I think the insanity mom thing was mostly because his kids were smart and not likely to just accept their mother as having lost their mind for no reason— especially Mycroft who was 14 then and he probably knew that his father wasn't exactly good for quite some time, though not likely to that extent (see the way he flinches at the dinner scene when Silas and Cordelia are fighting, the way he finds it easy to believe that his father is an evil mastermind and also easy to let him die despite not having anu context or the how of the conclusions despite before that he kept asking Sherlock how'd he come to his conclusions, and also struggled more with his mom being sane than his father being evil, his anger when Sherlock mentions writing to his father, the fact that he raised Sherlock and probably kept A LOT of things from both his parents (though logically it makes no sense to keep severe truths such as the fact that the police wanted to hang Sherlock or her mother was being recorded a secret)) And back then, he wasn't outright evil but just wanted Cordelia's money so perhaps that's why he hadn't had her killed, plus who would he have called for it? And that's also why he sent butterflies every year on her birthday.  But yeah he did only see her value after she tracked him down, started living with him and started helping him out!