Welcome to the Board Grandma Moonchild! (What a great name!) :wink:
If you are going to "quilt as you go" on each 12.5" square, I would probably just cut the batting not more than 13" square, probably less even. Unless you're planning to do some really major quilting on each block, that should be plenty.
I think those grandkids are so lucky to be getting such a great memory quilt! :D
Good luck!
sue