Hi, I'd like to help you with your question.
It is very unusual for a therapist to advise someone to consider a relative dead if they are having relationship troubles. A therapist should be guided by the person they are working with as to how they want to resolve the issue. Also, a therapist usually encourages the person to try to make amends, not consider someone dead.
It is also ill advised that the therapist told your wife to tell others that her daughter is dead. That is not only misleading, it can cause your wife grief and force her to explain her situation if someone asks, which can be traumatizing.
The fact that the therapist will not allow you to be part of the sessions is ok only if your wife asks that you not be part of them. Otherwise, it usually is helpful to invite family members in if there are issues that warrant it or for support.
Your wife may need to seek another therapist for a second opinion. This situation sounds very odd and unusual and may not be benefiting your wife as it should be.
I hope this helps you, Kate
You can show up with your wife to a session if your wife is ok with that. But your wife can also convey her feelings about this situation as well. Does she feel she needs to stop seeing this therapist? If so, she can just cancel the appointment and tell the therapist she is moving on. The new therapist can help your wife sort out the damage from this current situation.