distressing for it.
You say you don't think your dog would ever go for your children, but think of dementia in humans, some people don't recognise their own children or partner of 50 years, during an episode you dog may not be able to differentiate between his beloved family he brings toys to and a terrifying crawling thing that he has no idea about, he is an animal and the fear response can be overwhelming and as you said he is a large dog so it could be very serious (I've seen smaller dogs do pretty serious damage too..).
Not trying to be that bitch who tells you to PTS your pet but as far as options go it may be one you have to consider, maybe not now but if it progresses then in the future, you just need to be prepared so you can make the right choice for him if the time comes.
It's one of the hardest things we will ever have to do and it has to be made for the good of the dog.
I wish you luck and hope it's something treatable x