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It seemed that Lily, although saddened to be separated from Victoria, was glad to be with Mama and was happier with her. In that sense, truly, she was Mama's daughter, and Mama and Lily were one.
Mama jumps off the cliff with just Lilly, and upon hitting the branch, Mama and Lilly turn into a shower of butterflies. The movie ends with Victoria realizing that one of the butterflies watching over her is in fact Lilly, perhaps referencing a ghostly regret of Victoria not going with her.