This answer has the caveat that I practice in Florida and not in Oregon. In Florida, the proper procedure is to petition the probate court to be appointed plenary guardian. Plenary just means that you are both the guardian of the person and the property. As a plenary guardian you will be able to make all decisions regarding your nephew without extinguishing your sister in law's parental rights and obligations. If you want to extinguish her rights, an adoption is required. Be warned though, if you adopt, the nephew is legally your child with all the rights and obligations that comes with being a parent. That includes being an heir to your estate and in the event of separation, child support obligations. Guardianship has none of those personal responsibilities.
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