It's difficult for any of us to assess what's really going on here. My 16 year old, very patient and Kindly old dog, could have been described at 'attacking' the puppy who joined our two older dogs. In truth, he was ensuring the pushy pup learned some manners before he was allowed to join the existing dogs on the large dog bed.
The significant issue is the OP doesn't trust the 5 year old dog. She kennels the dog when her grandchildren visit "for fear of her unpredictable behaviour. The feelings of guilt are enormous. but how long before something catastrophic happens"
Those are very clear statements from the OP and I'm not sure its helpful to her (or her dog) for posters to insist that she continues to care for this dog. I also agree totally with NannyandGrampy that not all dogs are suitable for re-homing and should be euthanised. I've never had to do this with any of my dogs. However, my vet and behaviourist both told me that the pushy puppy referred to above would have been re-homed or pts had he not been with me/someone like me, because of his reactivity and complexity. He was well bred, well socialised etc etc but by age 2, I was in despair. He is the same age as the OP's dog now and doing brilliantly but he will never be the laid back, chilled and rock solid temperament dog I'd hoped for and always had in the past. I've rescued and fostered dogs that were easier to turn round than my much loved young dog. I wish the OP well in whatever decision she makes. Her post shows she cares about her pets and recognises something has to change.