Does the husband incur sin if he ceases to demand the inheritance of his two daughters from their deceased mother, in order to avoid disputes with the wife's family and to maintain kinship ties, knowing that he is their guardian and not the owner of the money?

The father has more right to guardianship over his two daughters' wealth than their maternal grandfather, unless he is incompetent (safih), and this is by the consensus of jurists. The father must preserve his daughters' wealth, invest it, and spend from it on them.

If you are certain of your wife's father's dishonesty regarding the two girls' inheritance, you must strive to retrieve their rights from him, for the Prophet, peace and blessings be upon him, said: "Indeed, all of you are shepherds, and all of you are responsible for your flock." The Prophet, peace and blessings be upon him, warned against squandering this trust, saying: "There is no servant whom Allah entrusts with a flock, and he dies on the day he dies while being deceitful to his flock, but Allah forbids Paradise for him."

Therefore, do not neglect the girls' right and be keen to achieve their best interest without creating a problem with the grandfather. Speak to him politely and seek the help of someone who holds influence with him.