Should I set up some sort of LLC to protect my personal assets?

That being said you are welcome to use my public portal to look into the MLS for your area (NY agents have access to the whole state MLS).

I just want to do the right thing, while protecting the property and my tenants in the other unit.   

To bear on the safe side and protect your investment, I would recommend Yes.

If there's no relative, then probate will likely be handled by public administrator and they'd be in charge of auctioning off the house. 

I'm buying with my sister-in-law and need to think of ways to protect ourselves or myself.

It will make financing more expensive and unless you have a lot of net worth, isn't really protecting anything.

Can you show that this transaction is against statutory law, case law, or against public policy?

Both entities provide protection inside the entity. 

I have done a bit of searching about this on here and have not been able to find a consolidated thread on the advantages/disadvantages and protections needed for both parties in the process.The property is unique and I would plan to have it as a long term rental as it provides good cash flow and will be even better if I can add an additional unit as planned.I am looking to possibly do this on a small multi family property.