Boy, you have a tough decision here. Not all Yorkies like kids even if they have been raised with them but that is another issue. I also don't like that Skittles is bearing her teeth at you..this leaves me to believe that she believes she is the leader of the pack.
I think first you need a vet checkup to make sure nothing is wrong with Skittles and then ask your vet if he/she can recommend a behavorist or a POSITIVE trainer. Please do not try to show dominance over Skittles as it will only raise her aggressive stance.
Having been involved with Yorkie rescue (I have 3 that came through rescue that are fear aggressive biters and 2 bit children) I have seen this problem more than I would care to see and it is not something that will just go away. Skittles is still young and can be retrained but it will take a lot of dedication on your part and you will have to decide what you can do.
If you have any questions that I can help you with please ask.
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