That is sad. I would give the gifts as planned. the kids will be very pleased and happy and probably unaware of the decision of their parents. Gifts for parents if not personalized could be regifted.
If you feel uneasy now, find the youngest child to hand them out. or after all the fun just quietly put them under the tree when you leave. if anything is said you can say that they were from santas elves. no more explanation....let them now feel bad or grinch like