It is unclear from your question whether the house and monies are in an estate or a trust - either way, 42 months is a long time if the Trust or Estate is ready to be distributed, which it sounds like from your question is the case. If you are one of the three beneficiaries, you could petition the probate court (if it is in an estate) for the Personal Representative to provide and accounting and distribute the funds. If it is actually held in a Trust, you can still petition the court, through...
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You could suggest that he resign, leaving you as the remaining sole trustee. If he doesn't agree, you would have to ask the court to require him to resign for failing to fulfill his fiduciary duties. If he doesn't want to resign and leave you as the sole trustee perhaps you could agree to both resign in favor of a professional trustee who could wind things up.
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This sounds like a question regarding a guardian ad litem in a dissolution or family law type case. You should also post this question on the family law section if you haven't already. Generally the order appointing a guardian ad litem will set forth the time period by which he or she needs to complete the report. Also, I would recommend that you retaina lawyer if you have not already to assist you with getting some visitation rights to your daughter - at least on a supervised basis.
Emails, like any correspondence, are subject to discovery, unless the communication is protected by some privilege such as attorney/client privelege. Whether they can be used as evidence depends upon whether there is an exception to the hearsay rule.
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I'm not sure what your question is, but in this scenario I would suggest filing a petition to have the Trustee removed from his position of Trustee and another appointed. Then I would seek an order requirin the Trustee to submit an accounting to the court and ask for clarification of how the funds were spent. If spent inappropriately a court order or judgment could possibly be obtained requiring the Trustee to pay back the funds that were misused.
I believe your questions also requires the expertise of someone versed in family law, not just guardianship. The father has certain parental rights which are independent and separate from guardianship. I recommend that your friend seek the assitance of a family law attorney to sort out the parental / custody issues right away.
I agree that you need to retain a lawyer to handle this - even if you can get the eldest child to agree. If you sister left a Will she may have nominated someone to become guardian of her minor children in the event of her death. If so, that would give you an advantage but you will need to file a Petition for Guardianship in any event. You may also consider filing a Third Party Custody Action.