There is a great book alled "Telling the truth to Your Adopted or Foster Child." by Jayne Schooler and Betsy Keifer. I recommend it highly. Not telling the child who his birthmother is can severly damage any trusting relationship you have with your son.
If your sister needs help with dealing with the relationship with her son, please have her contact me. Being a birthmother is a tough role...having support in that role from other birthparents is essential. Take a look at the website. There are a couple of pocket guides that might make it easier for her to understand her importance even if she is not parenting.....
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Brenda Romanchik, Director
Insight: Open Adoption Resources and Support
721 Hawthorne
Royal Oak, MI 48067
Phone/fax: 248-543-0997
Expectant parent/Birthparent Resource line: 877-879-0669
Website
http://www.openadoptioninsight.org
brenr@openadoptioninsight.org